Skip to main content
Part ofCitedFigures.See the family
Skip to content
Solo Operator

Methodology · Tax Deductions

Tax deductions methodology

Reviewed by · Last reviewed .

How we compute the IRC §199A QBI deduction on the QBI Deduction Calculator: 20%-of-QBI base, the income-threshold phase-in, the wage-and-property limitation, and the SSTB phase-out.

QBI deduction structure

Below threshold (2025: $232,500 single / $464,200 MFJ):
  Deduction = MIN(
      20% × QBI,
      20% × (taxable income − net capital gains)
  )

Above threshold + non-SSTB:
  Deduction = MIN(
      20% × QBI,
      MAX(
          50% × W-2 wages,
          25% × W-2 wages + 2.5% × UBIA of qualified property
      ),
      20% × (taxable income − net capital gains)
  )

Above threshold + SSTB:
  Deduction phases out linearly from threshold to threshold + $50K
  (single) / threshold + $100K (MFJ); ZERO above the upper bound.

SSTB definition (IRC §199A(d)(2))

SSTBs include health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, trading or dealing in securities, AND any trade where the principal asset is the reputation or skill of one or more employees.

Notable exclusions: engineering and architecture are NOT SSTBs (carved out specifically by Congress).

S-Corp + QBI interaction

S-Corp election creates W-2 wages (the reasonable salary) that satisfy the §199A wage limitation. So for high-income operators above the threshold, S-Corp election can preserve QBI deduction that would otherwise be lost. But the salary itself doesn't qualify for QBI (only the distribution / pass-through portion does). Optimal salary is typically ~50% of business income for service operators above the threshold — but it's a multi-variable optimization (SE tax + QBI + reasonable-salary defensibility) and varies by state.

The sunset that was repealed

Under the Tax Cuts and Jobs Act of 2017, IRC §199A(i) read “This section shall not apply to taxable years beginning after December 31, 2025” — and multi-year planning through 2025 was built on modelling both endpoints. That termination was repealed. Public Law 119-21 §70105(b)(1), signed July 4, 2025, replaced §199A(i) with a $400 minimum deduction for any taxpayer with at least $1,000 of qualified business income from active trades or businesses. The same section (§70105(a)) widened the phase-in band from $50,000/$100,000 to $75,000/$150,000, effective for taxable years beginning after December 31, 2025.

For 2026 the thresholds are $201,750 (single / all other returns) and $403,500 (married filing jointly), with the phase-in fully applied at $276,750 and $553,500 respectively (IRS Rev. Proc. 2025-32 §3.26). Both the $400 and $1,000 figures are inflation-adjusted for taxable years after 2026.

This page previously described §199A as scheduled to expire — accurate when written, superseded on July 4, 2025, and corrected here on July 28, 2026. Note that the IRS's summary “Qualified business income deduction” page still carried the old end date at that time; the statute and the revenue procedure are the controlling sources. Verify your own situation with your CPA at filing time.

Sources

Back to methodology overview.