Business
QBI Deduction (Section 199A): How It Saves You $5,000-$40,000 in 2026
The Qualified Business Income (QBI) deduction lets owners of pass-through businesses (S-corps, LLCs, sole proprietorships, partnerships) deduct 20% of their qualified business income from their taxable income. For a business owner earning $200K in QBI, that's a $40K deduction, reducing the effective tax rate by approximately 7-8 percentage points. OBBBA extended this deduction through 2028.
Who Qualifies
- Own a pass-through business (S-corp, LLC, sole proprietorship, partnership)
- Have qualified business income (not W-2 wages)
- Below phase-out thresholds OR business is not a Specified Service Trade or Business (SSTB)
- Income below $191,950 (single) or $383,900 (married) for full deduction without limitations
Who does NOT qualify
- W-2 employees (QBI is for business owners only)
- Specified Service Trades above the income threshold (consulting, law, medicine, accounting, financial services)
- C-corporations (already taxed at corporate rate)
How the Math Works
QBI deduction: $250K × 20% = $50K. Income is below the SSTB phase-out range for married filers. Full deduction applies.
At a 35% marginal rate, the $50K deduction saves $17,500 in federal taxes.
Legal Basis & IRC Citations
- IRC §199A: Qualified business income deduction
- IRC §199A(d): Specified service trade or business (SSTB) limitations
- OBBBA: Extended §199A through 2028
OBBBA Update: OBBBA extended the QBI deduction through December 31, 2028 (originally set to expire after 2025).
What to Tell Your CPA
“I have $[amount] in qualified business income from my [S-corp/LLC]. I'd like to claim the 20% QBI deduction under §199A. My business [is/is not] a Specified Service Trade. Can you confirm I'm below the phase-out threshold and calculate the optimal deduction?”
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Frequently Asked Questions
Does the QBI deduction apply to consulting income?
Consulting is classified as a Specified Service Trade or Business (SSTB). If your taxable income is below $191,950 (single) or $383,900 (married), the full 20% deduction applies regardless. Above that, the deduction phases out completely for SSTBs. Below, you're fine.
Is the QBI deduction still available in 2026?
Yes. OBBBA extended the §199A deduction through December 31, 2028.
Can rental income qualify for QBI?
Yes, if your rental activity rises to the level of a trade or business. The IRS Safe Harbor (Rev. Proc. 2019-38) requires 250+ hours of rental services per year and separate books and records.
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