QBI Deduction (IRC §199A)

A 20% federal income tax deduction for qualified business income from pass-through entities (sole props, partnerships, S-corps) — created in TCJA, extended in OBBBA, sunset open as of 2026.

What it actually means

IRC §199A allows a 20% deduction on Qualified Business Income (QBI) from sole proprietorships, partnerships, S-corporations, and certain trusts. It does NOT apply to wages or C-corp dividends. For 2026, the deduction phases out for "specified service trades or businesses" (SSTBs — health, law, accounting, consulting) above ~$241K single / $483K MFJ. Non-SSTB pass-throughs get the deduction at any income, subject to W-2 wage and capital limitations above the phase-out.

Distinguishing it from look-alikes

QBI is not a credit — it's a deduction below-the-line, applied AFTER AGI is computed. It does not reduce self-employment tax. It does not apply to wages from your own S-corp (only to S-corp net income passed through to you). The interaction with reasonable-comp requirements for S-corp owners is one of the most nuanced areas of small-business tax — verify with a CPA.

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Examples

Solo coach as Schedule C

A solo personal trainer with $100K Schedule C net income gets up to $20K QBI deduction (subject to overall taxable income limits).

S-corp owner

S-corp owner takes $80K reasonable W-2 + $40K K-1 distribution; QBI applies to the $40K K-1 portion only.

SSTB above phase-out

A solo CPA earning $300K single is fully phased out — gets no QBI deduction.

HowTo schema

Eligible for step-by-step rich results AND structured for AI extraction

llms.txt

Standard for declaring AI-crawler-friendly content + which AI agents are explicitly welcomed