What is the QBI deduction and do I get it?

The Qualified Business Income deduction lets most self-employed tradespeople take 20% off their business profit before income tax is figured, and yes, the trades qualify. Clear $80,000 in profit and roughly $15,000 of it can escape income tax through this deduction (the exact base is your profit after a couple of adjustments). It was made permanent by the 2025 tax law, so it is not going anywhere. You do not have to do anything clever to claim it. It is a deduction on your 1040, not on Schedule C, on top of all your normal expenses.‍‌‌​‌‌​​‌‌​​‌‌​​​‌​‌‌‌​‌​​‌​‍

What it actually is

QBI comes from Section 199A of the tax code. It gives you a deduction worth 20% of your qualified business income, which for a sole proprietor is basically your net profit from the trade after a few adjustments (chiefly the half-of-self-employment-tax deduction). It lowers the income you pay income tax on. It does not lower your self-employment tax, and it does not replace your ordinary business deductions, it stacks on top of them.

Why the trades get it and some professions do not

The rules carve out what they call Specified Service Trades or Businesses, or SSTBs: law, health, accounting, consulting, financial services, performing arts, and athletics. Those get restricted or cut off at higher incomes. General construction trades are not on that list. A plumber, electrician, builder, HVAC tech, landscaper, or roofer is a plain qualifying business, so as long as your income is under the threshold you get the full 20%, no strings.

The income threshold

The threshold is measured on your taxable income for the year, not your turnover and not your profit. That matters more than it sounds: a one-crew outfit turning over $300,000 can be well under the line once costs, the self-employment tax deduction and the standard deduction have come off.

Above the threshold the limits do not switch on at a single number. They phase in across a band, and the IRS publishes both ends of it every year. For 2026:

Under the first figure there is no wage test and no property test at all. Inside the band the limits apply on a sliding scale, so the deduction tapers rather than stopping. Above the second figure they apply in full, and that is where a sole proprietor with no employees and little equipment can watch the deduction shrink or disappear.

The 2025 tax law widened that band. It used to run $50,000 above the threshold for a single filer and $100,000 for a joint return; from 2026 it runs $75,000 and $150,000, so the taper is more gradual than it was. Most one-crew outfits are comfortably under the first line and get the full 20%.

The $400 floor

New for 2026: if you have at least $1,000 of qualified business income from a business you actively work in, you are guaranteed a minimum QBI deduction of $400 even when the regular math would give you less. It is small, but it is there.

"Actively work in" is the plain English of material participation, the same test the passive activity rules use. A sole trader on the tools all week meets it without thinking about it. A silent stake in someone else's outfit does not. Both figures, the $1,000 and the $400, are 2026 amounts and start being inflation-adjusted after 2026.

How it ties into going S-corp

The salary you would pay yourself as an S-corp counts as wages, and wages are not qualified business income. So paying yourself a big salary shrinks this deduction. That is one of the reasons the S-corp question is a real calculation and not an automatic win, because part of the payroll-tax saving gets handed back through a smaller QBI deduction. The S-corp guide covers that trade-off.

Common questions

Do construction contractors qualify for the QBI deduction?

Yes. General construction trades are not on the restricted "specified service" list. A plumber, electrician, builder, HVAC tech, landscaper, or roofer running on Schedule C gets the full 20% deduction as long as taxable income is under the threshold. Only certain professions like law, health, and consulting face limits.

Is the QBI deduction 20% or a higher rate?

It is 20% of your qualified business income in 2026. The 2025 tax law made the 20% deduction permanent, it did not raise the rate, so ignore any source telling you it went up. Verify the current rate at irs.gov.

Where do I claim the QBI deduction?

On your Form 1040, not on Schedule C. It comes off after your business profit is figured, on top of your ordinary expense deductions, so it lowers the income your income tax is calculated on. It does not touch Schedule C or your self-employment tax.

Does the QBI deduction lower my self-employment tax?

No. It only reduces the income your income tax is figured on. Your 15.3% self-employment tax is calculated on your net profit before QBI, so the deduction does nothing to cut it. It saves you income tax, not payroll tax.

Can I get the QBI deduction if I have no employees?

Yes, as long as your taxable income is under the threshold. Below $201,750 single or $403,500 married filing jointly in 2026 you get the full 20% with no wage or property test. Between there and $276,750 single or $553,500 joint the limits phase in on a sliding scale. Only above the top of that band does having no employees and no equipment take the deduction all the way down.

The honest bit

• QBI is a 20% deduction in 2026. The 2025 tax law made it permanent, it did not change the rate. Verify at irs.gov.
• The thresholds here are the published 2026 figures, from Rev. Proc. 2025-32, and they are inflation-adjusted every year. They are tested against your taxable income, not turnover and not profit. Check the current year's numbers before you rely on them for a later year.
• Above the threshold the rules turn complicated fast, and that is where a CPA earns their keep. This is general guidance, not tax advice.
• Some states do not follow the federal QBI deduction at all, so it may not help on your state return. See Working in Your State.

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