The Qualified Business Income (QBI) deduction lets many small business owners deduct up to 20% of their business income — and under the 2025 tax law it was made permanent, so it is not going away after 2025 the way it was once scheduled to. If you own a pass-through business, here is who qualifies in 2026 and how the rules actually work.
What is the QBI deduction?
The QBI deduction is a tax break that lets owners of pass-through businesses deduct up to 20% of their qualified business income on their personal return. It applies to income from sole proprietorships, partnerships, S corporations, and most LLCs — businesses whose profits "pass through" to the owner's individual tax return. It is a deduction against taxable income, not a credit, and you can claim it whether or not you itemize.
Who qualifies for the QBI deduction in 2026?
Most pass-through business owners qualify, but higher earners face limits and some service businesses are restricted. In broad terms:
- Below the income thresholds: most owners simply take 20% of their qualified business income, subject to a limit based on taxable income.
- Above the thresholds: the deduction may be limited by W-2 wages the business pays and the cost of its property, and may be reduced or eliminated for "specified service" businesses.
- SSTBs (specified service trades or businesses) — such as law, accounting, consulting, and health — can lose the deduction once income climbs past the phase-out range.
The 2025 law also widened the phase-in ranges and added a minimum deduction for smaller active businesses, so more owners near the thresholds keep some benefit. The exact figures are indexed each year, so confirm the current numbers when you file.
What counts as qualified business income?
Qualified business income is the net profit from your U.S. business — revenue minus deductible expenses. It does not include wages you pay yourself as an S-corp owner, guaranteed payments to partners, investment income like capital gains and dividends, or income earned outside the United States. Because owner wages are excluded, how you structure compensation can affect the size of your QBI deduction, which is one reason S-corp owners should look at salary and QBI together.
Is the QBI deduction permanent now?
Yes — the 2025 tax law made the 20% QBI deduction permanent, removing the expiration that was previously set for the end of 2025. For planning purposes, that means pass-through owners can count on the deduction continuing rather than treating it as a benefit about to disappear. It still has to be calculated correctly each year, and the income limits still apply, but the deduction itself is no longer on a countdown. If you want to make sure you are capturing the full deduction you are entitled to, our Tax & Compliance team builds it into your return and your year-end planning.
How do I claim the QBI deduction?
You claim it on your personal return using the IRS QBI forms, after your business income flows through from your Schedule C, partnership, or S-corp return. For owners under the income thresholds it is relatively straightforward; above them, the wage-and-property limits and SSTB rules make it one of the trickier calculations on the return. Good books are essential, because the deduction depends on an accurate profit figure and, for larger businesses, on W-2 wages and asset records.
How can I make the most of my QBI deduction?
Manage the inputs the deduction depends on — taxable income, wages, and entity structure — rather than leaving it to chance. Because the deduction phases out and can hinge on W-2 wages above the income thresholds, several year-end moves can protect or grow it:
- Watch your taxable income near the threshold, where retirement contributions or timing can keep more of the deduction in play.
- Consider wages and structure, since for higher earners the deduction can depend on the W-2 wages the business pays.
- Keep clean books, because an accurate profit figure is the starting point for the whole calculation.
These interact with the rest of your return, so they are worth reviewing with a pro before year-end rather than at filing time.
The QBI deduction is one of the most valuable breaks available to small business owners — and one of the easiest to under-claim. If you are not sure you are getting the full 20%, we are happy to take a look.