What is the Qualified Business Income (QBI) deduction?

The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows most self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income — significantly reducing their income tax. **Basic rule:** If your 2025 taxable income is below $197,300 (single) or $394,600 (MFJ), you can generally deduct 20% of your Schedule C net profit from your taxable income. This deduction is not a Schedule C item — it reduces taxable income directly on Form 1040. **Example:** Net Schedule C profit $80,000. QBI deduction: $80,000 × 20% = $16,000. This reduces taxable income by $16,000, saving approximately $3,520 in federal income tax at the 22% bracket. **Income limits and phase-outs:** - Below the threshold ($197,300 single / $394,600 MFJ): Full 20% QBI deduction for most businesses - Between threshold and $247,300 (single) / $494,600 (MFJ): SSTB deduction phases out; non-SSTB businesses are also subject to wage/property limits - Above $247,300 (single) / $494,600 (MFJ): SSTB businesses receive $0 QBI deduction **The QBI deduction was made permanent under OBBBA 2025** — it was previously set to expire in 2025. Self-employed individuals can now plan long-term with this deduction.

  • Deduct up to 20% of Schedule C net profit from taxable income
  • Available at all income levels for non-SSTB businesses
  • SSTB phase-out begins at $197,300 (single) / $394,600 (MFJ) taxable income
  • Made permanent by OBBBA 2025 — was set to expire
  • Reported on Form 8995 or Form 8995-A

Related Questions

  • What is a Specified Service Trade or Business (SSTB) and how does it affect the QBI deduction?
  • What is Adjusted Gross Income (AGI) and why does it matter?
  • What are the federal income tax rates for 2025?