GLOSSARY · TAX & ESTATE

Qualified business income (QBI) deduction

A deduction of up to 20% of the profit from a sole proprietorship, partnership or S corporation, limited to 20% of taxable income before it. Above a yearly income threshold, it becomes limited by the wages the business pays and its property, and it phases out entirely for specified service businesses such as law, health, consulting and financial services. It reduces income tax but not self-employment tax.

Also called: QBI deduction, section 199A deduction, pass-through deduction, section 199a, 20% business deduction

FORMULA

deduction = 0.20 × the smaller of qualified business income and taxable income before the deduction (below the threshold)

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CHAPTER · TAX DEDUCTIONS & CREDITS MASTERY · STRATEGIESBusiness Structure, the QBI Deduction and Timing Income CHAPTER · SIDE INCOME & FREELANCING MASTERY · DEEP DIVETaxes on Side Income

RELATED TERMS

Self-employment tax

SOURCES

Qualified business income deduction. Internal Revenue Service.
Rev. Proc. 2025-32, 2026 inflation-adjusted tax items. IRS.

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