Key Takeaways
- A QBI allows eligible businesses to deduct up to 20% of their business’s qualified income from their taxes, allowing them to secure a refund from quarterly payments
- Certain business types and industries are excluded from QBI deduction eligibility
- Individuals filing jointly must have a taxable income below $394,600 for 2025
- Individuals filing separately must have a taxable income below $197,300 for 2025
- Business owners can strategically position themselves to qualify for a QBI deduction next tax season
What Is A QBI Deduction?
A Qualified Business Income (QBI) deduction allows certain eligible businesses to deduct up to 20% of their business’s net qualified income from their taxes.
This qualified income is determined by key factors pertaining to your business’s functions, industry, and total income.
This qualified income is determined by key factors pertaining to your business’s functions, industry, and total income.
Who Can Claim QBI Deductions
QBI deductions are available to the following business types:
- Sole Proprietorship
- Partnership
- LLC that files as an S-Corp, Partnership, or Sole Proprietorship
- S-Corporation
- Health
- Law
- Accounting
- Consulting
- Athletics
- Finance
Overall Taxable Income
In order to confirm your eligibility for QBI deductions, you’ll need to calculate your overall taxable income for the year.
Your taxable income reflects your business’s annual income, subtracting any expenses that are eligible as a tax deduction.
For example, any sum of money you contribute to a retirement plan is subtracted from your taxable income. You can also decrease your overall taxable income by paying employees a fair wage and accounting for the depreciation of any assets you hold.
Your taxable income reflects your business’s annual income, subtracting any expenses that are eligible as a tax deduction.
For example, any sum of money you contribute to a retirement plan is subtracted from your taxable income. You can also decrease your overall taxable income by paying employees a fair wage and accounting for the depreciation of any assets you hold.
2025 QBI Deduction Thresholds For SSTBs
For 2025 taxes, these are the overall taxable income thresholds where allowable QBI deductions begin to decrease for Specialized Service Trade Businesses:
If your taxable income was between the lowest and highest threshold for your respective filing status, you’re in the Phase-Out range and your QBI deduction percentage will be adjusted accordingly.
If your income lies above the upper threshold for your filing status, you are not eligible for a QBI deduction.
- Married Filing Jointly: $394,600 to $494,600
- Married Filing Separately: $197,300 to $247,300
- Single/Head of Household: $197,300 to $247,300
If your taxable income was between the lowest and highest threshold for your respective filing status, you’re in the Phase-Out range and your QBI deduction percentage will be adjusted accordingly.
If your income lies above the upper threshold for your filing status, you are not eligible for a QBI deduction.
2025 QBI Deductions For Non-SSTBs
Non-SSTBs are eligible for a full 20% deduction up to the following taxable income thresholds:
UBIA, or Unadjusted Basis Immediately After Acquisition, refers to the amount a business owner initially paid for any property and equipment prior to its depreciation. For assets to be considered “qualified property” in this context, the assets must satisfy all of the following:
- Married Filing Jointly: $494,600
- Married Filing Separately: $247,300
- Single/Head of Household: $247,300
UBIA, or Unadjusted Basis Immediately After Acquisition, refers to the amount a business owner initially paid for any property and equipment prior to its depreciation. For assets to be considered “qualified property” in this context, the assets must satisfy all of the following:
- Property is both owned by and available to the filing business at the close of the tax year
- Property is used by the filing business at any point during the tax year in order to produce the business’s income
- Property’s depreciable time frame for UBIA purposes has not ended before the close of the tax year
- 50% of W-2 wages paid
- 25% of W-2 wages paid + 2.5% of UBIA qualified property
Example
- Your business paid $200,000 in W‑2 wages to employees
- You own $1,000,000 worth of UBIA of qualified property
$200,000 x 50%=$100,000
2. Find 25% of W-2 wages + 2.5% of UBIA qualified property and combine:
$200,000 x 25%= $50,000
$1,000,000 x 2.5%= $25,000
$50,000 + $25,000 = $75,000
3. The largest of those 2 calculations is your business’s QBI deduction limit, meaning you cannot deduct more than that amount from your taxable income.
$100,000 > $75,000
In this case, your business’s QBI deduction limit would be $100,000.
How Can You File QBI Deductions?
Small business owners can claim QBI deductions by completing Form 8995.
What Factors Help Small Business Owners Qualify For QBI Deductions?
If you are strategic throughout the year, you can ensure your taxable income falls below the QBI threshold in order to receive deductions next tax season.
Consider making larger retirement plan contributions or increasing employee wages. For more ways to decrease your taxable income, see the official IRS website.
Making substantial retirement savings, paying a fair wage to employed staff, and calculating asset depreciation can help you strategically decrease your business’s taxable income, therefore increasing the QBI deductions you’re eligible for come tax season.
Consider making larger retirement plan contributions or increasing employee wages. For more ways to decrease your taxable income, see the official IRS website.
Making substantial retirement savings, paying a fair wage to employed staff, and calculating asset depreciation can help you strategically decrease your business’s taxable income, therefore increasing the QBI deductions you’re eligible for come tax season.
Start Planning For The Year Ahead
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