Qualified business income
Net profit from a sole proprietorship, partnership, LLC or S corp. The 20% Section 199A deduction is figured on it.
Run a business as a sole proprietorship, partnership, LLC or S corp and its net income from the trade or business is your qualified business income, or QBI. Up to 20% of that can come off your personal return as a deduction. The IRS QBI page caps it, though: you get the smaller of 20% of QBI or 20% of taxable income minus net capital gain.
Some money doesn't count. Section 199A(c) pulls out capital gains, and most dividends and interest go with them. S corp owners lose one more piece. The reasonable salary the company pays you isn't QBI, so the 20% only applies to profit after salary.
Then there are the income limits. They're in Rev. Proc. 2025-32: $201,750 of taxable income in 2026, $403,500 for a joint return. Under that line, nobody's business type matters and the full 20% is there. Over it, a service business or one that pays little in W-2 wages starts to lose some or all of the deduction across the next $75,000 ($150,000 joint). Also new in 2026 is a $400 floor, for anyone with at least $1,000 of QBI from businesses they materially participate in.
C corps don't get it.