What Is the Qualified Business Income Deduction?
The Qualified Business Income Deduction (QBID) allows eligible business owners to deduct up to 20% of their net business income from sole proprietorships, partnerships, S corporations, or certain trusts and estates.
It’s available through 2025 under the Tax Cuts and Jobs Act (TCJA) unless extended by Congress.
IRC Reference and Legal Framework
The QBID is codified under:
- Internal Revenue Code § 199A
This section provides guidelines for determining eligibility, thresholds, limitations, and calculations.
Who Can Claim the QBID?
You’re eligible if you:
- Operate a qualified trade or business (e.g., consulting, retail, real estate)
- Are a sole proprietor (Schedule C), partner (1065), S corporation shareholder (1120-S), or LLC member
- Have domestic income from the business
- Are below or within the phaseout thresholds if you’re in a Specified Service Trade or Business (SSTB)
Income Thresholds for 2025
| Filing Status | Threshold (Full Deduction) | Phaseout Range (SSTB) |
|---|---|---|
| Single | $182,100 | $182,100 – $232,100 |
| Married Filing Jointly | $364,200 | $364,200 – $464,200 |
If your taxable income is below the threshold → you qualify for full deduction.
If above → deduction may be limited or phased out, especially for SSTBs.
What Is Qualified Business Income (QBI)?
QBI includes the net income from qualified U.S. businesses, excluding:
- Capital gains or losses
- Dividends
- Interest income (unless from business)
- W-2 wages
- Reasonable compensation (S-Corp shareholders)
- Guaranteed payments (partnerships)
Only domestic business income qualifies—foreign income does not.
Limitations for Specified Service Trades or Businesses (SSTBs)
SSTBs include:
- Health
- Law
- Accounting
- Consulting
- Financial services
- Performing arts
- Any business whose principal asset is the reputation or skill of one or more of its owners/employees
If you’re in an SSTB and your income exceeds the threshold, your QBID may be reduced or eliminated.
Step-by-Step Guide to Claim QBID
Step 1: Confirm Your Entity Type
Are you filing Schedule C, 1065, or 1120-S?
Step 2: Determine Your Taxable Income
Use Form 1040, Line 15 (2025 version).
Step 3: Calculate QBI
Exclude W-2 wages, capital gains, dividends, etc.
Step 4: Determine If SSTB Rules Apply
Check if your business is a Specified Service Trade or Business.
Step 5: Apply W-2 Wage and Property Limitations
If over the threshold, apply the greater of:
- 50% of W-2 wages, or
- 25% of W-2 wages + 2.5% of qualified property basis
Step 6: Report on IRS Forms
- Form 8995: For taxpayers below threshold
- Form 8995-A: For those above threshold or with complexities
QBID Calculation Example
Scenario:
- Maria is a sole proprietor (Schedule C) with QBI of $100,000.
- Her total taxable income is $150,000 (below threshold).
- She’s not in an SSTB.
QBID = 20% × $100,000 = $20,000 deduction
She reports this on Form 1040, Line 13 using Form 8995.
Conclusion
The Qualified Business Income Deduction is one of the most valuable deductions available to entrepreneurs in 2025. If you own a pass-through business, this could save you thousands—even if you’re not aware of it. But as with all great tax strategies, it requires proper planning, documentation, and understanding of IRS limits.
CTA and Disclaimer
Not sure if your business qualifies for the QBID?
Let a licensed expert evaluate your case.
I’m Anshul Goyal, CPA EA FCA — a U.S. Certified Public Accountant, IRS-authorized Enrolled Agent, and cross-border tax advisor helping business owners in the U.S. and abroad save money and stay compliant.
Top 5 FAQs – QBID 2025
1. Can I claim QBID if I don’t pay myself a salary?
Yes, sole proprietors and partnerships can claim QBID without paying a salary. S-corp owners must pay reasonable compensation.
2. Does rental income qualify for QBID?
Yes, if it’s a trade or business per IRS rules or under the safe harbor rule in Notice 2019-07.
3. What IRS form do I use to claim QBID?
Use Form 8995 or Form 8995-A, and report the final deduction on Form 1040, Line 13.
4. Can I claim QBID if I’m a freelancer or gig worker?
Yes, if you report income on Schedule C and meet the other eligibility rules.
5. Does QBID reduce self-employment tax?
No. QBID reduces income tax, but not self-employment tax.
Disclaimer
This blog is for informational purposes only. Tax strategies like QBID depend on individual facts, filing status, and business type. Always consult with a licensed CPA before applying any deduction.