QBI Deduction (Qualified Business Income)
The QBI deduction lets most self-employed people and pass-through business owners deduct 20 percent of qualified business income from taxable income under IRC Section 199A. It reduces income tax but never self-employment tax.
Section 199A gives pass-through income a rate break without touching the brackets: sole proprietors, partners, S corporation owners, and many landlords deduct 20 percent of qualified business income before tax is computed. The One Big Beautiful Bill Act made the deduction permanent in 2025, removing the scheduled expiration that had hung over it.
The deduction has edges worth knowing. It is limited to 20 percent of taxable income before the deduction, so a filer with little other income may get less than 20 percent of profit. Above an income threshold, specified service businesses (health, law, accounting, consulting, financial services) see it phase down, and wage-and-property tests apply to large operations. And because it only offsets income tax, the 15.3 percent self-employment tax is unchanged. The self-employment tax calculator applies the basic 20 percent rule with the taxable-income limit.
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Related terms: Self-Employment Tax , Standard Deduction , Effective Tax Rate
Last updated . Part of the FinExplained finance glossary .