Qualified Business Income (QBI)
Net income from a qualified pass-through business potentially eligible for the 20% Section 199A deduction.
What is QBI?
Qualified business income (QBI) is the net amount of income, gains, deductions, and losses from a qualified U.S. trade or business conducted through a pass-through entity. Under IRC Section 199A, enacted by the Tax Cuts and Jobs Act of 2017, eligible taxpayers may deduct up to 20% of their QBI from taxable income, subject to income thresholds. Specified service trades or businesses (SSTBs) such as law, accounting, and consulting are phased out above income thresholds ($191,950 single / $383,900 married filing jointly for 2024). W-2 wages and capital investment of the business can limit the deduction above these thresholds.
Example
A sole-proprietor software consultant earns $150,000 in net self-employment income in 2024 and is below the SSTB phase-out threshold. They may deduct 20% × $150,000 = $30,000 from taxable income via the QBI deduction, saving roughly $6,600 in federal tax at the 22% marginal rate—without spending any additional money.