The Simple Version

QBI stands for Qualified Business Income. The QBI deduction lets you deduct up to 20% of your business income from your taxes. It's like getting a 20% discount on the income tax you pay on your business earnings.

Example: If you have $100,000 in qualified business income, you could deduct $20,000—meaning you only pay income tax on $80,000.

Who Gets It?

The QBI deduction is available to:

Sole proprietors (freelancers, independent contractors)
Partners in partnerships
S corporation shareholders
Some trust and estate beneficiaries

Basically, if you're self-employed or own a "pass-through" business (where business income passes through to your personal tax return), you likely qualify.

Note: W-2 employees don't get this deduction—it's specifically for business owners and self-employed individuals.

The Income Limits

Here's where it gets a bit more complicated. Whether you get the full 20% depends on your total taxable income:

Under the Threshold = Full Deduction

If your taxable income is below these amounts, you get the full 20% deduction, no questions asked:

Single: $0
Married Filing Jointly: $0

Above the Threshold = It's Complicated

If your income is above these thresholds, the deduction starts to phase out and additional rules kick in. At very high incomes, you may not get any deduction at all (especially for certain service businesses).

Specified Service Businesses (SSTB)

Some types of businesses face extra limitations. These are called "Specified Service Trades or Businesses" and include:

Health (doctors, dentists, etc.)
Law
Accounting
Consulting
Financial services
Performing arts
Athletics

If you're in one of these fields AND your income is above the threshold, your QBI deduction phases out more quickly and may disappear entirely at higher incomes.

Good news for most: If your income is under the threshold, it doesn't matter what type of business you have—you get the full 20%.

How It Works in Practice

Let's say you're a single freelance designer with:

$100,000 net self-employment income
$8,000 in other deductions (half of SE tax, etc.)
$14,600 standard deduction

Qualified Business Income $100,000

QBI Deduction (20%) $20,000

Tax Savings (at 22% bracket) ~$4,400

That's $4,400 less in taxes, just from this one deduction!

Important Notes

It reduces income tax, not self-employment tax. You still pay the full 15.3% SE tax on your business income.
It's a deduction, not a credit. It reduces your taxable income, not your tax bill directly.
It's taken on your personal return. Even if you have a business, this deduction goes on your Form 1040.

Calculate Your QBI Deduction

Our self-employment calculator includes the QBI deduction automatically.

SE Tax Calculator →

QBI Deduction Explained