The qualified business income (QBI) deduction under IRC 199A lets owners of sole proprietorships, partnerships and S corporations deduct up to 20% of their qualified business income. It was made permanent in 2025. C corporations do not get it.
Plan contributions reduce QBI. For a sole proprietor or partner, the deduction for contributions to the owner's own plans is charged against the business's income (Treas. Reg. 1.199A-3(b)(1)(vi)). For an S corporation, the employer contribution lowers the profit on the owner's K-1. So below the income threshold, each dollar contributed also reduces the QBI deduction by about 20 cents, and the tax saved is roughly four-fifths of what your tax bracket alone would suggest.
Above the threshold the picture changes. For 2026 the threshold is taxable income of $201,750 for single filers and $403,500 for joint filers, with a phase-in range of $75,000 and $150,000. An owner of a specified service business above the range gets no deduction at all, and a large contribution can bring taxable income back into or under the range and switch the deduction back on. Other businesses above the threshold face a limit based on W-2 wages and property instead.
There is also a minimum deduction of $400 for owners with at least $1,000 of QBI from an active business. See the QBI deduction and retirement contributions.