The QBI deduction lets owners of pass-through businesses deduct up to 20% of their qualified business income on their personal return, and most Amazon and Shopify sellers qualify because selling physical products is not a specified service business. It applies whether you sell as a sole proprietor, through a partnership or an S corporation, or through an LLC taxed as any of those. Congress made the deduction permanent in July 2025, so it now belongs in every year’s plan.
The figure that matters is qualified business income, which is your profit after a few specific adjustments. Gross sales, Amazon disbursements and Shopify payouts are all different numbers. Once your household taxable income passes the 2026 thresholds, payroll and equipment start to limit how much of the 20% you keep.
Who Can Claim It
The deduction, also called the Section 199A deduction, is available to sole proprietors, partners, S corporation shareholders and some trusts and estates. LLC members qualify when the LLC is taxed as a disregarded entity, a partnership or an S corporation. Owners of an LLC taxed as a C corporation do not.
The business never takes the deduction itself. You claim it on Form 1040, using figures the business reports to you. It reduces income tax only. Self-employment tax is still figured on your full net profit.
Why Product Sellers Avoid the Service Business Limits
Specified service trades or businesses (SSTBs) include health, law, accounting, consulting, financial services, athletics and businesses whose main asset is the owner’s reputation or skill. At higher incomes, SSTB owners lose the deduction entirely. Retail, wholesale and ecommerce product sales are not on that list.
The exception to watch is side income. Paid coaching, a consulting retainer or sponsored endorsements can be treated as a separate SSTB. If you run any of those alongside your store, keep them in separate accounts so the product business is not tainted.
What Counts as Qualified Business Income
Start with Schedule C net profit or your share of business income on a Schedule K-1. Then subtract the deductions tied to that business: the deductible half of self-employment tax, self-employed health insurance and contributions to a SEP, SIMPLE or Solo 401(k). What is left is QBI.
Several items never count. An S corporation owner’s own salary is excluded, as are a partner’s guaranteed payments. Capital gains, most interest income and income not effectively connected with a US business are left out too.
What Changed for 2026
The One Big Beautiful Bill Act, signed in July 2025, removed the deduction’s scheduled expiration after 2025 and kept the rate at 20%. A 23% rate appeared in the House version but did not become law.
For tax years beginning in 2026, the law widened the phase-in range to $75,000 above the threshold for most filers and $150,000 for joint filers, up from $50,000 and $100,000. It also added a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from active businesses, meaning businesses in which they materially participate under the passive activity rules. Working more than 500 hours a year in the business is one of the qualifying tests, so a hands-off investor in a friend’s store would not get the floor. Both the $400 and the $1,000 figures will be adjusted for inflation after 2026.
Calculating Your Deduction Step by Step
Apply 20% to QBI, Then the Taxable Income Cap
Your QBI component is 20% of qualified business income. A separate component adds 20% of qualified REIT dividends and publicly traded partnership income, so REIT funds in a taxable brokerage account can add to the total.
The whole deduction cannot exceed 20% of your taxable income before the QBI deduction, minus net capital gain. Taxable income is figured after the standard or itemized deduction, which is why sellers with modest profits often hit this cap before anything else.
Check the 2026 Thresholds
For 2026, the threshold is $201,750 of taxable income for single and head of household filers, $201,775 for married filing separately and $403,500 for joint filers, according to IRS Revenue Procedure 2025-32. Below the threshold, you get 20% of QBI subject only to the taxable income cap.
| Filing status | Threshold | Limits fully apply above |
|---|---|---|
| Single and head of household | $201,750 | $276,750 |
| Married filing separately | $201,775 | $276,775 |
| Married filing jointly | $403,500 | $553,500 |
Inside the band, the wage and property limits and the SSTB phase-out come in gradually. These are household figures, so a spouse’s W-2 income counts toward them.
Apply the W-2 Wage and Property Limits Above the Threshold
Above the threshold, the QBI component for each business is capped at the greater of 50% of the W-2 wages it paid, or 25% of those wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property. UBIA is roughly the original cost of depreciable equipment the business still uses, and an asset counts for at least 10 years after it is placed in service, or longer if its recovery period is longer. A solo seller with no payroll and little equipment can see the deduction fall to the $400 floor, or to zero without material participation, at higher incomes.
Worked Example: A Single FBA Seller
A single FBA seller runs a single-member LLC. In 2026 she has $600,000 in sales, $240,000 of COGS, $150,000 of Amazon referral and FBA fees, $60,000 of advertising and $50,000 of other expenses. Her Schedule C net profit is $100,000.
Self-employment tax on that profit is about $14,130, so the deductible half is about $7,065. She also pays $6,000 for self-employed health insurance and contributes $10,000 to a SEP IRA. Her QBI is $100,000 minus $23,065, or $76,935, and 20% of that is $15,387.
Now the cap. With no other income, her adjusted gross income is also $76,935. Subtracting the 2026 single standard deduction of $16,100 leaves taxable income of $60,835, and 20% of that is $12,167. Her deduction is the smaller figure, $12,167. She is far below the threshold, so wages and property play no part.
Add a spouse with W-2 income, rental property or a second store, and the steps multiply quickly. If your return has more moving parts than this one, you can have an ecommerce CPA estimate your 2026 QBI deduction before year-end, while there is still time to act on it.
Ecommerce Details That Change Your QBI
Fees, Ads and COGS Lower QBI, and That Is Fine
Every legitimate expense lowers QBI because it lowers profit. That trade is always worth it, since a full deduction saves more tax than the 20% of it you lose from QBI. The bigger risk is bad data. If your books record Amazon’s net deposit as revenue, fees disappear from view and both profit and QBI become unreliable. Books that start from gross sales and record each fee separately give you a QBI figure you can defend, which is the idea behind tax-ready bookkeeping for ecommerce brands.
Inventory Is Not Qualified Property
Inventory is held for sale, so it never counts toward UBIA. A seller with $300,000 of stock in FBA warehouses can still have zero qualified property for the 2.5% test, while shelving, a forklift, computers and photo equipment do count. Inventory still moves QBI through COGS, which is why accurate inventory accounting feeds straight into this deduction.
S Corporation Owners: Salary Cuts Both Ways
An S corp owner’s salary is excluded from QBI, but it also counts as W-2 wages for the wage limit. Above the phase-in range, that can be what keeps the deduction alive. For example, an S corp earning $260,000 before a $95,000 owner salary and about $7,268 of employer payroll tax has QBI of roughly $157,732 and a tentative deduction of about $31,546. The wage cap is 50% of $95,000, or $47,500, so the full amount survives. With no payroll and no qualified property, the same owner would be limited to the $400 minimum. The salary still has to be reasonable for the work, set on its own merits first.
Aggregating Several Stores or LLCs
If you own more than one store or LLC, you may be able to aggregate them for the wage and property tests. Generally, the same person or group must own 50% or more of each for most of the year, including the last day, they must share a tax year, none can be an SSTB, and they must meet at least two of three integration tests: the same or customarily combined products, shared facilities or centralized functions such as purchasing and staff, and operation in coordination with or reliance on one another. An Amazon brand and a Shopify store selling the same line often fit. You report aggregation with Form 8995-A, and once you aggregate, you must keep doing so in later years unless the facts change materially.
Overseas Owners
Only income effectively connected with a US trade or business counts, and the owner must be filing a US individual return to benefit. A foreign owner of a US LLC should confirm how that income is taxed before counting on this deduction.
Claiming the Deduction and Avoiding Errors
Use Form 8995 if your taxable income before the QBI deduction is at or below your threshold. Use Form 8995-A above the threshold or if you aggregate businesses. S corporation and partnership owners need the Section 199A statement attached to their K-1, which reports QBI, W-2 wages and UBIA for each business.
If your total QBI is negative, the deduction is zero and the loss carries forward as a qualified business net loss, reducing QBI in later years. A seller with a $5,000 QBI loss in year one and $3,000 of QBI in year two gets no deduction in year two and still has $2,000 to carry forward.
The most common errors are treating payouts as income without reconciling fees and refunds, counting S corp salary or guaranteed payments as QBI and dropping a prior-year loss carryforward when a return is prepared from scratch. A blank Section 199A statement on a K-1 can also cause the deduction to be skipped entirely. The rules above are general information; your own return may raise issues this guide does not cover.
Frequently Asked Questions
Can I claim the QBI deduction without employees?
Yes. Below the 2026 threshold, employees make no difference. Above the phase-in range, a seller with no W-2 wages and little equipment can lose most of the deduction, apart from the $400 minimum for materially participating owners.
Is there an income level where product sellers lose the deduction completely?
No cutoff removes it for non-SSTB businesses. Above the thresholds, the deduction is limited by W-2 wages and qualified property rather than eliminated by income alone.
Can I claim QBI if I take the standard deduction?
Yes. The QBI deduction is claimed in addition to the standard or itemized deduction. It does not require itemizing.
Does the QBI deduction reduce my state income tax?
It depends on the state. Many states start from federal adjusted gross income, and because the QBI deduction comes after AGI, it often does not carry over. Check your own state’s rules before you count the deduction in a state estimate.
What should I review before December 31?
Project your 2026 taxable income and see where it sits against your threshold. If you are near or inside the phase-in range, the timing of equipment purchases, retirement contributions or an S corp salary adjustment can change the result.
Make Sure Your 2026 QBI Deduction Is Counted Correctly
A payout booked as revenue, a missed loss carryforward or a salary set without checking the wage limit can shrink a deduction that should be worth thousands to a profitable seller. AMZ Accountant’s licensed CPAs have served more than 100 ecommerce businesses, and our tax preparation for ecommerce sellers builds QBI from reconciled books. Book a free 15-minute discovery call to see where your deduction stands this year, with no cost and no obligation.