If you're self-employed or operate a small business as a sole proprietor, you may be eligible for the Qualified Business Income (QBI) Deduction. This valuable tax benefit allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI) on their individual income tax return.
The QBI deduction can provide substantial tax savings, but eligibility depends on your taxable income, the type of business you operate, and other IRS limitations.
2026 QBI Income Thresholds
For the 2026 tax year (returns filed in 2027), the income thresholds are:
- $403,500 for taxpayers filing Married Filing Jointly
- $201,750 for taxpayers filing Single, Head of Household, Married Filing Separately, or Qualifying Surviving Spouse
If your taxable income is at or below the applicable threshold, you may qualify for the full QBI deduction, subject to the overall deduction limitations.
What Happens If My Income Exceeds the Threshold?
If your taxable income exceeds the threshold amount, additional limitations may apply.
Depending on your business type, the deduction may be limited based on:
- Wages paid to employees
- The cost of certain qualified business property
- Whether your business is considered a Specified Service Trade or Business (SSTB), such as health, law, accounting, consulting, financial services, or similar professions
In general, the deduction may be limited to the lesser of:
- 20% of your qualified business income, or
- A wage and property-based limitation calculated under IRS rules
Who Qualifies for the QBI Deduction?
In general, you may qualify if you:
- Operate a business as a sole proprietor
- Report business income on Schedule C
- Have qualified business income
- Meet the applicable income and eligibility requirements
How Is the QBI Deduction Calculated?
The deduction is generally based on:
- Your qualified business income
- Your taxable income
- Applicable wage and property limitations
- Any IRS phaseouts or restrictions that may apply
The QBI deduction reduces your taxable income, but it does not reduce your self-employment tax.
Why the QBI Deduction Matters
The Qualified Business Income Deduction is one of the most valuable tax benefits available to many small business owners. While it's often referred to as the "20% deduction," the actual amount allowed varies based on your income, business type, and overall tax situation.
The program automatically evaluates your eligibility and calculates the deduction based on the information entered on your return.