Qualified Business Income Deduction: What it is & How it works
Learn how the Qualified Business Income (QBI) Deduction can cut your tax bill if you own a sole proprietorship, partnership, S corporation, or LLC. Qualified business owners (including self-employed people) can write-off up to 20% of their “qualified business income.” Also uncover the deduction’s limitations, exemptions, 2026 updates, and more with plenty of help examples.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The QBI Deduction allows eligible owners of pass-through entities – including sole proprietors, partnerships, S corporations, and certain LLCs – to deduct up to 20% of their qualified business income, REIT dividends, and income from publicly traded partnerships.
- The QBI Deduction is subject to various limitations based on taxable income, type of business (especially for a “specified service trade or business”), wages paid, and basis of depreciable property owned by the business.
- Business owners can sometimes “aggregate” multiple businesses and treat them as a single business to maximize the QBI Deduction, especially if the wage and property basis limitations apply.
- Depending on your taxable income and other factors, you must use either IRS Form 8995 or 8995-A to calculate and claim the QBI Deduction.
What is the Qualified Business Income (QBI) Deduction?
The Qualified Business Income (QBI) Deduction – sometimes called the “Section 199A Deduction” after the tax code section authorizing it – is a valuable federal income tax deduction available to certain small-business owners, including self-employed people.
The deduction was originally created by the Tax Cuts and Jobs Act of 2017 as a temporary tax break starting for the 2018 to 2025 tax years. But it was made permanent by the “One Big Beautiful Bill” (also known as Working Families Tax Cut), which was signed into law in July 2025.
Thanks to the QBI Deduction, eligible business owners can reduce their taxable income by up to 20% of their qualified business income, real estate investment trust (REIT) dividends, and income from publicly traded partnerships (PTPs). This can result in significant tax savings.
However, there are several requirements and limitations that can impact the amount of the QBI Deduction or your ability to claim it. Some are tied to your income, while others are based on the type of your business, wages paid to your employees, your business’s depreciable property, and other factors.
Who qualifies for the Qualified Business Income Deduction?
The deduction for qualified business income is generally available to owners of “pass-through” businesses (including self-employed owners), such as
- sole proprietorships
- partnerships (other than publicly traded partnerships)
- S corporations
- limited liability companies (LLCs) treated as a partnership, S corporation, or “disregarded entity” for tax purposes (taxes for disregarded entities are calculated as part of the owner's tax return like a sole proprietorship)
The deduction isn’t claimed by the pass-through business itself, but by the individual owner on their personal income tax return. However, if your business is a “specified service trade or business” (SSTB), the QBI Deduction could be reduced – potentially to $0. (We’ll discuss SSTBs in more detail in a minute.)
Some trusts and estates may also be able to take the deduction if they receive qualified business income.
C corporations and their shareholders don’t qualify for the deduction. “It’s also not available to W-2 wages earned by an employee,” according to Victoria Adams, an enrolled agent and TurboTax Expert based in Aberdeen, Wash.
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Who May Be Eligible for the QBI Deduction? |
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Employees |
❌ |
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Sole Proprietors |
✔️ |
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Partners in Partnership |
✔️ |
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C Corporation Shareholders |
❌ |
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S Corporation Shareholders |
✔️ |
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LLC Members – LLC taxed as a partnership or S-corp |
✔️ |
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LLC Members – LLC taxed as a C corporation |
❌ |
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LLC Members – LLC taxed as a disregarded entity |
✔️ |
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Trusts (if certain requirements are met) |
✔️ |
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Estates (if certain requirements are met) |
✔️ |
Note: Unlike C corporations, pass-through businesses aren’t subject to the federal income tax. Instead, their income, gains, losses, deductions, and credits are “passed through” to their owners. The owners, in turn, claim those items on their own tax returns.
How does the Qualified Business Income Deduction work?
The QBI Deduction has two components – the “QBI component” and the “REIT/PTP component.”
The QBI component is generally equal to 20% of “qualified business income” from a domestic pass-through entity, or through a trust or estate. However, depending on your taxable income, the QBI component is subject to various limitations based on things like the type of your business, amount of W-2 wages paid by your business, and cost of acquiring depreciable property held by your business. It can also be reduced if you’re a patron of an agricultural or horticultural cooperative (more on these cooperatives later).
The REIT/PTP component is generally equal to 20% of qualified REIT dividends and qualified PTP income. This component isn’t limited by W-2 wages or the acquisition costs of depreciable property. However, depending on your taxable income, the amount of income from a PTP that qualifies for the deduction may be limited if your PTP is a certain type of business.
The overall QBI Deduction, before any reductions, is generally equal to the combined total of the two components. However, the deduction can’t be greater than 20% of your taxable income, minus any net capital gain for the tax year.
What is “qualified business income”?
Qualified business income, or QBI for short, is generally defined as your “net amount of qualified items of income, gain, deduction, and loss” for the tax year from a U.S. pass-through entity, such as a partnership, S corporation, sole proprietorship, and certain LLCs. Only items included in your taxable income and connected with a U.S. trade or business count.
In addition to any profit or loss reported on Schedule C, QBI includes other items tied to your business. For instance, it includes ordinary gains or losses from the sale of business property, and deductions for:
- 50% of your self-employment tax
- self-employed health insurance
- contributions to SEP, SIMPLE, and certain other retirement accounts for self-employed people
What’s not considered “qualified business income”?
There are some specific items that aren’t included when calculating “qualified business income,” including (among other things):
- capital gains and losses
- dividends and dividend equivalents
- interest income not tied to a trade or business
- wages (except for “statutory employees”)
- compensation from an S corporation
- guaranteed payments
- tip income that’s deductible and excluded from the net profit of your business
Don’t include qualified REIT dividends and PTP income when calculating qualified business income, either. These are included in the “REIT/PTP component” for purposes of the QBI Deduction.
What if you have a “qualified business income” loss?
If your QBI is less than zero, the negative amount is carried forward to the next taxable year as a “qualified business net loss carryforward.” It’s then subtracted from your QBI in that year (but not reducing your QBI below $0 for the year). If the carryforward isn’t fully absorbed that year, the remaining loss is carried over again to future years until it’s completely used.
Example: Your QBI is -$5,000 for the first year of your business (Year 1). As a result, your QBI Deduction for Year 1 is $0, and you have a $5,000 qualified business net loss carryforward for future years. The next year (Year 2), your QBI is $3,000 before factoring in the carryforward. However, $3,000 of the carryforward from Year 1 is applied against that amount, resulting in a $0 QBI for Year 2. In Year 3, your QBI is $8,000 before factoring in any net loss carryforward. However, the remaining $2,000 of your net loss carryforward from Year 1 is applied against that amount, leaving you with a QBI of $6,000 for Year 3.
What is a “specified service trade or business” (SSTB)?
“There are special rules limiting the QBI Deduction for a specified service trade or business,” says Adams. Generally speaking, an SSTB is a trade or business that performs services in the fields of:
- accounting
- actuarial science
- athletics
- brokerage services
- consulting
- financial services
- health
- investing and investment management
- law
- performing arts
- trading or dealing in securities, partnership interests, or commodities
A business is also an SSTB if the reputation or skill of one or more employees or owners is its principal asset. For purposes of the QBI Deduction, this is shown if an employee or owner receives income for either:
- endorsing products or services
- use of their image, likeness, name, signature, voice, trademark, or any other aspect of their personal identity
- appearing at an event or on radio, television, or other type of media platform
There are some exceptions to the general definition of an SSTB, though. For instance, if your business has $25 million or less in gross receipts for the year, and less than 10% of that income is from the performance of services in a specified service field, it isn’t considered an SSTB. The percentage drops to 5% if your business has more than $25 million in gross receipts.
Example: You own an LLC that sells landscaping equipment, but you also provide advice on landscape designs for office parks. You maintain one set of books and records, and you treat the equipment sales and design services as a single business. Your LLC has gross receipts of $2 million, $150,000 (7.5%) of which comes from the landscape design services. The design services are considered to be the performance of services in the field of consulting, which is normally an SSTB. However, because the gross receipts from the consulting services are less than 10% of your business’s total gross receipts, your LLC isn’t treated as an SSTB for purposes of the QBI Deduction.
In addition, if a business provides services or property to an SSTB that’s at least 50% owned by the same people, the portion of the business providing those services or property is treated as a separate SSTB.
Example: You’re a lawyer who, along with another lawyer, owns two partnerships. Partnership 1 performs legal services for clients. It’s an SSTB, since it performs services in the field of law. Partnership 2 owns an office building and rents half of it to Partnership 1. The other half of the building is rented to unrelated tenants. Since Partnership 2 is owned by the same people that own Partnership 1, 50% of its rental business related to the lease to Partnership 1 is treated as an SSTB. The remaining 50% of its rental business isn’t treated as an SSTB.
How is the Qualified Business Income Deduction calculated?
Generally speaking, your QBI Deduction equals the combined total of the “QBI component” and “REIT/PTP component.” However, it can’t be more than 20% of your taxable income, minus any net capital gain for the tax year.
So, basically, there’s a five-step process for calculating the QBI Deduction for most people:
Step 1 - Calculate your QBI component
Step 2 - Calculate your REIT/PTP component
Step 3 - Add your QBI component and your REIT/PTP component
Step 4 - Calculate the taxable income limitation
Step 5 - Report the smaller of Step 3 or Step 4 as your QBI Deduction
TurboTax will do the math for you, but let’s go through a few of these steps in more detail to help you understand how your final deduction is determined.
[Starting with the 2026 tax year, a minimum QBI Deduction of $400 is available for certain people who have at least $1,000 of QBI during the year. The minimum deduction and QBI amount will be adjusted for inflation each year beginning in 2027.]
How do you calculate the QBI component?
How you calculate your OBI component initially depends on whether your taxable income (before the QBI Deduction) falls below, within, or above a “phase-in range.” The QBI phase-in ranges for the 2025 and 2026 tax years are shown in the following table.
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Filing Status |
2025 QBI Phase-In Range |
2026 QBI Phase-In Range |
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Married Filing Jointly |
$394,601 to $494,600 |
$403,501 to $553,500 |
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Married Filing Separately |
$197,301 to $247,300 |
$201,776 to $276,775 |
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All Other Taxpayers |
$197,301 to $247,300 |
$201,751 to $276,750 |
Note that the ranges are “wider” in 2026 than in 2025. For the 2025 tax year, the gap between the bottom of the range and the top of the range is $100,000 for joint filers and $50,000 for other people. Starting in 2026, the gaps increase to $150,000 and $75,000, respectively.
Taxable income below the phase-in range. Calculating your QBI component is pretty straightforward if your taxable income is below the phase-in range, and you aren’t a patron of an agricultural or horticultural cooperative. It’s simply 20% of the difference between your QBI for the year and any qualified business net loss carried forward from prior years.
Example: You’re single and have $15,000 of QBI for the 2025 tax year. You also have a $1,200 qualified business net loss carryforward from 2024. Your 2025 taxable income, before the QBI Deduction, is $100,000 (which is below the phase-in range for single filers), and you’re not a patron of a cooperative. In this case, your QBI component is $2,760 (($15,000 - $1,200) x 0.20 = $2,760)
Taxable income above the phase-in range. If your taxable income is above the phase-in range, you can’t claim the QBI Deduction for any income from an SSTB.
If you have QBI from a non-SSTB, your QBI component is generally limited to the greater of:
- 50% of your share of the wages paid to the business’s employees during the tax year
- 25% of your share of the wages paid to the business’s employees during the tax year, plus 2.5% of your share of the unadjusted basis of the business’s tangible property subject to depreciation (which is basically the property’s original cost)
Your share of the business’s wages and property costs is typically based on how much of the business you own. For example, if you own 40% of the business, your share will generally equal 40% of the wages paid and 40% of the business property’s unadjusted basis.
Example: You’re single and have $300,000 of QBI from a non-SSTB for the 2025 tax year. Your taxable income for the year (before the QBI Deduction) is $250,000, which is above the phase-in range for single filers. Your share of the business’s wages for the year is $25,000, while your share of the unadjusted basis of the business’s depreciable tangible property is $3,000.
Without a limitation, your QBI component would be $60,000 ($300,000 x 0.20 = $60,000). However, because of the limitation, it’s capped at $12,500, which is 50% of your share of the business’s wages in 2025 ($25,000 x 0.50 = $12,500). This is greater than 25% of those wages ($6,250), plus 2.5% of your share of the unadjusted basis of the business’s depreciable tangible property ($75) – or $6,325 total.
As a result of this limitation, your QBI component is $0 if your business doesn’t have any employees or depreciable property during the tax year, and your taxable income is above the phase-in range.
Owners of S corporations and partnerships (including members of an LLC treated as a partnership) should receive information about their share of wages and unadjusted basis of depreciable property on the Schedule K-1 they receive from the business.
Taxable income within the phase-in range. If your taxable income is within the phase-in range, the wages/property basis limitation for people above the range (see above) is gradually “phased in” (that’s how the income range got its name). So, the closer your taxable income is to the bottom of the phase-in range, the higher the limit. That, of course, means your QBI component could be higher, too.
Example: You’re single and have $250,000 of QBI from a non-SSTB for the 2025 tax year. Your taxable income for the year (before the QBI Deduction) is $200,000, which is within the phase-in range for single filers. Your share of the business’s wages for the year is $25,000, while your share of the unadjusted basis of the business’s depreciable tangible property is $3,000.
Based on this information, your QBI component without any limitations would be $50,000 ($250,000 x 0.20 = $50,000). If your taxable income was above the phase-in range (see example above), it would be limited to $12,500. However, since your taxable income is within the range, the limit is increased to $47,975.
Note that $200,000 in taxable income is relatively close to the bottom of the 2025 phase-in range ($197,301 for single filers), which is why the limit increased by so much. If your taxable income had been, say, $245,000 – which is close to the top of the range ($247,300 for single filers) – the limit would only increase from $12,500 to $14,225.
Plus, if your QBI is from an SSTB, you may be able to claim the QBI Deduction if your taxable income is within the phase-in range. If that’s the case, the wages/property basis limitation applies, but the amounts used to figure the limitation are a bit different – your QBI, share of wages, and share of property basis are all reduced by a certain percentage, which is generally based on your taxable income and phase-in range. Because of this, the limit on your QBI component will be lower than if your QBI came from a non-SSTB. However, the limit will still be higher if your taxable income is closer to the bottom of the phase-in range than if it’s closer to the top of the range.
Example: Assume the same facts as the example above, except that your QBI for the 2025 tax year is from an SSTB. In this case, your QBI is reduced from $250,000 to $236,500, your share of the business’s wages is reduced from $25,000 to $23,650, and your share of the unadjusted basis of the business’s depreciable tangible property is reduced from $3,000 to $2,838.
Based on these new figures, your QBI component is limited to $45,384, which is $2,591 less than the $47,975 calculated above for a person with QBI from a non-SSTB.
If your taxable income had been $245,000, the limit would only be $654. That’s $13,571 less than the $14,225 limit that would apply if your QBI was from a non-SSTB.
How do you calculate the QBI Deduction’s REIT/PTP component?
To calculate your REIT/PTP component, start by adding your (1) qualified REIT dividends, and (2) qualified publicly traded partnership (PTP) income or loss.
Qualified REIT dividends generally include dividends received from REIT stock held for more than 45 days that aren’t capital gain dividends. They also include dividends from a regulated investment company (RIC). REIT dividends that may be eligible for the QBI Deduction are reported to you as “Section 199A dividends” on Form 1099-DIV.
Qualified PTP income/loss generally includes your share of items of income, gain, deduction, and loss from a PTP that’s not treated as a corporation for federal income tax purposes.
After combining your REIT dividends and PTP income/loss, subtract any REIT dividend/PTP loss carryforwards from any prior year. Your REIT/PTP component will be 20% of the resulting amount.
Example: You’re single and have $20,000 of income from a publicly traded partnership (PTP) for the 2025 tax year. You also have a $1,000 PTP loss carryforward from 2024. In this case, your REIT/PTP component is $3,800 (($20,000 - $1,000) x 0.20 = $3,800)
The REIT/PTP component isn’t limited by wages paid to your business’s employees or the unadjusted basis of the business’s depreciable property. However, if your taxable income before the QBI Deduction is within the phase-in range (see table above), PTP income from an SSTB will be reduced. This will lower your overall REIT/PTP component.
Example: You’re single and have $10,000 of REIT dividends and $15,000 of PTP income from an SSTB for the 2025 tax year. Your taxable income for the year (before the QBI Deduction) is $200,000, which is within the phase-in range for single filers.
Without a limitation, your REIT/PTP component would be $5,000 (($10,000 + $15,000) x 0.20 = $5,000). However, because your PTP income is from an SSTB and your taxable income is within the phase-in range, that income is reduced from $15,000 to $14,190. As a result, your REIT/PTP component lowered to $4,838 (($10,000 + $14,190) x 0.20 = $4,838).
If your taxable income is over the phase-in range, no income from an SSTB operating as a PTP can be included in your REIT/PTP component.
How do you calculate the QBI Deduction’s taxable income limitation?
After calculating and combining your QBI and REIT/PTP components, you must determine if the overall QBI Deduction is subject to the taxable income limitation.
Under this rule, the QBI Deduction can’t be more than 20% of your taxable income (before the QBI Deduction), minus any net capital gain (increased by any qualified dividends) for the tax year.
Example: You have $70,000 of taxable income, $15,000 of net capital gain, and $2,000 of qualified dividends for the year. Your QBI component is $50,000 and your REIT/PTP component is $10,000.
Without any limitation, your QBI Deduction would be $12,000 (($50,000 + $10,000) x 0.20 = $12,000). However, because of the taxable income limitation, the deduction is reduced to $11,400 (($70,000 - $15,000 + $2,000) x 0.20 = $11,400).
“Net capital gain” for purposes of the QBI Deduction is generally the difference between your gains and losses from selling or exchanging capital assets during the year, if your gains are greater than your losses. To calculate the taxable income limitation, that amount is increased by qualified dividends for the year, which is found on Line 3a of your Form 1040.
How do you claim the Qualified Business Income Deduction?
Use either Form 8995 or Form 8995-A to calculate and claim the QBI Deduction. For the 2025 tax year, you can use Form 8995, which is the shorter of the two forms, if both:
- your taxable income before the QBI Deduction is $197,300 or less ($394,600 for joint filers)
- you aren’t a patron in an agricultural or horticultural cooperative
Otherwise, use Form 8995-A and the related forms (Schedules A to D) to figure your QBI Deduction.
TurboTax Tip:
“Taxpayers do not have to itemize to claim the QBI Deduction.” – Victoria Adams, EA, Aberdeen, WA
The QBI Deduction calculated on Form 8995 or Form 8995-A is then reported as a “below-the-line” deduction on your 1040 form. Below-the-line deductions are reported on Form 1040 below the line for your adjusted gross income (AGI), which is how they got their name. As a result, they don’t impact your AGI – but they do lower your overall taxable income.
If you need help with Form 8995 or Form 8995-A, don’t hesitate to consult a tax professional.
How do you claim the Qualified Business Income Deduction for more than one business?
If you own multiple businesses, the standard rules treat each one separately when applying the QBI Deduction’s wage and property basis limitations.
However, you may be able to treat two or more businesses as a single business for the wage/property basis limitation in certain situations. This is known as “aggregating” your businesses, but it’s only allowed if all of the following requirements are met:
- you (or a group of people) own 50% or more of each business for a majority of the tax year
- all the businesses use the same tax year end date
- none of the businesses are SSTBs
In addition, the businesses must satisfy at least two of the following factors:
- they provide products, property, or services that are the same or that are typically offered together
- they share facilities or significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources
- they are operated in coordination with, or reliance upon, one or more of the other businesses in the aggregated group
Aggregating your businesses can result in a larger QBI Deduction in some cases. That’s because the QBI, wages, and unadjusted basis of depreciable business property for each business are combined for purposes of determining the QBI component of the single, aggregated business. This can balance things out a bit if one or more of your businesses have high or low amounts of QBI or wage/property basis limitations.
Example: You’re the sole owner of a catering business and a restaurant, and your taxable income before the QBI Deduction for the tax year is above the phase-in range (see table above). You receive $250,000 of QBI from the catering business during the year, but this business has no employees (only independent contractors) or depreciable property. On the other hand, you only receive $50,000 of QBI from the restaurant business during the year, but you pay $200,000 in wages to employees. Neither business is an SSTB, you have no REIT dividends or income from a publicly traded partnership, and the taxable income limitation doesn’t apply.
If the two businesses are treated separately, the QBI component for the catering business would be $0, since there are no employees or depreciable property. The restaurant’s QBI component would be $10,000 ($50,000 x 0.20 = $10,000). That results in a total QBI Deduction of $10,000 ($0 + $10,000 = $10,000).
If the two businesses are aggregated into a single business, the combined QBI from the aggregated business would be $300,000 ($250,000 + $50,000 = $300,000), and the aggregated business would have $200,000 of wages paid for the year ($0 + $200,000 = $200,000). The aggregate business’s QBI component is $60,000 ($300,000 x 0.20 = $60,000), which means the total QBI Deduction is $60,000. So, in this example, aggregating increased the QBI Deduction by $50,000.
How does the QBI Deduction work if you’re a patron of a cooperative?
The QBI Deduction rules are slightly different if you’re a patron of certain cooperatives that market, manufacture, produce, grow, or extract agricultural or horticultural products.
First, patronage dividends or similar payments from these agricultural or horticultural cooperatives can be included in your QBI only if they’re:
- related to your business
- reported to you by the cooperative as qualified items of income on Form 1099-PATR
- not payments from an SSTB (unless your taxable income is below the phase-in range, in which case payments from SSTBs are includible in your QBI)
However, the QBI component is reduced for patrons of these cooperatives. The reduction is equal to the lesser of:
- 9% of QBI you receive from the cooperative during the tax year
- 50% of your share of the wages paid by the cooperative during the tax year
Finally, patrons of an eligible agricultural or horticultural cooperative may be able to claim a special deduction for their share of the cooperative’s “qualified production activities income.” The cooperative calculates the deduction. It then can pass all, some, or none of the deduction to its patrons, who are generally allowed to add their share of the deduction to their QBI Deduction. However, the additional deduction can’t exceed the patron's taxable income (after subtracting their QBI Deduction).
Does real estate rental income qualify for the QBI Deduction?
Whether income from renting real estate qualifies for the QBI Deduction generally depends on whether you operate a “trade or business” or, if not, you can satisfy the requirements of an IRS “safe harbor” rule.
As noted above, only items included in your taxable income and connected with a U.S. trade or business count as QBI. However, to be treated as a “trade or business,” you must be trying to earn a profit, and you must participate in the activity on a continual and regular basis. If you own several rental properties and spend a lot of time on them, you may very well satisfy these requirements and be able to count your rental income as QBI. However, if you simply own one or two rental properties, and renting them out doesn’t take up much of your time, you probably aren’t running a trade or business in the eyes of the IRS. It all depends on your unique circumstances.
But there’s still hope if your rental activities don’t rise to the level of a trade or business. Under the IRS “safe harbor” rules, you can still count your rental income as QBI if you:
- keep separate books and records showing the income and expenses for each rental real estate business
- perform at least 250 hours of rental services during the tax year if your business is less than four years old, or at least 250 hours in three of the last five years if your business is at least four years old
- maintain contemporaneous records of the hours, dates, and description of all services performed, and of who performed them
- attach a statement to the tax return filed for each tax year the safe harbor is used that (1) describes all the rental properties for each business, (2) lists rental properties acquired and disposed of during the tax year, and (3) indicates that all the safe harbor requirements have been satisfied
“Rental services” include things like advertising to rent or lease your property, negotiating leases, verifying information in a prospective tenant’s application, collecting rent, maintenance and repair of the property, supervising employees and contractors, and other activities required to manage the property.
However, the safe harbor rules don’t to certain types of property, such as real estate that’s:
- your residence
- rented or leased under a “triple net lease” (that is, a lease that requires the tenant to pay various property expenses in addition to rent and utilities)
- rented to your business
- provided to an SSTB that’s at least 50% owned by you
How did the QBI deduction change starting in 2026?
The “One Big Beautiful Bill” made a few important changes to the QBI Deduction beginning with the 2026 tax year.
First, it made the deduction permanent. The deduction was set to expire after the 2025 tax year, but the legislation removed the language establishing the expiration date.
The phase-in ranges were also expanded. Before the legislation, the ranges spanned $100,000 for joint filers and $50,000 for everyone else. However, starting in 2026, those amounts are increased to $150,000 for joint returns and $75,000 for all other taxpayers. (See the table above for the 2025 and 2026 phase-in ranges.)
Finally, the legislation creates a minimum QBI Deduction of $400 for qualified taxpayers who have at least $1,000 of QBI from one or more businesses in which they materially participate. After 2026, the $400 and $1,000 amounts will be adjusted annually to account for inflation.
Frequently asked questions about the Qualified Business Income Deduction
Q1: Do I have to itemize to claim the QBI Deduction?
No, you don’t have to itemize to claim the QBI Deduction. You can claim either itemized deductions or the Standard Deduction on your tax return – but not both. However, like other “below-the-line” deductions, you can claim the QBI Deduction regardless of which one you pick.
See if you’re better off taking the Standard Deduction or itemizing.
Q2: What are some common QBI Deduction mistakes?
Common mistakes to avoid when claiming the QBI deduction include:
- misclassifying income such as capital gains, dividends, or wages as “qualified business income”
- failing to follow special rules if your business is a “specified service trade or business” (SSTB)
- miscalculating wage/property basis limitations
- ignoring aggregation opportunities
- using the wrong form
Check out other common mistakes to avoid when filing your tax return.
Q3: Does the QBI Deduction reduce self-employment tax?
No, the QBI Deduction won’t reduce your self-employment tax. You may qualify for the QBI Deduction if you’re self-employed, such as a freelancer or other independent contractor. The deduction will lower your taxable income, which will cut your income tax bill, but it won’t affect the amount of self-employment tax you owe.
Learn the differences between income taxes and self-employment taxes.
Q4: Why am I not getting the QBI Deduction?
There are several reasons why you may not be getting the QBI deduction, including:
- you have a net business loss, which must be carried forward to the next tax year
- your business is an SSTB and your taxable income (before the QBI Deduction) is above the phase-in range
- your business has no employees or depreciable property during the tax year, and your taxable income (before the QBI Deduction) is above the phase-in range
- you’re an employee – not an owner – of a business
- your business is a C corporation
What other tax deductions may be available if you’re self-employed?
Q5: Am I “consulting” for SSTB purposes if I’m self-employed and have a contract for sales and training support?
Probably not. Performing services in the field of “consulting,” which would make your business an SSTB, means providing professional advice and counsel to clients that helps them achieve goals and solve problems. It generally doesn’t include providing services other than advice and counsel, such as sales, training, or educational courses. However, every case is based on the unique “facts and circumstances” involved, so there isn’t a one-size-fits-all answer to who is or isn’t a consultant for SSTB purposes.
Get more tax tips for freelancers, contractors, and consultants.
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