The Qualified Business Income (QBI) deduction, introduced under the Tax Cuts and Jobs Act (TCJA), allows many self-employed individuals and small business owners to deduct up to 20% of their business income from their taxable income. This is known as the Section 199A deduction and is available through 2025 (unless extended by Congress).
But how does this deduction interact with your choice of claiming the standard deduction versus itemizing deductions? Let’s break down how these different tax benefits stack and how to use them strategically.
📘 What Is the QBI Deduction?
The QBI deduction is a below-the-line deduction—meaning it’s taken after calculating your Adjusted Gross Income (AGI) and after claiming either the standard deduction or itemized deductions. This makes it a powerful tool for reducing your taxable income without affecting your eligibility for other deductions or credits.
📌 Who Qualifies for the QBI Deduction?
- Sole proprietors (Schedule C filers)
- Owners of pass-through entities (S corps, partnerships, LLCs)
- Independent contractors and freelancers
- Certain rental real estate businesses (if they qualify as a trade or business)
💡 QBI Deduction Does NOT Depend on Standard or Itemized Deductions
Whether you take the standard deduction or itemize does not affect your eligibility for the QBI deduction. You can claim the 20% deduction either way. However, there are strategic reasons to consider how your total deductions interact with your QBI benefit.
📊 Example: Stacking QBI with the Standard Deduction
James is a self-employed graphic designer earning $80,000 in qualified business income in 2025. He claims the standard deduction of $15,750 (single filer) and then deducts 20% of his QBI ($16,000). His taxable income becomes:
- AGI: $80,000
- Less standard deduction: $15,750
- Taxable income before QBI: $64,250
- Less QBI deduction: $16,000
- Final taxable income: $48,250
This stacking of the standard deduction and QBI deduction yields major tax savings—without needing to itemize.
📊 Example: Stacking QBI with Itemized Deductions
Lisa and Omar run an LLC with $200,000 in combined QBI. They itemize deductions totaling $35,000 due to high mortgage interest and charitable contributions. Their filing status is married filing jointly, and their standard deduction would be $31,500 in 2025. Here’s the breakdown:
- AGI: $200,000
- Less itemized deductions: $35,000
- Taxable income before QBI: $165,000
- Less QBI deduction: $40,000 (20% of QBI)
- Final taxable income: $125,000
🚧 QBI Deduction Phaseouts and Thresholds
For 2025, the QBI deduction begins to phase out if your taxable income exceeds:
- $200,000 for single filers
- $400,000 for joint filers
Above these thresholds, the deduction may be limited based on:
- Type of business (Specified Service Trade or Business – SSTB)
- Wages paid by the business
- Qualified property held by the business
📈 Strategic Use of Deductions to Preserve QBI Benefits
- Using the standard deduction may help lower taxable income and stay under QBI phaseout thresholds.
- If you’re near the income limit, deferring income or accelerating deductions can preserve the full QBI benefit.
- Make retirement plan contributions (like SEP IRA or Solo 401(k)) to reduce AGI.
- Avoid miscellaneous deductions that raise AGI or don’t reduce AMTI (especially if AMT applies).
🔍 Bonus Tip: Don’t Let AMT Interfere
The QBI deduction is generally not affected by AMT. However, deductions that reduce AGI but not AMTI (e.g., SALT taxes) can create distortion if you’re on the edge of AMT applicability. Use caution when combining these strategies.
✅ Summary
The QBI deduction is a valuable tax break that operates independently of your standard or itemized deduction choice. But your deduction strategy can impact your taxable income—and whether you stay under the phaseout thresholds. By stacking QBI with smart deduction planning, small business owners can reduce taxable income dramatically and preserve their full benefit.
Need help determining the best strategy for your business? Share your income, deduction type, and filing status, and we’ll walk through the optimal QBI and deduction pairing for 2025.
