The Qualified Business Income (QBI) deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income.
It generally applies to income earned through pass-through businesses, where business income is reported on the owner’s individual tax return. This includes many sole proprietors and certain limited liability companies (LLCs).
Who might qualify for the QBI deduction?
You may qualify for the QBI deduction if you earn income from an eligible pass-through business, such as:
A sole proprietorship
Certain LLCs
Partnerships or S corporations (in some cases)
Only qualified business income from U.S.-based businesses counts. Some types of income—like wages, investment income, or guaranteed payments—aren’t included.
Are there income limits for the QBI deduction?
Yes. Eligibility and the amount of the deduction depend on your taxable income and the type of business you operate.
For the 2025 tax year:
If your taxable income is $197,300 or less ($394,600 for married filing jointly), you can generally claim the full 20% deduction if your business qualifies.
If your income is above these amounts, additional IRS limitations may apply.
Special rules for certain service businesses
Some businesses are classified as Specified Service Trades or Businesses (SSTBs), including fields such as healthcare, law, and consulting.
For SSTBs:
The QBI deduction begins to phase out once taxable income exceeds $197,300 ($394,600 for joint filers)
The deduction is fully phased out when taxable income reaches $247,300 ($494,600 for joint filers)
At that point, SSTB income is no longer eligible for the QBI deduction.
Why does the type of business matter?
The IRS treats some businesses differently based on how income is earned.
Businesses that primarily rely on the reputation or skill of their owners or employees may be subject to stricter limits at higher income levels.
For non-SSTB businesses, the deduction may still be available above the income threshold, but it can be limited by factors such as wages paid and business property.
What should I keep in mind if I’m self-employed?
Whether you qualify for the QBI deduction depends on:
Your taxable income
The type of business you run
How your income is classified
Keeping accurate records and understanding how your business income is reported can help determine whether the deduction applies to you.
Key takeaway
The QBI deduction can reduce taxable income for eligible self-employed individuals and small business owners. For 2025, eligibility depends on your taxable income and whether your business is subject to special IRS rules. Not everyone who’s self-employed will qualify, but for those who do, the deduction can be significant.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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