QBI applies to income from pass-through entities: sole proprietorships (Schedule C), partnerships and S-corps (K-1), and most LLCs. It does not apply to W-2 wages or C-corporation dividends. The deduction reduces your taxable income — not your AGI — so it stacks on top of the standard or itemized deduction.
The QBI Formula
Qualified Business Income(net profit from your pass-through)
×20%(capped at 20% of taxable income less net capital gains)
=QBI Deduction
📌 The catch: the SSTB phaseout
- • For specified service businesses (SSTBs) — consulting, law, medicine, accounting, financial services — the deduction phases out completely above the income thresholds.
- • Recently the phaseout begins at $241,950 taxable income (single) / $483,900 (married joint) and completes $50k / $100k higher.
- • Inside the phaseout range, the marginal cost of one extra dollar can exceed 50–60% — the "cliff effect."
- • For non-SSTBs, the deduction is instead limited by W-2 wages paid + qualified property basis — so paying yourself a salary can increase it.
The full phaseout math and planning moves are in The QBI Deduction Phaseout. Thresholds adjust for inflation each year — see the tax law changes log.
Example QBI Deduction
$30,000
Single filer · $150k business income · below phaseout
Qualified Business Income$150,000
Net profit on Schedule C / K-1
× QBI rate20%
Section 199A statutory rate
= QBI Deduction$30,000
Form 8995 → Form 1040, Line 13
What it's worth
Tax saved at a 24% bracket≈ $7,200
Who qualifies — and who's an SSTB
Sole proprietors
Schedule C freelancers and gig workers
Partnerships & S-corps
K-1 pass-through income
Most LLCs
Single- and multi-member, default tax
Rental real estate
If it rises to a trade or business (safe harbor)
SSTB: consulting & law
Phases out above the income threshold
SSTB: health & finance
Doctors, advisors, accountants — same cliff
NOT eligible: W-2 wages
Salary income never qualifies
NOT eligible: C-corp dividends
C-corp profits use the flat 21% rate instead
See QBI in your actual numbers
The full optimizer factors QBI into your taxable income — and if you're near the SSTB phaseout, it surfaces the retirement and deferral moves that pull you back below the threshold.