The qualified business income (QBI) deduction lets many owners of sole proprietorships, partnerships and S corporations deduct up to 20% of their qualified business income, whether they itemize or take the standard deduction. For the 2025 tax year, the simpler Form 8995 applies if taxable income before the deduction is $197,300 or less ($394,600 married filing jointly). A ProfitDrawer bookkeeping spreadsheet keeps the yearly business profit totals a tax preparer will ask for.
QBI is the net amount of qualified income, gain, deduction and loss from a qualified trade or business. Income from a C corporation and pay you earn as an employee do not count.
Key rules for the 2025 tax year (Form 8995 instructions):
- The total deduction is limited to 20% of your taxable income figured before the QBI deduction, minus net capital gain.
- Above the threshold ($197,300, or $394,600 married filing jointly) you use Form 8995-A, and limits based on W-2 wages paid, business property and specified service trades or businesses can reduce the deduction.
- QBI takes into account related deductions such as the deductible part of self-employment tax, self-employed health insurance and retirement plan contributions.
Changes from the 2026 tax year: the 20% deduction is now permanent (P.L. 119-21). IRS Publication 505 (2026) says that if you have at least $1,000 of qualified business income from an active trade or business, you may be able to claim a minimum deduction of $400, and the phase-in range grows to $150,000 (married filing jointly) and $75,000 (other filers). Check the 2026 Form 8995 instructions for the 2026 thresholds when they are published.
General information, not tax advice.
Source: IRS: Qualified business income deduction · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.