The Qualified Business Income Deduction (QBI deduction), also known as the Section 199A deduction, is a provision in the U.S. tax code that allows certain taxpayers to deduct up to 20% of their qualified business income from a qualified trade or business.
Key Points:
Who qualifies?
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Individuals, partnerships, S corporations, trusts, and estates with income from:
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Sole proprietorships
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Partnerships
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S corporations
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Certain REIT dividends and publicly traded partnerships
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What businesses are excluded or limited?
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Specified Service Trades or Businesses (SSTBs) may be limited or excluded if the taxpayer’s income exceeds a threshold. These include:
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Health
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Law
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Accounting
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Actuarial science
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Performing arts
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Consulting
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Athletics
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Financial services
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Investing and investment management
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Any business where the principal asset is the reputation or skill of one or more of its employees or owners
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Income Thresholds (2025 estimates):
For 2025 (inflation-adjusted), phase-out begins around:
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$200,000 for single filers
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$400,000 for joint filers
(Exact thresholds are adjusted annually.)
If your taxable income is below the threshold, you generally qualify for the full 20% deduction—regardless of the type of business.
If above, additional rules apply:
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Wage and capital limit: Deduction may be limited based on W-2 wages paid or qualified property held by the business.
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SSTBs start to phase out.
What is “Qualified Business Income” (QBI)?
QBI includes:
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Net income from a qualified business (e.g., a sole proprietorship, S corp, or partnership)
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Excludes wages, capital gains/losses, dividends, and interest income
Example:
You own a plumbing business as a sole proprietor and earn $100,000 in qualified business income:
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If you’re under the income threshold, you could deduct up to $20,000 (20% of $100,000) from your taxable income.
Why it matters:
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The QBI deduction effectively lowers the tax rate on business income for many small business owners and self-employed individuals.
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It’s a non-itemized deduction, so you can claim it even if you take the standard deduction.