This QBI deduction calculator estimates your Section 199A qualified business income deduction for 2026 — the deduction of up to 20% of pass-through business income that sole proprietors, LLCs, partnerships, and S-corp owners can take. Enter your business income, taxable income, filing status, and W-2 wages to see your deduction, with the 2026 income thresholds and the special specified service business (SSTB) phase-out built in.
The qualified business income deduction — Internal Revenue Code Section 199A — is one of the most valuable breaks for the self-employed. It lets owners of pass-through businesses (sole proprietorships, single-member LLCs, partnerships, and S corporations) deduct up to 20% of their qualified business income straight off their taxable income. A freelancer with $120,000 of profit can shave roughly $24,000 off the income that gets taxed — worth thousands in actual tax savings. You can claim it whether you itemize or take the standard deduction, which makes it nearly universal among small-business owners.
How the deduction works depends entirely on your taxable income relative to a threshold:
Most small-business owners fall under the threshold and simply take 20%. The complexity only arrives at higher incomes.
A specified service trade or business (SSTB) is one in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, or any business whose principal asset is the reputation or skill of its owners. If you run an SSTB and your taxable income climbs above the phase-out range (roughly $50,000 over the threshold for singles, $100,000 for joint filers), you lose the QBI deduction entirely. Within the range it phases out proportionally. Non-SSTB owners don't face this cliff — they instead rely on the W-2 wage test.
For non-SSTB owners above the threshold, the deduction is capped at the greater of: (1) 50% of the business's W-2 wages, or (2) 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified business property. This is why a high-earning business with no employees and no real property can see its QBI deduction shrink — and it's a key reason an S-corp owner's salary choice matters, since paying yourself W-2 wages can create wage capacity for the deduction.
A single freelancer with $120,000 of qualified business income and $140,000 of taxable income — comfortably under the threshold.
| Step | Amount |
|---|---|
| Qualified business income | $120,000 |
| 20% of QBI | $24,000 |
| Taxable income ($140,000, under threshold) | full deduction allowed |
| Overall cap (20% of taxable income) | $28,000 (not binding) |
| QBI deduction | $24,000 |
That $24,000 comes straight off taxable income. In the 22% bracket it's worth about $5,280 in tax savings — for doing nothing more than running a profitable pass-through business.
Two common misunderstandings: First, the QBI deduction reduces income tax only. You still owe the full 15.3% self-employment tax on your net earnings — the QBI deduction is taken afterward, against taxable income, with no effect on SE tax. Second, it's based on qualified business income, which excludes things like capital gains, dividends, interest income, and reasonable compensation/guaranteed payments to owners. Investment income never qualifies.
If you run an S corporation, your reasonable salary cuts both ways. W-2 wages reduce your QBI (lowering the 20% base), but above the income threshold those same wages raise your wage-limit ceiling. So the salary that minimizes FICA isn't always the one that maximizes total after-tax income once QBI is in play. Model both sides — our S-corp reasonable salary calculator handles the FICA side, and this page handles the QBI side.
If your taxable income is under the threshold, you claim the deduction on the simple Form 8995. Above the threshold, or with multiple businesses or SSTB issues, you use the longer Form 8995-A, which walks through the wage and property limits and the SSTB phase-out. The deduction then lands on your Form 1040 as a subtraction from taxable income, after AGI.
The tool computes 20% of your qualified business income (capped at 20% of taxable income overall). If your taxable income is under the 2026 threshold, it grants the full amount. In the phase-out range it scales the deduction — reducing it proportionally for SSTBs and phasing in the 50%-of-W-2-wages limit for non-SSTBs. Above the upper range it applies the wage limit (non-SSTB) or zeroes the deduction (SSTB). All thresholds reflect the 2026 figures.
The 20% applies only to qualified business income, and the definition has sharp edges that surprise people. QBI is the net income from a qualified US trade or business — revenue minus the ordinary and necessary expenses of running it. It specifically excludes: capital gains and losses, dividends, interest income not allocable to the business, foreign-currency and commodity gains, and — importantly for owners — reasonable compensation paid to an S-corp shareholder and guaranteed payments to a partner. So an S-corp owner's W-2 salary is not QBI (it reduces it), and a partner's guaranteed payment for services isn't QBI either. Investment income never qualifies, which is why a portfolio or a pure rental held as an investment may or may not produce QBI depending on whether it rises to the level of a trade or business. Knowing what's in and out of the QBI base is the first step to estimating the deduction accurately.
One of the most-asked QBI questions is whether rental property qualifies. The answer is "it depends on whether the rental rises to a trade or business." The IRS provides a safe harbor (Revenue Procedure 2019-38) under which a rental real-estate enterprise can be treated as a qualifying business for QBI if it meets specific requirements — chiefly performing at least 250 hours of rental services per year and keeping contemporaneous records of those hours, the services performed, dates, and who performed them. Triple-net leases and property used as a personal residence part of the year generally don't qualify. Real-estate investors who clear the safe harbor (or otherwise demonstrate a trade or business) can apply the 20% deduction to their net rental income — a significant break — but the recordkeeping requirement is strict, so casual landlords often fall short. If rental income is a major part of your picture, this distinction can swing your deduction by thousands of dollars.
Because the full, unlimited 20% deduction is available below the income threshold — with no W-2 wage test and no SSTB cliff — managing your taxable income toward that threshold can be one of the highest-value moves for a service-business owner. Legitimate levers that lower taxable income include maximizing retirement contributions (a solo 401(k) or SEP-IRA), funding an HSA, timing income and deductible expenses across tax years, and for married couples, the way you structure income between spouses. For an SSTB owner hovering just above the phase-out, a few thousand dollars of additional retirement contributions can restore a deduction worth far more than the contribution — effectively a stacked tax benefit. The calculator above lets you test this directly: lower your taxable-income input toward the threshold and watch the allowed deduction climb, especially for specified service businesses near the cliff.
The Section 199A deduction of up to 20% of qualified business income for owners of pass-through businesses. It reduces taxable income (not self-employment tax) and is available whether or not you itemize.
About $197,300 single and $394,600 married filing jointly. Below it you generally get the full 20%; above it the wage/property limits and SSTB phase-out apply.
A specified service trade or business (health, law, accounting, consulting, finance, etc., or any business built on the owners' reputation/skill). SSTB owners lose the deduction above the phase-out range.
Above the threshold, yes: capped at the greater of 50% of W-2 wages, or 25% of wages plus 2.5% of qualified property basis. Below the threshold this limit doesn't apply.
No. It reduces income tax only. You still owe the full 15.3% self-employment tax on net earnings.
It was made permanent and modified under the 2025 tax law, with inflation-indexed thresholds, so the 20% deduction continues for 2026 and beyond.