The 20% QBI deduction, explained
The Qualified Business Income deduction is one of the biggest breaks for the self-employed — it can knock 20% of your business profit off the income you're taxed on. Here's what it is, who gets it, and how it changes for higher earners in 2026.
- ✓Deduct up to 20% of qualified business income before income tax.
- ✓It reduces income tax, not self-employment tax.
- ✓Above $201,775 (single) / $403,500 (married joint), extra limits apply.
What the QBI deduction is
Created by the 2017 tax law, the QBI deduction lets owners of pass-through businesses — sole proprietors, single-member LLCs, partnerships, and S-Corps — deduct up to 20% of their qualified business income. For a freelancer netting $80,000, that's roughly a $16,000 deduction against taxable income.
It cuts income tax, not SE tax
QBI lowers the income your federal income tax is calculated on — it does nothing for self-employment tax, which is still 15.3% on 92.35% of your profit. So it softens one of your two taxes, not both. The calculator applies it by default and you can toggle it off to see the difference.
Who qualifies
Most ordinary self-employment income qualifies. The deduction is the smaller of 20% of your qualified business income or 20% of your taxable income before the deduction, so it can't exceed your taxable income. Capital gains and certain investment income don't count as QBI.
The limits for higher earners
Once taxable income tops $201,775 (single) or $403,500 (married filing jointly) for 2026, the deduction starts to be limited by W-2 wages and property, and "specified service" businesses (consulting, law, health, finance, and similar) can phase out of it entirely. This estimator uses the simplified 20% calculation, so at high incomes treat its QBI figure as an upper bound and confirm with a CPA.
Frequently asked questions
The Qualified Business Income deduction lets most self-employed people deduct up to 20% of business profit before income tax. It reduces income tax, not self-employment tax.
Related calculators & guides
A planning estimate, not tax advice. Figures use IRS Rev. Proc. 2025-32 (2026). Confirm decisions with real money on the line with a CPA or enrolled agent.