What is the Qualified Business Income (QBI) deduction?


The QBI deduction allows eligible business owners to deduct up to 20% of their qualified business income on their personal tax return. It was created as part of the Tax Cuts and Jobs Act implemented in 2018 and beyond, primarily to benefit pass-through businesses.
 
Qualifying
You may qualify if you have income from a…
  • Sole proprietorship or Single-Member LLC (Schedule C)
  • Partnership
  • S Corporation
  • Some trusts and estates
  • Above includes being a shareholder in certain investments, and can possibly include rental property owners (If your rental activity rises to the level of a trade or business, which is based on certain factors with your rentals, to be confirmed with your tax preparer)
 
NOTE: C corporations do not qualify.
 
“Qualified business income” explained
QBI generally includes net income from your trade or business, excluding the following:
  • Wages paid to yourself (like an S-Corp salary)
  • Capital gains or losses
  • Dividends
  • Interest income (unless related to your business)
 
Income Limits (taxable income)
  • 2025
    • Full deduction: below $394,600 (married filing jointly) or $197,300 (single), you can typically take the full deduction.
    • Partial deduction: $394,601 - $494,600 (married filing jointly) or $197,301 - $247,300 (single)
    • No deduction: exceeding above income limits, especially if you’re in a “specified service business”
  • 2024
    • Full deduction: below $383,900 (married filing jointly) or $191,950 (single), you can typically take the full deduction.
    • Partial deduction: $383,901 - $483,900 (married filing jointly) or $191,951 - $241,950 (single)
    • No deduction: exceeding above income limits, especially if you’re in a “specified service business”
 
“Specified service trade or business” (SSTB) explained
SSTBs are businesses where the main asset is the owner’s skill or reputation - examples include health, law, consulting, financial services, accounting, etc.
 
If your income exceeds IRS limits and you’re in an SSTB, your deduction may be reduced or eliminated.
 
The QBI deduction lowers your income tax, but it does not affect self-employment tax. You do not need to itemize deductions to claim the QBI deduction (you qualify even if you take the standard deduction).
 
Claiming the deduction
QBI is calculated and reported on your individual income tax return.