Last updated: July 14, 2026
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.
- • For specified service businesses (SSTBs) — consulting, law, medicine, accounting, financial services — the deduction phases out completely above the income thresholds.
- • For 2026, the phaseout begins at ≈$201,775 taxable income (single) / ≈$403,550 (married joint) and completes $75k / $150k higher.
- • Inside the phaseout range, the effective marginal cost of one extra dollar can reach roughly 50–55% — 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. OBBBA (July 2025) made the deduction permanent and added a $400 minimum deduction (2026) for taxpayers with at least $1,000 of QBI and material participation. Thresholds adjust for inflation each year — see the tax law changes log.
Simplified. The 20% × QBI figure above is the statutory starting point; the allowed deduction is computed after the ½-SE-tax deduction and the 20%-of-taxable-income cap — here about $24,700 (roughly 15–20% lower), so the real saving is ≈$5,928.
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.