The Qualified Business Income (QBI) deduction continues into 2026 with updated thresholds and rules. Here’s how small business owners, freelancers, and LLCs can save big on their Form 1040.
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📌 What Is the QBI Deduction?
The Qualified Business Income Deduction, also known as the Section 199A deduction, allows eligible self‑employed individuals and small business owners to deduct up to 20% of their qualified business income from taxable income. It applies to businesses structured as:
- Sole proprietorships
- Partnerships
- LLCs taxed as pass‑through entities
- S corporations
This deduction is not available for traditional C corporations.
📊 Income Thresholds for 2026
Eligibility for the full 20% deduction depends on taxable income. For tax year 2026, the thresholds are:
| Filing Status | Full Deduction Available Up To | Phase‑Out Range |
|---|---|---|
| Single | $190,000 | $190,001 – $240,000 |
| Married Filing Jointly | $380,000 | $380,001 – $480,000 |
| Head of Household | $285,000 | $285,001 – $360,000 |
If income exceeds the upper phase‑out limit, restrictions based on W‑2 wages and business property apply.
⚖️ Specified Service Trades and Businesses (SSTBs)
Certain professions—such as law, accounting, health, consulting, and financial services—face limits once income exceeds the thresholds. SSTBs may see their QBI deduction reduced or eliminated if income is too high.
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🧮 Example Calculations for 2026
Example 1: Single Freelancer
Sara earns $120,000 in qualified business income as a freelance designer. She qualifies for the full 20% QBI deduction:
Deduction: $120,000 × 20% = $24,000 off taxable income.
Example 2: Married LLC Owners Above Threshold
Mike and Anna, filing jointly, report $450,000 in taxable income from their LLC. Because they exceed the phase‑out, their deduction depends on W‑2 wages paid and property owned. With $150,000 in W‑2 wages, their QBI deduction is capped accordingly.
📝 How to Claim the QBI Deduction
- Complete the QBI deduction worksheet provided in IRS instructions.
- Report the deduction on Line 13 of Form 1040.
- Attach supporting schedules, especially if income exceeds thresholds.
- Use reliable tax software or consult a CPA for complex situations.
⚠️ Mistakes That Trigger IRS Scrutiny
- Misclassifying income or claiming QBI for ineligible C corporations
- Not maintaining documentation of W‑2 wages or qualified property
- Failing to adjust for SSTB income phase‑outs
- Double‑counting deductions when combining multiple businesses
✅ Final Thoughts
The QBI Deduction in 2026 remains a powerful tax break for small business owners, LLCs, and freelancers. By tracking income, understanding thresholds, and avoiding common mistakes, taxpayers can maximize their savings and reduce their Form 1040 liability.
Pro Tip: Plan ahead by adjusting income, paying W‑2 wages strategically, and consulting a professional to ensure you stay under key thresholds.
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