Working for yourself, whether as a freelancer or small business owner, has many benefits. However, navigating the tax payment process can be challenging. Individuals must pay taxes like employees but are left to figure out potential credits and deductions on their own.

The qualified business income (QBI) deduction allows eligible self-employed taxpayers and small business owners to deduct up to 20% of qualifying business income on federal taxes. This deduction was part of the 2017 Tax Cuts and Jobs Act and made permanent by President Trump’s 2025 tax bill.

The QBI deduction reduces taxable business income, resulting in a lower tax burden or a larger refund. It’s important to note that it doesn’t reduce self-employment tax but excludes a portion of business income from federal taxes. Qualified business income is defined by the IRS as the net amount of income, gain, deduction, and loss from a qualified trade or business.

Many self-employed professionals and small business owners are eligible for the QBI deduction. Passthrough businesses may qualify, and total business income affects eligibility. Income limits apply, but certain specified service trades or businesses may qualify with higher incomes, subject to some rules.

Certain rental real estate businesses that meet IRS safe harbor standards might also qualify for the QBI deduction. Calculating the deduction is straightforward if your business income is below certain thresholds. SSTBs above that threshold may receive a phased-out deduction based on specific criteria.

For more complicated cases, it’s best to rely on a tax expert or software like H&R Block. The IRS provides instructions for Form 8995-A for additional guidance. The QBI deduction was made available through the 2025 tax year by the Tax Cuts and Jobs Act, with the One Big Beautiful Bill Act making it permanent on July 4, 2025.

Read more at Yahoo Finance: What is the QBI deduction, and how can it help you save on your taxes?