Full Section 199A calculation with the W-2 wage limit, qualified property basis, SSTB phase-out, and taxable income cap applied at 2026 thresholds.
Educational estimate using 2026 thresholds. Not tax advice.
The deduction is 20% of your qualified business income. Below the income threshold you get the full amount with no other tests. Above it, the deduction cannot exceed the greater of 50% of W-2 wages or 25% of wages plus 2.5% of property basis. SSTBs phase out entirely. Everything is capped at 20% of taxable income.
SE tax, 1099 estimates, S-corp savings, and eligibility, all in one place.
You are single, your taxable income is $230,000, and your non-service LLC produced $140,000 in profit while paying $50,000 in W-2 wages. That income sits above the 2026 single threshold of $201,750 but under the $276,750 ceiling, placing you in the phase-in zone where the wage limit only partially applies. Start with the simple number: 20% of $140,000 is $28,000. The wage test gives you half of $50,000, or $25,000. Your tentative deduction clears that limit by $3,000, and you are about 38% of the way through the $75,000 phase-in band, so only part of that $3,000 gets pulled back. You land near $26,870, well under the $46,000 income cap.
Pass-through owners: sole proprietors, partnerships, S-corps, and most LLCs. Any business income that flows onto a personal return is in scope. C-corporations do not qualify, and W-2 wages from an employer never count as QBI. Rental property can qualify, but only if the activity meets the trade-or-business standard. Passive landlords generally do not clear that bar.
The most common errors: using gross revenue instead of net profit for QBI, forgetting the taxable-income cap, and assuming the deduction requires itemizing. It does not. The QBI deduction is claimed on Form 8995 or Form 8995-A and reduces income whether you itemize or take the standard deduction. If your taxable income is comfortably below the threshold, none of the secondary tests matter at all. The math really is just 20% of your QBI.
A deduction of up to 20% of qualified business income under IRC Section 199A, available to eligible pass-through owners. It reduces income tax but not self-employment tax.
Above the income threshold, your deduction can’t exceed the greater of 50% of W-2 wages or 25% of wages plus 2.5% of property basis.
A Specified Service Trade or Business under IRC 199A: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services. Engineering and architecture are explicitly excluded. Above the top of the phase-in range, SSTBs receive no QBI deduction.
For 2026, the Section 199A threshold is $201,750 for single filers and $403,500 for married filing jointly, with the phase-in range ending at $276,750 (single) and $553,500 (MFJ). Figures are per IRS Rev. Proc. 2025-32 (Oct. 9, 2025). The phase-in range widened for 2026 under the One Big Beautiful Bill Act (P.L. 119-21), which also made Section 199A permanent.
No - it’s an educational estimate. Consult a tax professional for your return.