The QBI deduction, explained simply
The qualified business income deduction lets many owners of pass-through businesses deduct up to 20% of their business income. It's now permanent. Below the income thresholds, about $201,750 single and $403,500 joint for 2026, most owners qualify. Above them, wage and service business limits can apply.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Up to. 20% of qualified business income
- Status. Permanent under the 2025 tax law
- 2026 limits. About $201,750 single, $403,500 joint
Who can claim it?
Owners of sole proprietorships, LLCs, partnerships and S-Corps, plus some rental owners. C-Corps can't, and W-2 wages don't count. You claim it on your personal return, on Form 8995 or 8995-A, whether you itemize or not. It doesn't reduce self-employment tax.
How is it calculated?
At its simplest, it's 20% of your qualified business income, capped at 20% of your taxable income minus net capital gains. So on $100,000 of QBI, where taxable income is $90,000, the cap gives you $18,000, not $20,000.
QBI is your business profit, less half of SE tax, self-employed health insurance and retirement contributions. For an S-Corp, your salary isn't QBI.
What happens above the income limits?
| Your taxable income, 2026 | What applies |
|---|---|
| Below about $201,750 single, $403,500 joint | Plain 20% |
| In the phase-in range, up to about $276,750 single, $553,500 joint | Limits start to apply |
| Above the range, most businesses | Limited by W-2 wages and property |
| Above the range, specified service businesses | No deduction |
These 2026 figures come from draft IRS instructions, so check the final forms. Specified service businesses include health, law, accounting, consulting, financial services and performing arts. If that's you, staying under the threshold can be worth a lot.
What changed under the 2025 tax law?
The deduction was set to end after 2025. It's now permanent, the phase-in range is wider, and starting in 2026 there's a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from an active business they materially participate in. Our 2025 tax law guide has the rest.
How can you plan around it?
- Time income and deductions if you're near a threshold
- Use retirement contributions to bring taxable income down
- For S-Corps above the limit, your salary affects the wage cap. More wages can raise the deduction, but they cost payroll tax
- Remember that big depreciation deductions lower QBI too
The interactions get tricky above the thresholds, which is why it's a regular part of a planning review.
Sources
- IRS: Qualified business income deduction
- IRS: Instructions for Form 8995
- IRS: Working Families Tax Cuts
General information, not tax advice for your situation.
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See our tax planning and CFO serviceDo I need to itemize to take the QBI deduction?
No. You can claim it with the standard deduction.
Does an S-Corp owner get the QBI deduction?
Yes, on the profit passed through on the K-1, but not on W-2 salary.
Is rental income eligible for QBI?
It can be, if the rental activity rises to a trade or business. The IRS has a safe harbor for some rentals.
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