The Qualified Business Income (QBI) deduction lets eligible freelancers and self-employed workers deduct up to 20% of their net business income from federal taxable income. It is now permanent under the One Big Beautiful Bill (2025). Most freelancers earning under $200,000 qualify for the full deduction.
What Is the QBI Deduction?
The Qualified Business Income (QBI) deduction — also called the Section 199A deduction — lets eligible self-employed workers deduct up to 20% of their qualified business income from their federal taxable income. It was created by the 2017 Tax Cuts and Jobs Act and was originally set to expire at the end of 2025.
The One Big Beautiful Bill Act (signed July 2025) made the QBI deduction permanent. If you're a freelancer, gig worker, or independent contractor, this is one of the biggest tax breaks available to you — and now you can plan around it long-term.
You no longer need to worry about the QBI deduction disappearing. Plan your business finances knowing this deduction will be available every year going forward.
How Much Can You Save?
Example: Freelance Graphic Designer
Example: DoorDash Driver
Who Qualifies?
The QBI deduction is available to:
- Sole proprietors (most freelancers and gig workers)
- Single-member LLCs
- Partners in partnerships
- S-corporation shareholders
Income limits to be aware of
For most freelancers, the full 20% deduction is available. However, if your taxable income exceeds certain thresholds, limitations may apply:
| Filing Status | 2025 Phase-Out Begins At | Fully Limited Above |
|---|---|---|
| Single | ~$197,300 | ~$247,300 |
| Married filing jointly | ~$394,600 | ~$494,600 |
If you're below these thresholds — which most 1099 workers are — you can likely claim the full 20% deduction without any limitations.
If you're in law, health, consulting, financial services, performing arts, or athletics, and your income exceeds the phase-out thresholds, your QBI deduction may be limited or eliminated. Most lower-to-middle income workers in these fields still qualify in full.
What Counts as "Qualified Business Income"?
QBI is generally your net profit from self-employment — your gross income minus your business deductions. It does NOT include:
- W-2 wages you earn as an employee
- Capital gains or losses
- Investment income (dividends, interest)
- Income earned outside the US
How to Claim the QBI Deduction
- Calculate your net business income on Schedule C
- Subtract 50% of self-employment tax from your income
- Multiply the result by 20% — this is your tentative QBI deduction
- Claim it on Form 8995 (or 8995-A for higher incomes)
- The deduction flows to your Form 1040 as a deduction from taxable income
The QBI deduction is an "above-the-line" deduction — you can claim it even if you take the standard deduction. This makes it valuable for almost all self-employed workers.
QBI + Other Deductions: Stacking Your Savings
The QBI deduction works on top of your other business deductions. A smart freelancer can stack:
- ✅ Mileage deduction — 72.5¢/mile (2026)
- ✅ Home office deduction
- ✅ Health insurance premiums
- ✅ 50% of self-employment tax
- ✅ SEP-IRA or Solo 401(k) contributions
- ✅ QBI deduction (20% of net income)
- ✅ No Tax on Tips (if applicable)
Frequently Asked Questions
Do I need an LLC to get the QBI deduction?
No. Sole proprietors — which is the default status for most freelancers — fully qualify. An LLC doesn't change your eligibility.
Can I claim QBI if I had a loss this year?
If your business had a net loss, there's no QBI to deduct. The loss carries forward to future years and reduces future QBI deductions.
Does the QBI deduction reduce self-employment tax?
No. The QBI deduction reduces your federal income tax but does not reduce your self-employment tax (15.3%). It only applies to income tax.
I do rideshare AND freelance work. Can I claim QBI on both?
Yes! If you have multiple self-employment activities, you generally combine them to calculate your total QBI. Each business's income and losses are netted together.
Want to Know Your QBI Savings?
ClickTaxEasy can help you understand your deductions and estimate your tax bill — ask any 1099 tax question and get an instant answer.
Ask a Free Tax Question →2 free questions/day · Pro plan $5/mo · US 1099 workers only