tax · 2026-05-01
Compute the Section 199A Qualified Business Income deduction (up to 20% of business income) for self-employed and pass-through owners.
| Qualified Business Income | $120,000 |
| Total taxable income | $180,000 |
| Filing status | Single (or HoH) |
| Specified Service Trade? | No (most businesses) |
| W-2 wages paid by business | $0 |
| Federal tax saved at 24% bracket | $5,760 |
| Effective rate reduction | 4.8% |
The QBI deduction (Section 199A) is the best post-TCJA goodie for self-employed and pass-through owners. Up to 20% of qualified business income deducted before computing federal tax. Free money if you qualify.
1. Compute QBI (net SE income, K-1 ordinary income, etc.)
2. Compute total taxable income (TTI)
3. If TTI ≤ $191,950 single ($383,900 MFJ): full 20% deduction, no SSTB issue
4. If TTI > threshold:
- If SSTB: phases out to $0 between $191k-$241k single
- If non-SSTB: limited to lesser of 20% × QBI or 50% × W-2 wagesThe list (Section 199A(d)(2)(A)):
NOT SSTBs (eligible above threshold): engineering, architecture, manufacturing, retail, real estate (rentals are tricky).
Generally only if it rises to a 'trade or business' under Section 162. The IRS Safe Harbor (Rev Proc 2019-38): 250+ hours/year of rental services, separate books, contemporaneous records. Most personal landlords with 1-2 rentals don't hit the safe harbor and DON'T qualify for QBI.
Yes — each pass-through entity computes its own QBI. You can also AGGREGATE multiple businesses if they share common ownership and ordinary commonality (Rev Proc 2018-44). Aggregation lets you use one business's W-2 wages to support another's QBI claim — useful for above-threshold owners with multiple LLCs.
Yes — Section 199A is currently scheduled to expire after Dec 31, 2025. Without congressional action, full 20% QBI deduction goes away in 2026. Plan for the loss; possibility of extension is real but not guaranteed.