Qualified Business Income (QBI) Deduction
Definition
Also known as the Section 199A deduction, it allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income from pass-through entities (sole proprietorships, partnerships, S corps). The deduction is limited for specified service trades or businesses (law, medicine, consulting, etc.) when taxable income exceeds $191,950 (single) or $383,900 (joint) in 2025. The deduction is taken on your personal return and reduces taxable income but not AGI.
Example
Your S corporation generates $100,000 in qualified business income. With the QBI deduction, you can deduct $20,000, effectively paying tax on only $80,000 of that income.
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