Claim the 20% business income deduction
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If you own a pass-through business, such as a sole proprietorship, partnership, LLC or S corp, you may be able to deduct up to 20% of its qualified business income on your personal return. The 2025 tax law made the deduction permanent.
It's one of the largest deductions available to owners, and it's easy to leave part of it on the table: the limits at higher incomes depend on the wages your business pays, what it owns, and what kind of business it is.
How it works
Owners of pass-through businesses (sole proprietorships, partnerships, S corps) can deduct up to 20% of their qualified business income. The 2025 tax law made it permanent.
What makes it hold up
- Each business’s profit, reported on its K-1 or Schedule C
- W-2 wages the business paid and the cost of its property, which set the limit at higher incomes
- Whether the business is a “specified service” (health, law, consulting, financial services and similar)
Risks
Low; it’s a standard deduction your preparer should already take. Above certain income levels, service businesses lose it and others are limited by wages paid, so salary and income timing can change the result.
Questions to ask your CPA
- Am I getting the full deduction?
- Does my salary help or hurt it?
- Is any business a specified service business?
Common questions
Who qualifies?
Owners of pass-through businesses: sole proprietorships, partnerships, LLCs taxed as either, and S corps. C corporations don't, and neither does wage income from a job.
Does my S corp salary affect it?
Yes, in two directions. Your salary isn't qualified business income, so a higher salary shrinks the deduction. But at higher incomes the deduction is limited by the wages the business pays, so salary can also raise the ceiling. The best salary balances both.
What is a specified service business?
Fields such as health, law, accounting, consulting, financial services and performing arts. Above certain income levels, these businesses lose the deduction, so income timing matters.
Do I need to do anything to claim it?
Your preparer should take it automatically. The planning is in making sure each business's numbers, wages and classification are right so you get the full amount.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.