Qualified Business Income (QBI) Deduction
I.R.C § 199(A)
The Qualified Business Income Deduction (QBI Deduction), also called the Section 199A deduction, lets many owners of pass-through businesses deduct up to 20% of their business profit before that profit is taxed. Created by the Tax Cuts and Jobs Act and made permanent by the One Big Beautiful Bill Act in 2025, it is one of the most valuable tax breaks available to business owners.
A Simple Way to Understand
Qualified Business Income (QBI) Deduction
- The deduction lets many business owners take up to 20% off the income their business earns before their taxes are figured.
- Think of it like a store giving you 20% off at checkout. You bought the same items, but you owe less at the end.
- It applies to owners of pass-through businesses like sole proprietorships, partnerships, S corporations, and many LLCs.
- Some fields, such as medicine, law, and consulting, face income limits that can reduce or remove the deduction.
- When it applies, it can lower a tax bill by thousands of dollars a year without changing how the business is run.
Who Can Take the Qualified Business Income (QBI) Deduction?
A pass-through business is one whose profit passes through to your personal tax return, so the business itself pays no separate income tax.
- Sole Proprietorships
- Partnerships
- S Corporations
- Many LLCs
- Some Trusts & Estates
- Qualified REITs & PTPs
Who Cannot Take the Qualified Business Income (QBI) Deduction?
- C Corporation Income
- Wages You Earn as an Employee
What Counts as QBI?
Qualified business income is your net profit, meaning what is left after ordinary business expenses. It is the number at the bottom of your Schedule C, not your total sales at the top.
Counts as QBI
- Net profit from your trade or business
- Rental income when it rises to a real business
- Qualified REIT dividends and qualified PTP income
Does Not Count
- Capital gains and losses
- Dividends and non-business interest
- Reasonable pay from your own S corporation
- Guaranteed payments to partners
2026 Income Limits
Your taxable income decides how much of the deduction you keep. It is measured before the QBI deduction itself, and it uses taxable income, not adjusted gross income.
| Your Taxable Income | Single / Head of Household | Married Filing Jointly |
|---|---|---|
| Full 20% deduction, up to | $201,750 | $403,500 |
| Phase-in range width | $75,000 | $150,000 |
| Deduction fully gone above (service business) | $276,750 | $553,500 |
Does Your Type of Work Matter?
Below the threshold, your field does not matter. Above it, some fields are labeled Specified Service Trades or Businesses (SSTB), and their deduction phases down to zero once income passes the ceiling.
- Health, Law, Accounting, Actuarial Science, Consulting, Financial Services, Brokerage & Investing, Performing Arts, Athletics
- Engineering, Architecture
The Two Limits Above the Threshold
Once income passes the threshold, the tax code asks two questions, and each one can shrink the deduction.
1. The Service-Business Limit
If you own an SSTB and your income rises above the red-zone ceiling, your deduction drops to zero. Inside the phase-in range, only part of the deduction is lost.
2. The Wage and Property Limit
If your business is not an SSTB, your deduction above the threshold is capped by a formula tied to payroll and business property. This is why growing companies watch payroll closely.
(a) 50% of the W-2 wages your business pays, or
(b) 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified business property.
The New $400 Minimum (2026)
How Do I Claim a Qualified Business Income (QBI) Deduction?
Your business income is first reported where it normally goes: Schedule C for sole proprietors, Schedule E for owners of pass-through entities, or Schedule F for farmers. The deduction itself is then computed on one of two forms.
- Form 8995 — Simplified Computation: Use it when your taxable income is at or below your threshold. One short calculation.
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Form 8995-A — Full Computation: Use it when you are above the threshold, an SSTB inside the phase-in range, or a patron of an agricultural or horticultural cooperative. It walks through the wage and property limits.
199A Dividends From REITs
The 20% deduction is not only for business owners. It also applies to qualified REIT dividends, including those earned through professionally managed real estate funds and through a regulated investment company. The real estate component of the deduction equals 20% of the combined qualified REIT dividends and qualified publicly traded partnership income, and it can reduce both ordinary income and the tax on that income.
Try It For Yourself
Answer the fields below to figure out if you qualify.
Common Questions About the Qualified Business Income (QBI) Deduction
Is the phase-out based on my AGI or my taxable income?
Your taxable income, not your adjusted gross income. This trips people up often. The limits are measured against taxable income before the QBI deduction, which is usually a larger number than people picture.
Is my QBI figured before or after self-employment tax?
After. Your qualified business income is reduced by several self-employed write-offs before the 20% is applied, generally including the deductible part of self-employment tax, the self-employed health insurance deduction, and contributions to your own qualified retirement plan.
Do retirement contributions help or hurt my QBI deduction?
A contribution reduces your qualified business income, which trims the 20% figure slightly, but it also lowers your taxable income, which can keep you under the threshold and protect the full deduction. For higher earners near the limit, funding a SEP-IRA or Solo 401(k) is often a smart way to guard the benefit.
For example, is a chiropractor eligible for the QBI deduction?
It depends on income. Health is a specified service business, and chiropractic falls inside that field. Below the 2026 threshold, a chiropractor claims the full deduction like anyone else. Above the ceiling, the deduction for a health practice phases down to zero.
Can I take the QBI deduction if I live abroad?
Only for the right kind of income. The deduction applies to income from a trade or business operated within the United States. Income that is not effectively connected with a U.S. trade or business does not count. This is a fact-specific area, so confirm your situation before you file.
