Form 8995: Qualified Business Income Deduction

If you’re a small business owner, freelancer, or self-employed individual, there’s a good chance you’ve heard about the Qualified Business Income Deduction (also called QBI); and, if you’ve heard of QBI, you’ve probably also come across Form 8995. But don’t worry—if that name makes your eyes glaze over, you’re not alone, and you’d be surprised at just how many people’s eyes glaze over because of taxes anyway. This form might sound intimidating, but it’s a surprisingly manageable part of your tax return, and in many cases, it could mean real tax savings.

In this article, we’ll walk you through what Form 8995 is, who needs to file it, and how it works so you can feel confident when tax time rolls around.

What Is Form 8995?

Form 8995 is the IRS form used to calculate and claim the Qualified Business Income Deduction. This deduction, which was introduced as part of the Tax Cuts and Jobs Act, lets certain business owners deduct up to 20% of their qualified business income from their taxable income. The point of this deduction is to give pass-through businesses, like sole proprietors, partnerships, and S corporations, a bit of a break, since they’re taxed differently from traditional corporations.

Now, there are actually two versions of the form: Form 8995 and Form 8995-A. The “A” version is more complex and is used when your income or business structure puts you outside the simple qualification rules. But for many taxpayers, especially those with income below certain thresholds, Form 8995 is all you need.

 

Qualifications for Business Structure

To be eligible for the QBI deduction, individuals must own at least one of the following pass-through business entities:

• Sole proprietorships
• Sociedades colectivas.
• Compañías de responsabilidad limitada (LLCs).
• S corporations
• Estates and trusts
• Agricultural or horticultural cooperatives (requires Form 8995-A)

Types of Income Eligible for the QBI Deduction

Form 8995 accepts only specific types of income, including:

• Pass-through business income
• Qualified REIT dividends (Real Estate Investment Trust)
• Qualified PTP income or loss (Publicly Traded Partnerships)
• Rental real estate income

Income Threshold for Eligibility

Finally, owners of pass-through business entities must meet certain income thresholds to qualify for the QBI deduction.

For tax year 2024, the QBI eligibility thresholds are:

• $383,900 for married couples filing jointly
• $191,950 for all other filing statuses (married filing separately, singles, heads of household)

In 2025, these thresholds increase to:

• $403,200 for married couples filing jointly
• $201,600 for other filing statuses

If your taxable business income is below the threshold for your filing status, you are likely eligible for the full QBI deduction.

Exceeding the income threshold doesn’t automatically disqualify you from the deduction, as there are additional criteria that the IRS uses to determine whether you qualify for a partial deduction.

For 2024, if your taxable income exceeds:

• $485,800 for married filing jointly
• $242,900 for other filing statuses

the deduction phases out.

But remember: If your income exceeds the threshold and your profession falls under certain specified service trades (such as law, accounting, medicine, or entertainment), you will not qualify for the QBI deduction.

However, if you are not in one of the excluded professions and your income exceeds the threshold, you may still be eligible for the deduction, but you’ll need to file Form 8995-A.

Who Needs to File Form 8995?

At its core, Form 8995 is You’ll likely need to file Form 8995 if you’re eligible to claim the QBI deduction and your total taxable income is under the IRS’s threshold for the year. For 2025, that threshold is expected to be around $191,950 for single filers and $383,900 for married couples filing jointly. If your income falls under those limits, and you have qualified business income, Form 8995 is your go-to form.

Qualified business income usually includes net income from a sole proprietorship, partnership, S corporation, or certain rental activities. It does not include income from a C corporation, wage income, or investment income like capital gains, dividends, or interest.

Also, if you’re a partner in a partnership or a shareholder in an S corp and you get a Schedule K-1 showing your share of business income, you’ll probably need to file Form 8995 to take your share of the deduction.

How Does the QBI Deduction Work on Form 8995?

Form 8995 breaks the deduction process down step-by-step. You start by listing your qualified business income, then subtract any qualified business losses carried over from a previous year. After that, the form walks you through calculating the 20% deduction and comparing it to a limitation based on your taxable income.

If your taxable income is low enough and you meet all the requirements, you’ll generally get to take the full 20% deduction on your QBI. The final number then flows through to your Form 1040, reducing your taxable income and potentially lowering your total tax bill.

One important thing to know is that this deduction doesn’t reduce your self-employment tax; just your income tax.

Form 8995 vs. Form 8995-A: What’s the Difference?

Form 8995 is designed for those with straightforward QBI deductions and income below the phase-out threshold. It’s fairly short and relatively easy to complete. But if your taxable income is over the threshold or if you’re in a specified service trade or business (SSTB), like being a doctor, lawyer, consultant, or investment advisor, you may need to use Form 8995-A instead. That version is longer and includes more detailed calculations, including things like W-2 wage limits and qualified property.

The good news is that if you’re using tax software or working with a tax professional, they’ll usually direct you to the right form automatically based on your numbers.

How to Complete Form 8995

Many business owners, preoccupied with the day-to-day operations, choose to delegate this task to an in-house accountant or a qualified tax preparer, and who could blame them? However, if you’re filing this form yourself, here’s how it generally works:

You’ll start with a list of each trade or business you have, including names and identifying numbers. Then, you’ll input the qualified business income for each of those businesses.

Next, you calculate your total QBI, subtract any previous years’ losses, and multiply the result by 20 percent. The form will then compare that number to 20 percent of your total taxable income (minus net capital gains). The lower of those two amounts is the deduction you’re allowed to take.

Finally, the result gets transferred to your Form 1040, typically on line 13.

When Is Form 8995 Due?

Form 8995 is filed as part of your annual federal income tax return, so it’s due on the same day as your Form 1040. For tax year 2025, that means your return—and Form 8995—will be due on April 15, 2026, unless you request an extension. If you file for an extension using Form 4868, you’ll have until October 15, 2026.

Common Mistakes to Avoid with Form 8995

A few common slip-ups happen often with this form. People sometimes overestimate their qualified business income by not factoring in expenses correctly. Others forget to carry over QBI losses from prior years, which affects the amount they can deduct this year. Another common issue is trying to use Form 8995 when your income is over the threshold and you really should be using Form 8995-A.

And don’t forget about coordination with other forms. If you have multiple sources of income that flow through Schedule K-1s, make sure you’re pulling all the correct figures into Form 8995.

The Final Word on Form 8995…

Form 8995 is one of those forms that can actually put money back in your pocket—if you’re eligible and complete it correctly. It’s part of a fairly generous deduction created specifically for small business owners and people with pass-through income. If you’re operating a side hustle, freelancing, or running a business, it’s definitely worth looking into.

The key is to make sure your income fits within the qualifying limits and that your business income qualifies as QBI. Whether you do it yourself or work with a professional, taking advantage of the QBI deduction can reduce your taxable income in a big way.

And if Form 8995 is too limited for your situation, don’t worry—there’s always Form 8995-A waiting in the wings to handle the more complicated math.

Form 8995: FAQ

1. Do I really need to file Form 8995 if I’m just a freelancer or side hustler?
Yes, you might. If you’re earning income from freelancing, consulting, or any self-employed work that’s reported on a Schedule C, and your total income is under the IRS threshold, you can often use Form 8995 to claim the QBI deduction. This deduction can lower your taxable income, which means you could end up owing less when you file your return. Even if you’re not running a full-fledged business, if you’re getting paid for services and reporting it to the IRS, you’re likely eligible to consider this form.

2. What’s the difference between Form 8995 and Form 8995-A?
Form 8995 is the simplified version of the QBI deduction form. You can use it when your income is under the threshold and your situation doesn’t involve complicated ownership structures or specified service trades. Form 8995-A is more detailed and used when your income is higher or when you’re involved in a specified service business like law, medicine, or accounting. If your return requires more calculations because of limitations, W-2 wages, or qualified property rules, then the longer Form 8995-A comes into play.

3. How do I know if my business income counts as Qualified Business Income?
Qualified Business Income generally refers to the net income you make from your business after subtracting expenses. This could be from a sole proprietorship, a partnership, or an S corporation. It doesn’t include things like wages you earn as an employee, interest or dividend income, or capital gains. Rental income can sometimes qualify, but it depends on how the activity is structured and whether it rises to the level of a business in the eyes of the IRS.

4. Is the deduction automatic, or do I have to calculate it?
The deduction isn’t automatic. You have to calculate it and claim it by filing Form 8995 along with your tax return. Tax software can help walk you through the steps, and if you’re using a preparer, they’ll usually figure it out for you. But if you’re doing it yourself, you’ll need to plug in your business income, subtract any losses carried over, and follow the step-by-step calculation on the form. Then you’ll report the result on your Form 1040.

5. What happens if I made a loss last year but a profit this year?
If you had a qualified business loss in a prior year, you may have to carry that loss forward and reduce this year’s qualified business income by that amount. That means even if you earned a profit in 2025, your deduction might be smaller because the IRS wants you to even things out before giving you the full 20 percent break. This is one area where it helps to double-check past returns and make sure you’re accounting for everything properly.

6. Can I claim the QBI deduction through Form 8995 if I have multiple businesses?
Yes, you can. Form 8995 allows you to list multiple businesses separately and calculate your deduction based on the combined total of your qualified business income. However, if any of the businesses are considered specified service trades or if your combined income is over the threshold, it could get more complicated. You may need to do some additional math or even switch to Form 8995-A. But if your income is under the limit and the businesses all qualify, you can still use Form 8995 to take the deduction.

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