Qualified Business Income (QBI) Deduction Calculator
The qualified business income (QBI) deduction lets eligible owners of pass-through businesses deduct up to 20% of their qualified business income under Internal Revenue Code Section 199A. For taxpayers below the annual income threshold the maths is straightforward: the deduction is the lesser of 20% of QBI and 20% of taxable income above net capital gains. This calculator computes both limits and returns the smaller. Because the income threshold is indexed for inflation each year, it is provided as an editable input so the tool stays accurate. Use the IRS Form 8995 instructions to confirm the current threshold.
Section 199A formula (below threshold)
Limit A = rate% x QBI Limit B = rate% x (taxable income - net capital gains - qualified dividends) QBI deduction = min(Limit A, Limit B)
Above the income threshold, additional W-2 wage and unadjusted basis of property limits apply, and specified service trades phase out. This calculator covers the common below-threshold case.
Worked example
QBI of 100,000 gives Limit A = 20,000. Taxable income 120,000 with no capital gains gives Limit B = 24,000. The deduction is the lesser: 20,000.00.
QBI deduction: frequently asked questions
What is the QBI deduction?
The qualified business income deduction (Internal Revenue Code Section 199A) lets eligible owners of pass-through businesses (sole proprietorships, partnerships, S corporations and some trusts) deduct up to 20% of their qualified business income. It was created by the Tax Cuts and Jobs Act and is taken on Form 1040 after AGI.
How is the QBI deduction calculated at a basic level?
For taxpayers under the income threshold, the deduction is the lesser of (a) 20% of qualified business income, and (b) 20% of taxable income minus net capital gains and qualified dividends. This calculator computes both limits and returns the smaller one. Above the threshold, wage and property limits and the specified-service-trade rules apply.
What is the taxable-income threshold?
The threshold above which the wage/property limitation and specified service trade or business (SSTB) phase-outs begin is set by the IRS and indexed each year for inflation. Because it changes annually, this calculator takes the threshold as an editable input. Check the current figure on the IRS instructions for Form 8995 and 8995-A before you rely on the result.
Which businesses do not qualify?
Income from C corporations does not qualify (they get the flat corporate rate instead). Wages earned as an employee, capital gains, dividends and interest income are also excluded. Specified service trades or businesses (health, law, accounting, consulting and similar) lose the deduction once income rises above the phase-out range.
Official sources
- Internal Revenue Service: About Form 8995, Qualified Business Income Deduction Simplified Computation.
- Internal Revenue Service: Qualified Business Income Deduction.
Reviewed by the CalculatorHub team, edited by James Graham, 19 June 2026. See our methodology.