The Qualified Business Income Deduction

The qualified business income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities — sole proprietorships, partnerships, S corporations, and certain trusts. This deduction was introduced by the Tax Cuts and Jobs Act of 2017 and is available through the 2025 tax year. The deduction is taken on the individual return, not at the entity level, which means it flows to Line 13 of Form 1040 after being calculated on Form 8995 or Form 8995-A.

For taxpayers with taxable income below certain thresholds ($191,950 for single filers, $383,900 for married filing jointly in 2024), the deduction is generally 20% of QBI without additional limitations. Above those thresholds, the deduction may be limited based on W-2 wages paid by the business and the unadjusted basis of qualified property held by the business. Specified service trades or businesses — including law, health, consulting, athletics, and financial services — face additional phase-out rules that can eliminate the deduction entirely at higher income levels.

Schedule 1 Adjustments

Line 13 also incorporates adjustments from Schedule 1, Part II, which include above-the-line deductions that reduce gross income before arriving at AGI. These adjustments include educator expenses (up to $300), certain business expenses of reservists and performing artists, health savings account contributions, moving expenses for members of the Armed Forces, the deductible portion of self-employment tax, self-employed health insurance premiums, penalties on early withdrawal of savings, alimony paid under pre-2019 agreements, IRA contributions, and student loan interest (up to $2,500). Each of these adjustments has its own eligibility rules and income phase-outs that must be evaluated individually.

Why This Line Matters

Line 13 directly reduces your taxable income, which means errors here cascade through the rest of the return. A missed QBI deduction or overlooked Schedule 1 adjustment results in higher tax liability than necessary. For self-employed individuals and small business owners, this line often represents one of the most significant deductions on the entire return. Proper documentation of business income, W-2 wages, and qualified property is essential to support the deduction if the IRS questions it.

Related Forms and Schedules

Line 13 connects to two important supporting forms. The qualified business income deduction is computed on Form 8995, which determines the Section 199A deduction for pass-through business owners. Additionally, the 2025 return introduced Schedule 1-A, which computes additional deductions for qualified tips, overtime, vehicle loan interest, and seniors. Both schedules feed into the calculation that appears on Line 13 of Form 1040.