What Is the QBI Deduction?
One of the biggest tax breaks available to self-employed people and small business owners is often the least understood: the Qualified Business Income deduction, or QBI, created under Section 199A.
The Basic Idea
QBI lets many self-employed people and pass-through business owners deduct up to 20% of their qualified business income from their taxable income — a meaningful reduction that doesn't require itemizing or any special election in most straightforward cases.
Who Qualifies
Most sole proprietors, freelancers, partners in partnerships, and S-corporation shareholders qualify, as long as their income comes from a legitimate trade or business (not investment income like most dividends or capital gains).
The SSTB Wrinkle
Certain "specified service trades or businesses" — health, law, accounting, consulting, financial services, performing arts, and similar fields — face additional restrictions on the deduction once income rises above certain thresholds. Below those thresholds, SSTBs generally get the full deduction just like any other business.
Profit, Not Revenue
The 20% is calculated on your qualified business income — your net profit after business expenses — not your gross revenue. A freelancer billing $150,000 with $40,000 in expenses has $110,000 in QBI, not $150,000.
What QBI Doesn't Do
QBI is strictly an income tax deduction. It has no effect on your self-employment tax, which is still calculated on your full net self-employment earnings regardless of your QBI deduction.
See your estimated QBI savings:
Use the Free Deduction & QBI Calculator →Frequently Asked Questions
Who qualifies for the QBI deduction?
Most owners of sole proprietorships, partnerships, S-corps, and other pass-through entities, subject to SSTB restrictions at higher incomes.
What counts as a specified service trade or business (SSTB)?
Health, law, accounting, consulting, financial services, and performing arts, generally.
Is the QBI deduction 20% of revenue or profit?
Generally 20% of net profit (qualified business income), not gross revenue.
Does the QBI deduction reduce my SE tax?
No — it's an income tax deduction only, calculated separately from SE tax.
Do I need to itemize to claim the QBI deduction?
No, it's available whether you take the standard deduction or itemize.