In 2025, the QBI deduction (also known as the Section 199A deduction) will be different due to the passage of the "One Big Beautiful Bill Act" (OBBBA). The deduction, which allows eligible pass-through businesses to deduct up to 20% of their qualified business income, has been made permanent and includes new provisions.
For the purposes of the pass-through deduction, qualified income is defined as your business income minus:
- Capital gains or losses
- Dividends or interest
- Annuity payments
- Foreign currency gains or losses
- Reasonable compensation for owner/employees of S-Corps
- Guaranteed payments to partnerships and LLCs
Restrictions to the deduction
The income threshold for 2025 for claiming the full 20% is $247,300 for single filers or $494,600 for joint filers. For those with income above these limits, the deduction may be limited based on W-2 wages and the value of depreciable property.
If you own a Specified Service Trade or Business (SSTB), the deduction begins to phase out at $197,300 for single filers and is completely gone for incomes above $247,300. For joint filers, the phase-out starts at $394,600 and is fully phased out at $494,600. These service businesses include:
- Healthcare providers (doctors, dentists)
- Lawyers
- Accounting
- Actuaries, and Financial service providers
- Performing artists
- Consultants
- Athletes
- Businesses that depend on the specific skills of the owner/employee to exist
- Brokerage services
- Athletics
New minimum deduction: Starting in 2025, taxpayers with at least $1,000 of Qualified Business Income from an active trade or business are guaranteed a minimum deduction of $400.