The Qualified Business Income deduction (QBI deduction, for short) is a wonderful tax break for people who are self-employed and for small business owners. Also known as the “Section 199A deduction,” it was added to the Tax Code as part of the 2017 Tax Cuts and Jobs Act and currently is slated to expire at the end of 2025, though it could be extended. Entrepreneurs are the main beneficiaries, but some investors qualify for the QBI deduction as well—more about that below.
Bottom Line Personal asked tax expert Abby Eisenkraft to answer common questions about the QBI deduction…
Qualified business income is essentially a business’s net profits, though potentially with a few adjustments. Example: If a business has $100,000 in revenues and $60,000 in expenses, its owner’s QBI likely is $40,000—though certain forms of income, such as income unconnected to business conducted in the US, must be excluded from QBI.
The QBI deduction typically allows qualifying taxpayers to deduct an amount equal to 20% of their qualified business income from their taxable income—and that’s potentially a significant tax savings.
Among the eligibility details worth noting…
“Pass-through entities,” such as sole proprietorships, S corps, partnerships and LLCs, are eligible for this deduction. Their share of income flows through to owners or members and is taxed on their personal returns. C corps, which are independent legal entities owned by their shareholders, are not eligible for the QBI deduction.
Taxpayers whose 2024 taxable income is above $191,950 for single filers or above $383,900 if married filing jointly—$197,400 and $394,600 respectively for 2025—might not qualify for the full QBI deduction, if they can claim it all.
Taxpayers whose business income comes from a company that is in one of the “Specified Service Trades or Businesses” (SSTBs) face especially strict deduction phase-out rules if they exceed the income thresholds. SSTBs are sectors such as health, law, accounting or consulting where a business’s primary asset tends to be the skills and knowledge of the business owner and/or employees.
Unlike some deductions, eligible taxpayers can claim the QBI deduction even if they take the standard deduction on their taxes rather than itemize.
The instructions for Form 8995, Qualified Business Income Deduction Simplified Computation and Form 8995-A, Qualified Business Income Deduction provide additional details. Taxpayers who claim the QBI deduction will file one of these forms with their tax returns—Form 8995 usually is sufficient but Form 8995-A is needed in complicated situations, such as when the taxpayer’s income exceeds the deduction’s income thresholds.
Small business owners and people who are self-employed aren’t the only taxpayers who can qualify for the QBI deduction. Investors in some real estate investment trusts (REITs) and publicly traded partnership (PTPs) also qualify. Under this “REIT/PTP” component, investors can be eligible for a QBI deduction equal to 20% of their dividends from qualified REITs and/or income from qualified PTPs. The tax forms sent out by brokerages should list “Section 199A” dividends or income when appropriate. Investors do not need to be self-employed or have small businesses to claim this component of the QBI deduction.
