What the QBI deduction actually does
The qualified business income deduction, created under Section 199A of the tax code, allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. It applies to sole proprietors, partnerships, S corporations, and LLCs taxed as pass-through entities. C corporations do not qualify.
The math is straightforward. If a freelance consultant earns $150,000 in net business income, the 20% deduction reduces taxable income by $30,000. In the 22% bracket, that is roughly $6,600 in tax savings. For higher earners, the savings are larger.
What qualified business income includes: net profit from the business, certain rental income from pass-through entities, and K-1 income from partnerships and S corporations. What it excludes: capital gains, dividends, interest income, and reasonable compensation paid to the business owner.
What changed under the One Big Beautiful Bill Act
Before the One Big Beautiful Bill Act was signed into law on July 4, 2025, the QBI deduction was scheduled to expire after 2025. It was a temporary provision from the 2017 Tax Cuts and Jobs Act. The new law made it permanent, which means business owners can now plan around it for years to come instead of waiting to see whether Congress would extend it.
The Act also widened the income phase-in range for married-filing-jointly taxpayers from $100,000 to $150,000. Starting in 2026, the phaseout range for joint filers is approximately $403,500 to $553,500, subject to inflation adjustment. More people can now qualify for the full deduction.
A new $400 minimum deduction was also introduced. Taxpayers with at least $1,000 in total qualified business income who materially participate in their business can now claim at least $400, even if the standard computation would otherwise produce a lower number. This benefits small operators who previously fell below the threshold.
Who qualifies and who faces limits
Most small business owners qualify. Sole proprietors report net Schedule C income as qualified business income. S corporation shareholders and partners receive QBI through K-1 forms. LLC owners taxed as pass-throughs also qualify.
There is an important carve-out for what the IRS calls Specified Service Trades or Businesses, or SSTBs. This category includes law, accounting, consulting, medicine, and financial services. Owners in these fields lose the deduction once taxable income exceeds roughly $203,000 for single filers or $406,000 for married filing jointly in 2026. Below those thresholds, the full deduction applies. Architects and engineers are specifically excluded from this restriction.
At higher income levels, the deduction is also subject to a wage and property limitation. It caps at either 50% of W-2 wages paid by the business or 25% of W-2 wages plus 2.5% of the cost of qualified depreciable property. This is where the calculation gets complex and where a tax professional review becomes especially valuable.
One more detail that catches people off guard: several states, including California, New Jersey, and Pennsylvania, do not conform to the federal Section 199A rules. Business owners in those states may not receive a matching state tax benefit even if they qualify fully at the federal level.
How self-employed professionals should prepare
The QBI deduction is claimed on your personal Form 1040, not on your business return. Simpler situations use Form 8995. More complex ones, including those subject to the wage and property limitation, use Form 8995-A. The deduction is available whether you take the standard deduction or itemize.
Several items reduce qualified business income before the 20% applies: the deductible portion of self-employment tax, self-employed health insurance premiums, and contributions to retirement accounts like a SEP-IRA or Solo 401(k). These reduce the base, so the 20% applies to a smaller number than gross revenue.
If you run multiple businesses, qualified business income from each can generally be aggregated, which can help when one business has strong wages and another has high income but lower payroll. This is a planning opportunity worth reviewing with a professional before year-end.
Why now is the right time to review your accounts
The permanence of the QBI deduction changes the planning horizon. Business owners no longer need to wonder whether it will still exist next year. That makes it worth reviewing your income, business structure, compensation, and deductions now, not in April.
RoboTax connects to your real account activity in read-only mode, organizes your transactions, and surfaces possible deductions and write-offs that a tax professional should review. If you have not had a qualified professional look at your QBI situation, your business structure, or your year-to-date deductions, this is a good time to start.
Frequently asked questions
Is the QBI deduction still available in 2026?
Yes. The One Big Beautiful Bill Act made the qualified business income deduction permanent. It is no longer set to expire, so eligible business owners can plan around it going forward.
Do I qualify for the QBI deduction as a freelancer?
Most freelancers with net Schedule C income qualify. The deduction phases out at higher income levels for certain service professions. A tax professional can review your specific situation.
Does the QBI deduction apply to S corporation owners?
Yes. S corporation owners receive qualified business income through K-1 forms. At higher income levels, the deduction may be subject to a W-2 wage limitation, which a professional should review.
Can RoboTax help me understand my QBI deduction?
RoboTax can surface your business income, expenses, and possible deductions from your real account activity so a tax professional has a clearer starting point. It does not provide tax advice.
Sources and further reading
These resources are included for educational context. RoboTax is not tax, legal, or financial advice, and this content should be reviewed with a qualified tax professional before being used for filing decisions.