Updated November 2026 · VG CPA PC advisors
How it works
Owners of sole proprietorships, partnerships, S corporations and rental businesses that rise to a trade or business can deduct up to 20% of qualified business income, limited to 20% of taxable income minus net capital gain. The deduction is taken whether or not you itemize.
Qualified business income excludes wages paid to an S corporation owner, guaranteed payments to partners, and investment income.
Income limits
Below a taxable income threshold, indexed and roughly $200,000 for single and $400,000 for joint filers, the deduction is generally available in full. Above it, the deduction for specified service businesses such as health, law, accounting, consulting and financial services phases out, and other businesses become subject to a limit based on W-2 wages paid and the unadjusted basis of qualified property.
The 2025 law widened the phase-in range and added a minimum deduction for taxpayers with at least $1,000 of qualified business income from active businesses.
Planning
S corporation owners balance reasonable salary, which reduces QBI but creates W-2 wages for the limit, against distributions. Retirement contributions and other deductions can bring taxable income under the threshold. Aggregating related businesses can help meet the wage and property limits.
Rental owners may qualify under the IRS safe harbor for rental real estate enterprises if they meet the record-keeping and 250-hour requirements.