QBI Deduction Calculator 2026 - Section 199A Pass-Through Deduction

Calculate your 2026 QBI deduction instantly and maximize your Section 199A pass-through deduction. Our comprehensive calculator helps sole proprietors, partnerships, S-corps, and LLCs claim up to 20% of qualified business income as a deduction.

Understanding the QBI Deduction (Section 199A)

The Qualified Business Income (QBI) deduction, created by the Tax Cuts and Jobs Act and made permanent by the One Big Beautiful Bill Act (OBBBA), allows eligible pass-through business owners to deduct up to 20% of their qualified business income from their taxable income.

What is the QBI Deduction Worth?

The QBI deduction can provide substantial tax savings:

Example: Self-employed individual with $100,000 QBI in the 24% tax bracket

• QBI deduction: $100,000 × 20% = $20,000
• Tax savings: $20,000 × 24% = $4,800 per year

For high-income business owners, this can mean tens of thousands in annual tax savings.

2026 QBI Deduction Highlights

Key Changes Under OBBBA:

• Made permanent: No longer expires after 2025
• Extended phase-in range: $75,000 for single filers (up from $50,000)
• Extended married phase-in: $150,000 for joint filers (up from $100,000)
• 2026 income thresholds: $201,775 (single) / $403,500 (married joint)

Basic Rules:

• 20% deduction of qualified business income
• Limited to 20% of taxable income
• Additional limitations apply above income thresholds
• Different rules for Specified Service Trades or Businesses (SSTB)

Eligibility Requirements

Who Qualifies for QBI Deduction?

Eligible Business Structures:

• Sole proprietorships (Schedule C)
• Single-member LLCs (disregarded entities)
• Partnerships (Schedule E)
• S corporations (Schedule E)
• Trusts and estates with qualified business income

What is NOT Eligible:

• C corporations (they have their own flat 21% tax rate)
• W-2 wages from your own business
• Capital gains or losses
• Dividends
• Interest income (except from lending businesses)
• Wages from employment

What Counts as Qualified Business Income (QBI)?

QBI Includes:

• Net business income from qualified trades or businesses
• Ordinary income from partnerships and S corporations
• Rental income from active real estate businesses
• Income from qualified cooperatives

QBI Does NOT Include:

• Reasonable compensation paid to S-corp shareholders
• Guaranteed payments to partners
• Capital gains and losses
• Dividend income
• Interest income (unless from a lending business)
• Income from foreign sources

2026 Income Thresholds and Limitations

The Three Income Tiers

The QBI deduction works differently depending on your income level:

Tier 1: Below the Threshold (Full Deduction)

2026 Thresholds:

• Single/Head of Household: $201,775 or less
• Married Filing Jointly: $403,500 or less

Benefits at This Level:

• Full 20% QBI deduction (limited only by taxable income)
• No W-2 wage limitation
• No qualified property limitation
• SSTB businesses fully qualify

This is the "sweet spot" for QBI—maximum deduction with minimum complexity.

Tier 2: Phase-In Range (Partial Limitations)

2026 Phase-In Ranges:

• Single/Head of Household: $201,775 - $276,775 (NEW: $75,000 range)
• Married Filing Jointly: $403,500 - $553,500 (NEW: $150,000 range)

What Happens Here:

• W-2 wage limitation phases in gradually
• SSTB deduction phases out gradually
• Calculations become more complex
• Partial limitations apply based on where you fall in the range

Tier 3: Above Phase-In Range (Full Limitations)

2026 Income Levels:

• Single/Head of Household: Over $276,775
• Married Filing Jointly: Over $553,500

Limitations at This Level:

• Full W-2 wage and qualified property limitation
• SSTB businesses receive NO deduction
• Maximum complexity in calculations

W-2 Wage and Property Limitations

If your income exceeds the threshold, your QBI deduction cannot exceed the GREATER of:

Method 1: 50% of W-2 wages paid by the business

Method 2: 25% of W-2 wages + 2.5% of unadjusted basis of qualified property

Example:

• QBI: $200,000 (20% = $40,000 potential deduction)
• W-2 wages paid: $60,000
• Qualified property: $100,000

Method 1: $60,000 × 50% = $30,000 Method 2: ($60,000 × 25%) + ($100,000 × 2.5%) = $15,000 + $2,500 = $17,500

Actual deduction: $30,000 (higher of the two methods, but less than the $40,000 base amount)

Specified Service Trades or Businesses (SSTB)

What is an SSTB?

Specified Service Trades or Businesses include businesses where the principal asset is the reputation or skill of one or more employees or owners.

SSTB Categories:

• Health (doctors, dentists, therapists, etc.)
• Law (attorneys, legal services)
• Accounting (CPAs, bookkeepers)
• Actuarial science
• Performing arts (actors, musicians)
• Consulting
• Athletics
• Financial services (investment advisors, brokers)
• Brokerage services
• Investing and investment management
• Trading securities, commodities, or partnership interests

What is NOT an SSTB:

• Architecture
• Engineering
• Real estate brokerage (specifically excluded)
• Insurance agents (generally)
• Manufacturing
• Retail
• Wholesale
• Restaurants and food service
• Construction
• Most other trades and businesses

SSTB Phase-Out Rules

Income Below Threshold ($201,775/$403,500):

• SSTB fully qualifies for 20% deduction
• No different than non-SSTB businesses

Income in Phase-In Range:

• SSTB deduction gradually phases out
• Reduction proportional to where you are in the range

Example: Single filer, SSTB, taxable income $240,000

• Threshold: $201,775
• Phase-out complete: $276,775
• Into phase-out: $240,000 - $201,775 = $38,225
• Phase-out range: $75,000
• Percentage remaining: ($75,000 - $38,225) / $75,000 = 49.0%
• QBI deduction: Base deduction × 49.0%

Income Above Phase-In Range:

• NO QBI deduction for SSTB businesses
• Complete phase-out at $276,775 (single) or $553,500 (married)

Advanced Strategies to Maximize QBI Deduction

Strategy 1: Optimize Your Income Level

If Just Above the Threshold:

Consider these tactics to reduce taxable income below the threshold:

Retirement Contributions:

• Max out 401(k): $23,500 (2026, plus $7,500 catch-up if 50+)
• Solo 401(k): Up to $70,000+ total contribution
• SEP IRA: Up to 25% of compensation
• Defined benefit plan: $100,000+ for older high earners

HSA Contributions:

• Individual: $4,300 (2026)
• Family: $8,550 (2026)
• Reduces AGI directly

Example Impact:

• Taxable income: $210,000 (above $201,775 threshold)
• Max Solo 401(k) contribution: $25,000
• New taxable income: $185,000 (now below threshold)
• Result: Full QBI deduction, no W-2 wage limits

Strategy 2: Increase W-2 Wages (For High Earners)

If you're above the threshold and limited by W-2 wages:

For S-Corporation Owners:

• Increase reasonable W-2 salary to yourself
• Improves QBI deduction above threshold
• Balance with payroll tax costs

Example: S-corp with $300,000 net income, taxable income $320,000 (above threshold)

Current situation:

• Owner W-2 salary: $50,000
• QBI (S-corp income minus salary): $250,000
• Base 20% deduction: $50,000
• But limited to 50% of W-2: $25,000
• Actual deduction: $25,000

After optimization:

• Increase W-2 salary to $100,000
• QBI: $200,000
• Base 20% deduction: $40,000
• W-2 limit (50%): $50,000
• New deduction: $40,000

Tax impact:

• Lost $50,000 in QBI, but gained $50,000 in W-2 wages
• 20% of $50,000 = $10,000 lost deduction
• But gained back through higher W-2 limit
• Net benefit: $15,000 larger deduction

Note: Must still pay reasonable compensation; cannot manipulate wages solely for tax benefit.

Strategy 3: Invest in Qualified Property

The 2.5% of qualified property can add up with significant assets:

Qualified Property Includes:

• Machinery and equipment
• Commercial real estate (buildings)
• Vehicles used in business
• Computer equipment
• Furniture and fixtures

Must meet these tests:

• Used in the production of QBI
• Depreciable under MACRS
• Held at end of tax year
• Depreciation period hasn't ended

Example:

• Business purchases $1,000,000 in equipment
• Alternative limitation: 25% W-2 + 2.5% property
• Property benefit: $1,000,000 × 2.5% = $25,000
• This adds $25,000 to your W-2 wage limitation

Strategy: Time major equipment purchases strategically to maximize QBI deduction.

Strategy 4: Separate SSTB from Non-SSTB Activities

If you have an SSTB but also other business activities:

Structure Options:

• Separate the non-SSTB activities into different entity
• Allocate income appropriately
• Keep adequate documentation

Example: Medical Practice

• Doctor (SSTB) earns $400,000
• Also owns medical building (non-SSTB)
• Building generates $100,000 rental income

Bad structure: All in one entity

• If income above threshold, entire $500,000 treated as SSTB
• NO QBI deduction

Better structure: Separate entities

• Medical practice: $400,000 (SSTB, no deduction above threshold)
• Real estate LLC: $100,000 (non-SSTB, full 20% = $20,000 deduction)
• Tax savings: $20,000 × 32% tax rate = $6,400/year

Important: Must be legitimate business purposes and proper allocation. Consult tax advisor.

Strategy 5: Use the De Minimis SSTB Exception

If you perform SSTB services but they're minimal:

50% Gross Receipts Test: If less than 50% of your gross receipts come from SSTB activities, you might not be considered an SSTB.

De Minimis Exception (under $25M revenue): If less than 10% of gross receipts ($2M business) or $250,000 (whichever is less) come from SSTB activities, those activities can be ignored.

Example: Engineering Firm

• Total revenue: $3,000,000
• Engineering (non-SSTB): $2,900,000
• Consulting (SSTB): $100,000
• Consulting is 3.3% of revenue (under 10%)
• Entire business treated as non-SSTB
• Full QBI deduction even above income threshold

Strategy 6: Aggregate Multiple Businesses

The IRS allows aggregation of multiple businesses if they meet certain tests:

Aggregation Benefits:

• Combine W-2 wages from multiple businesses
• Combine qualified property
• Can help meet W-2 wage limitation

Aggregation Requirements (must meet at least 2 of 3):

1. Same person(s) owns 50%+ of each business
2. Businesses have common ownership for majority of tax year
3. Choose 2 of these 3:
   • Provide products/services that are the same or customarily offered together
   • Share facilities or centralized business functions
   • Operate in coordination or reliance on each other

Example:

• Business A: $100,000 QBI, $20,000 W-2 wages
• Business B: $50,000 QBI, $60,000 W-2 wages
• Business C: $50,000 QBI, $10,000 W-2 wages

Without aggregation:

• Business A limited by its own $20,000 wages
• Lost QBI deduction potential

With aggregation:

• Combined: $200,000 QBI, $90,000 W-2 wages
• W-2 limit: $90,000 × 50% = $45,000
• Base QBI: $200,000 × 20% = $40,000
• Full $40,000 deduction (not limited by wages)

Common QBI Mistakes to Avoid

Mistake 1: Not Taking the Deduction

The Problem: Many business owners don't realize they qualify or don't claim the deduction.

The Reality: If you have a pass-through business, you almost certainly qualify for some level of QBI deduction.

Impact: Missing out on 20% deduction = significant tax overpayment.

Solution: Always explore QBI deduction possibilities. It's automatic—you don't need to do anything special to qualify except file correctly.

Mistake 2: Including W-2 Wages in QBI

The Problem: S-corp owners sometimes mistakenly include their W-2 salary in QBI.

The Reality:

• QBI is net business income AFTER deducting W-2 wages
• Your salary to yourself is not qualified business income
• It's already taxed as regular wages

Example Error:

• S-corp net income: $200,000
• Owner salary: $75,000
• Wrongly claims QBI: $200,000 (20% = $40,000 deduction)
• Correct QBI: $125,000 (20% = $25,000 deduction)
• Overclaim: $15,000 (could trigger audit)

Mistake 3: Forgetting About Guaranteed Payments

The Problem: Partnership guaranteed payments reduce QBI but aren't always accounted for correctly.

The Reality:

• Guaranteed payments to partners are NOT QBI
• They're separately taxed as self-employment income
• Must be subtracted before calculating 20% deduction

Mistake 4: Miscalculating for Rental Properties

The Problem: Not all rental income qualifies as QBI.

Requirements for Rental QBI:

• Must rise to the level of a trade or business
• Passive rental: Doesn't qualify
• Active rental business: Qualifies

Safe Harbor (automatic qualification):

• Keep contemporaneous records of time spent
• 250+ hours of rental services per year
• Maintain records by rental activity
• Services include: Advertising, tenant communication, rent collection, maintenance, purchasing materials, supervision

Tip: Track your time carefully throughout the year.

Mistake 5: Not Considering Entity Structure

The Problem: Wrong entity structure can cost you thousands in lost QBI deduction.

Example: High-Income SSTB Professional

• Attorney earning $500,000
• As sole proprietor: NO QBI deduction (SSTB above threshold)

Better structure: S-Corporation + Real Estate LLC

• Legal practice S-corp: $350,000 (after reasonable $150,000 salary)
• Buy office building in separate LLC: $100,000 rental income
• Real estate QBI: $100,000 × 20% = $20,000 deduction
• Tax savings: $20,000 × 37% = $7,400/year

Consult: Work with a tax advisor to optimize entity structure.

QBI Deduction Calculation Examples

Example 1: Below Threshold (Simple Case)

Facts:

• Single filer, sole proprietor
• Business net income: $80,000
• Other income: $20,000
• Standard deduction: $16,100
• Taxable income before QBI: $83,900

Calculation:

1. QBI: $80,000
2. Base deduction: $80,000 × 20% = $16,000
3. Taxable income limit: $83,900 × 20% = $16,780
4. QBI deduction: $16,000 (lesser of base or limit)

Tax benefit: $16,000 × 22% tax bracket = $3,520 saved

Example 2: Above Threshold with W-2 Wages

Facts:

• Married filing jointly, S-corporation owner
• S-corp net income: $500,000
• Owner W-2 salary: $150,000 (included in net income above)
• QBI (S-corp income minus salary): $350,000
• Total taxable income: $450,000 (above $403,500 threshold)
• W-2 wages paid by business: $250,000 (including owner)
• No significant qualified property

Calculation:

1. Base QBI deduction: $350,000 × 20% = $70,000
2. W-2 wage limitation (50%): $250,000 × 50% = $125,000
3. Property limitation: Not relevant (minimal property)
4. Taxable income limit: $450,000 × 20% = $90,000
5. QBI deduction: $70,000 (limited by base, not by wages or income)

Tax benefit: $70,000 × 35% tax bracket = $24,500 saved

Example 3: SSTB in Phase-Out Range

Facts:

• Single filer, consultant (SSTB)
• QBI: $120,000
• Taxable income: $240,000
• Threshold: $201,775
• Phase-out complete: $276,775

Calculation:

1. Income above threshold: $240,000 - $201,775 = $38,225
2. Phase-out range: $75,000
3. Percentage into phase-out: $38,225 / $75,000 = 51%
4. Percentage remaining: 100% - 51% = 49%
5. Base deduction: $120,000 × 20% = $24,000
6. QBI deduction: $24,000 × 49% = $11,760

Tax benefit: $11,760 × 32% bracket = $3,763 saved

QBI Deduction and Other Tax Strategies

QBI + Retirement Contributions

Powerful combination for reducing taxes:

Stacking Benefits:

1. Retirement contribution reduces taxable income
2. Lower taxable income might bring you under QBI threshold
3. Potentially enables full 20% QBI deduction
4. Tax-deferred growth in retirement account

Example:

• Single filer, taxable income: $215,000 (above $201,775 threshold)
• QBI: $180,000
• Makes Solo 401(k) contribution: $30,000
• New taxable income: $185,000 (below threshold!)
• QBI deduction: $36,000 (20% of $180,000, no limitations)
• Total deductions: $30,000 + $36,000 = $66,000
• Tax saved: ~$15,840 (24% bracket)

QBI + Real Estate Professional Status

For real estate investors, achieving real estate professional status can unlock significant QBI benefits:

Requirements:

• Spend 750+ hours/year in real property trades or businesses
• More than 50% of personal services in real property trades
• Material participation in rental activities

Benefits:

• Rental losses become non-passive
• Rental income qualifies as QBI
• 20% deduction on rental income

Impact:

• Rental income: $200,000
• QBI deduction: $40,000
• Tax savings: $40,000 × 32% = $12,800

State Tax Considerations

State QBI Deduction Conformity

Not all states allow the federal QBI deduction:

States That Conform (Allow QBI Deduction): Most states follow federal rules, but check your specific state.

States with Modifications:

• California: Doesn't conform for individual returns
• New York: Doesn't allow QBI deduction
• New Jersey: Phases out QBI deduction for high earners

Impact Example (California):

• Federal tax with QBI: Save $10,000
• California tax: No QBI deduction
• State tax increase: ~$4,000
• Net benefit: $6,000 (still worthwhile, but less than federal alone)

Multi-State Business Considerations

If you operate in multiple states:

Issues:

• QBI must be allocated among states
• Some states may not allow the deduction
• Increases compliance complexity

Best practice: Work with multi-state tax professional.

Planning for 2026 and Beyond

Year-End QBI Planning

October-December actions:

1. Review Projected Income
   • Where will you fall relative to thresholds?
   • Can you defer or accelerate income?
2. Maximize Retirement Contributions
   • Make contributions before December 31
   • Consider Solo 401(k) or SEP IRA
3. Purchase Qualified Property
   • If above threshold and limited by W-2 wages
   • Property must be placed in service by December 31
4. Review W-2 Wages
   • S-corp owners: Consider year-end bonus to increase wages
   • Must be reasonable compensation
5. Document Rental Activity
   • Track hours spent on rental activities
   • Maintain contemporaneous records

Multi-Year QBI Strategies

Income Bunching: If income varies year-to-year:

• Defer income to stay below threshold
• Accelerate deductions in high-income years
• Bunch income in years you're already above threshold

Entity Structure Review:

• Reassess every 2-3 years
• Consider changing structure as income grows
• Professional guidance recommended for major changes

Frequently Asked Questions

How do I report the QBI deduction on my tax return?

The QBI deduction is calculated on Form 8995 (simple version) or Form 8995-A (complex version with limitations). The final deduction is reported on Form 1040, line 13, reducing your taxable income.

Can I claim QBI deduction if I have a loss?

No, you can't claim a QBI deduction for a year with a loss. However, the loss carries forward and reduces QBI in future years.

Does the QBI deduction reduce self-employment tax?

No. The QBI deduction reduces your income tax, but does NOT reduce self-employment tax. Self-employment tax is calculated on your net business income before the QBI deduction.

Can I claim QBI deduction and standard deduction?

Yes! The QBI deduction is "above the line" - you can claim it in addition to either standard or itemized deductions.

What if I have multiple businesses?

You can claim QBI deduction for each qualified business. Calculate separately and add them together (subject to overall limitations).

Do I need to make an aggregation election?

Yes, if you want to aggregate multiple businesses, you must make an election by attaching a statement to your timely filed tax return (including extensions). Once made, it's binding for that year and continues until you revoke it or circumstances change.

Conclusion

The QBI deduction represents one of the most significant tax benefits for business owners, worth up to 20% of your qualified business income. With proper planning and strategy, you can maximize this deduction and save thousands in taxes annually.

Key takeaways:

• Below the threshold ($201,775/$403,500) = full 20% deduction, minimal complexity
• Above threshold = W-2 wage limitations apply for non-SSTB businesses
• SSTB businesses lose the deduction entirely above phase-out range
• Strategic planning can optimize your deduction significantly
• Consider entity structure, retirement contributions, and property investments
• Document everything and keep excellent records

Use our calculator above to estimate your 2026 QBI deduction and discover strategies tailored to your business situation.