For several tax regulations and credits introduced as part of the Tax Cuts and Jobs Act (TCJA), 2025 marks the end of their eligibility period, including for the qualified business income deduction (QBI), unless Congress acts to extend it. Also known as the Section 199A deduction, the QBI deduction can provide a significant tax benefit to some small business owners or self-employed individuals. Looking ahead, now is the time to evaluate whether to use or lose the QBI deduction for write-offs before it is too late. 

How It Works

The QBI deduction is available to owners of pass-through entities — such as S corporations, partnerships and limited liability companies — as well as self-employed individuals. 

The maximum deduction is equal to 20% of QBI. QBI refers to your net profit, excluding capital gains and losses, dividends and interest income, employee compensation and guaranteed payments to partners. The deduction can be claimed whether you itemize or not.

Notably, the QBI deduction is subject to a phaseout based on your income. If your total taxable income is below the lowest threshold, you may be entitled to the full 20% deduction although other limitations do apply.

QBI Lowest Threshold

But things get tricky if your income exceeds the applicable threshold. In that case, your ability to claim the QBI deduction depends on the nature of your business. 

Specifically, the rules are different for regular business owners of pass-through entities, sole proprietors and those who are in specified service trades or businesses (SSTBs). This covers most individuals who provide personal services to the public, such as physicians, attorneys, financial planners and accountants (engineers and architects are excluded). Professionals in this group forfeit the QBI deduction entirely if income exceeds another set of limits. 

QBI Upper-Income Threshold

If your income falls between the thresholds stated above, your QBI deduction is reduced, regardless of whether you are in an SSTB or not. For taxpayers who are in SSTBs, the QBI deduction is phased out until it disappears at the upper-income threshold. For other taxpayers, the deduction is limited to the lesser of 20% of QBI or the greater of 1) 50% of the wages paid to employees on W-2s, or 2) 25% of wages plus 2.5% of the unadjusted basis of the qualified property owned by the business. 

Available for a Limited Time

The QBI deduction provides a valuable tax break for small business owners, so if it expires, their taxes are likely to go up. It is unclear whether the deduction has a chance of being extended, so we encourage you to explore the best strategy for your personal situation as part of your 2024 and 2025 tax planning.