QBI Deduction Calculator

The qualified business income deduction lets owners of pass-through businesses — sole proprietorships, partnerships, S-corps and most LLCs — deduct up to 20% of their business profit from taxable income. It was introduced to narrow the gap between the flat corporate rate and the higher individual rates that pass-through owners pay on the same profit.

It is unusual among deductions in that it does not require spending anything. It is a straight reduction in taxable income based on profit earned, taken below the line, and available whether or not you itemise. For an owner in the 24% bracket, a $30,000 deduction is worth around $7,200 in cash. The One Big Beautiful Bill Act made it permanent, removing the 2025 sunset that had made long-term planning around it difficult.

The rule that surprises people most is that certain professions lose the deduction entirely once income is high enough. A specified service trade or business — health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, and any business whose principal asset is the reputation or skill of its employees or owners — is fully phased out above the top of the range.

For 2026 that means a single filer in one of these fields gets nothing above $276,750 of taxable income, and a married couple nothing above $553,500. Below the threshold, the SSTB designation does not matter at all. It only bites in and above the phase-in band.

Two exclusions are worth knowing because they are counterintuitive: engineering and architecture were specifically carved out of the SSTB definition and remain eligible at any income. And the phase-out is tested on taxable income, not business income — which means deductions that reduce taxable income can restore the deduction, and near the top of the range each dollar of taxable income avoided can be worth several dollars of tax.

Above the threshold, every business — service or not — faces a second restriction. The deduction cannot exceed the greater of 50% of the W-2 wages the business paid, or 25% of those wages plus 2.5% of the original cost of qualified depreciable property.

The intent was to tie the benefit to real economic activity, but the practical effect catches many profitable solo businesses. A consultant or contractor operating with no employees and little equipment has no W-2 wages and no property, so the limit is zero and the deduction disappears above the phase-in range regardless of profit.

This is one reason the S-corp election and the QBI deduction interact in ways that need modelling together rather than separately. Paying yourself a W-2 salary through an S-corp creates wages that count toward this limit — but it also reduces qualified business income by the same amount, since the salary is no longer profit. The optimum salary for QBI purposes is frequently different from the one that minimises payroll tax, and the two have to be balanced rather than optimised in isolation.