QBI Deduction: 20% Off Your Business Income
The QBI deduction - Section 199A - allows a deduction of up to 20% of qualified business income, effectively reducing the tax rate on business income by roughly one-fifth.
How It Works
If you operate a business as a sole proprietor, partnership, S-Corporation, or LLC, your business income passes through to your personal tax return. The QBI deduction allows you to deduct up to 20% of that qualified business income.
The Income Thresholds
- Below $191,950 (single) or $383,900 (MFJ) in taxable income: full 20% deduction applies for most business types
- Above these thresholds: W-2 wages/capital limitation and the SSTB exclusion kick in
Specified Service Trades or Businesses
Planning Strategies
If your income is near the threshold, reducing taxable income can preserve the QBI deduction. Retirement contributions, HSA contributions, and charitable giving all reduce taxable income and can keep you below the phase-out threshold.
The bottom line
Staying below the SSTB threshold can be worth $7,200+ in federal tax savings annually.
What would you do?
Alex is a consultant (SSTB) with $150,000 in QBI, filing single. She's evaluating the deduction at different income levels.
Your Move
Determine whether your business is classified as a Specified Service Trade or Business (SSTB). Check your taxable income against the QBI threshold. If you're near the threshold, explore strategies to reduce taxable income - retirement contributions, HSA, and charitable giving can all help.
Sources
- Internal Revenue Service, Qualified Business Income Deduction
Section 199A qualified business income deduction (up to 20%)
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026