The Qualified Business Income Deduction (QBI)
What It Means for Business Owners, Who Qualifies, and How Much You Can Deduct on Your 2025 Tax Return?
What Is the QBI Deduction?
If you own a business, work for yourself, or receive income from a pass‑through entity, the Qualified Business Income Deduction (QBI) may be one of the most valuable tax benefits available to you. Created under the Tax Cuts and Jobs Act and extended through the One Big Beautiful Bill Act (OBBBA), QBI allows eligible business owners to deduct up to 20% of their qualified business income—even if they take the standard deduction.
For many small businesses, this deduction can dramatically reduce taxable income and increase after‑tax profit. But the rules are complex, and eligibility depends on your income, entity type, and the nature of your business.
This guide breaks everything down in plain English so you can understand whether you qualify and how much you may be able to deduct.
What Is the QBI Deduction?
The Qualified Business Income Deduction allows eligible taxpayers to deduct:
Up to 20% of their qualified business income (QBI)
Up to 20% of qualified REIT dividends and publicly traded partnership income
This is an above‑the‑line deduction, meaning:
You can claim it even if you take the standard deduction
It reduces your taxable income
It applies to most pass‑through businesses
QBI applies to tax years 2018 through 2025, and OBBBA extends the deduction through 2028.
Who Qualifies for QBI?
You may qualify if you earn income from:
A sole proprietorship (Schedule C)
A single‑member LLC
A partnership
An S corporation
Certain trusts and estates
Businesses most likely to benefit:
Consultants
Real estate professionals
Trades and contractors
Retail and e‑commerce
Professional services (with income limits)
Hospitality and food service
Transportation and logistics
Health and wellness providers
Online businesses and creators
If your business is a pass‑through entity, QBI is designed for you.
What Counts as Qualified Business Income?
QBI includes:
Net profit from your business
Ordinary business income
Income from partnerships or S‑corps (reported on K‑1s)
QBI does not include:
W‑2 wages you earn as an employee
Capital gains
Interest income
Dividend income
Reasonable compensation paid to S‑corp owners
Guaranteed payments to partners
How Much Can You Deduct?
The maximum deduction is 20% of your qualified business income, subject to IRS limitations.
Example
If your business earned $100,000 in qualified business income:
QBI deduction = $20,000
You pay tax on $80,000 instead of $100,000
This is one of the most powerful deductions available to small business owners.
Income Limits and Phaseouts
QBI rules change once your income exceeds certain thresholds.
Full QBI deduction available if your taxable income is under:
$200,000 (Single, HOH, MFS)
$400,000 (Married Filing Jointly)
Above these limits, additional rules apply:
Wage and property tests
Restrictions for “Specified Service Trades or Businesses” (SSTBs)
Phaseouts that reduce or eliminate the deduction
SSTBs include:
Law
Accounting
Consulting
Financial services
Medical services
Performing arts
Athletics
If your business is an SSTB and your income exceeds the threshold, your QBI deduction may be reduced or eliminated.
Why QBI Is So Complicated?
QBI is one of the most technical deductions in the tax code because it requires:
Correctly identifying qualified business income
Applying wage and property limitations
Determining whether your business is an SSTB
Calculating taxable income thresholds
Coordinating multiple K‑1s
Adjusting for losses, carryovers, and basis limitations
Even small errors can cause the deduction to be reduced or denied.
How to Know Your Exact QBI Deduction
To calculate your deduction, we must:
Determine your total qualified business income
Identify whether your business is an SSTB
Apply the income thresholds
Apply the wage and property tests (if required)
Coordinate multiple businesses or K‑1s
Apply carryovers from prior years
Calculate the final 20% deduction
This is not something most business owners can do accurately without professional review.
Why You Should Contact Avari Tax Before Filing?
QBI is powerful—but only if it’s calculated correctly.
At Avari Tax & Financial Services, we:
Review your business structure and income
Analyze your K‑1s, wages, and property basis
Determine whether your business is an SSTB
Apply the correct income thresholds
Maximize your QBI deduction
Ensure your return is accurate and compliant
Explain everything in plain English
For many business owners, QBI is the single largest deduction on their return. Don’t leave it to chance.
Ready to See If You Qualify?
If you own a business or receive pass‑through income, you may be eligible for a significant deduction under QBI.
Let us help you calculate it accurately and make sure you get every dollar you’re entitled to.
Visit AvariTax.com or contact us directly to get started.
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