Thanks to the recently passed One Big Beautiful Bill Act (OBBBA), the qualified business income (QBI) deduction has been revamped. This tax break is now permanent and even more valuable than before.
What you’ll learn
What you’ll learn
Updated: August 23, 2025
This article is authored by OnPay, a top-rated payroll provider for small businesses with more than 30 years of experience in payroll, taxes, and small business compliance.
Key takeaways
- The QBI deduction is now permanent – you can count on this 20% tax break for years to come
- Income thresholds have increased – more businesses can now qualify for the full deduction
- New minimum deduction added – even smaller businesses can benefit with a $400 minimum deduction
Whether you’re a new entrepreneur or a seasoned business owner, understanding the QBI deduction is important. Doing so can be challenging, but OnPay is here to help make sense of things. In this guide, we explain the QBI deduction, outline the recent OBBBA changes, and shed light on how your business could be impacted.
What is the qualified business income (QBI) deduction?
Simply put, if you run a sole proprietorship, partnership, or S corporation, the QBI deduction allows you to potentially deduct up to 20% of business income on your income tax return. The QBI deduction was originally introduced with the 2017 Tax Cuts and Jobs Act.
Whether you are launching a new venture or are a seasoned business owner, the QBI deduction is designed to help you keep more of what you earn. Here’s a few examples of how it could benefit you.
- Did you earn $150,000 of business income? You might only pay taxes on $120,000.
- Do you have a $30,000 side business? The QBI deduction could help lower your tax bill.
What counts as qualified business income?
Qualified business income is basically all of your business’ revenues less business expenses. It excludes the following items:
- Investment gains and losses
- Dividends from stocks
- Interest income
Essentially, QBI is the net profit earned (before taxes) from running your business, not from performing unrelated activities and investing.
Who can use this deduction?
The QBI deduction is available to most business owners with “pass-through” income – businesses where profits and losses pass through to the operators’ personal tax returns. This includes:
- Sole proprietors
- Partnership owners
- S Corporation shareholders
- Some trust and estate beneficiaries
That said, there are income limits. For 2025, you can claim the full 20% QBI deduction if your taxable income is below the following thresholds:
- $247,300 for single filers (increased from $197,300)
- $494,600 for married couples filing jointly (increased from $394,600)
How to report your QBI deduction
Claiming the QBI deduction is straightforward. You need to use one of the following two forms:
- Form 8995 (the simple version) for most taxpayers
- Form 8995-A (the detailed version) if your income is above the threshold or you have a specified service business
For good measure, it’s wise to leverage tax software or a tax professional to pinpoint the appropriate form for your business.
How does the One Big Beautiful Bill factor in?
The OBBBA made several important changes to the QBI deduction. Read on for the specifics.
It’s now permanent
Prior to the OBBBA, the QBI deduction was set to expire at the end of 2025. Now it’s permanent, which should bolster your finances for years to come.
Higher income limits
The income thresholds at which limitations kick in have increased quite a bit. This means more business owners can now take advantage of the full 20% deduction.
New minimum deduction
There’s now a $400 minimum deduction for businesses with at least $1,000 in qualified business income. This helps ensure that even smaller businesses get some tax relief.
Important limitations to be aware of
The QBI deduction is generous, but, as noted below, it does have some qualification limitations.
Specified service businesses: If you’re in certain professional services, such as healthcare, law, consulting, accounting, or financial services, special limitations may apply, once your income exceeds the thresholds mentioned above.
Income-based restrictions: Higher earners face additional limitations designed to ensure the deduction primarily benefits active business owners rather than passive investors.
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Planning tips for 2025 and beyond
Now that the QBI deduction is permanent, be sure to consider its impact when formulating tax strategies and projections. To optimize your finances, take the following steps:
Watch your income level: Keep track of where you stand relative to the QBI deduction’s income thresholds. Sometimes a small adjustment in timing can make a big difference in your deduction.
Reinvest your savings: Consider putting tax savings back into your business. Whether it’s new equipment, marketing, or expanding your team, reinvestment can help grow your business while creating more QBI for future years.
Stay informed: While the QBI deduction is now permanent, tax laws can change. Stay abreast of updates that could impact your business.
Due diligence comes with the QBI deduction
The changes to the QBI deduction enacted by the One Big Beautiful Bill Act mark a significant win for small business owners. By making this 20% deduction permanent and more accessible, Congress has given entrepreneurs a tool to reduce their tax burden.
Whether you’re contemplating launching a new business or running a long-established operation, understanding and properly claiming the QBI deduction is a surefire way to enhance your bottom line. That said, making sense of all the details can be challenging. Moreover, what works for one business might not work for another. Consider working with a qualified tax professional to make sure you’re getting the maximum benefit from this and other valuable deductions.
The OnPay editorial team covers payroll, benefits, and HR-related topics to deliver practical insights for growing businesses.