IRS Instruction 8995 – IRS Forms, Instructions, Pubs 2026 – The Qualified Business Income (QBI) deduction is a valuable tax benefit for many small business owners, freelancers, and self-employed individuals. Introduced under the Tax Cuts and Jobs Act (TCJA) of 2017, this deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities like sole proprietorships, partnerships, S corporations, and certain trusts and estates. For those with simpler tax situations, IRS Form 8995 provides a streamlined way to calculate this deduction without the complexity of Form 8995-A.
In this SEO-optimized guide, we’ll break down everything you need to know about IRS Instruction 8995, including its purpose, eligibility requirements, step-by-step instructions for completion, and key updates for the 2025 tax year. Whether you’re a gig worker, real estate investor, or small business operator, understanding Form 8995 can help maximize your tax savings. We’ll also provide a direct download link to the official instructions PDF.
What Is the Qualified Business Income Deduction?
The QBI deduction, often called the Section 199A deduction, is designed to level the playing field between C corporations (which benefit from lower corporate tax rates) and pass-through businesses. It applies to qualified income from trades or businesses operated in the U.S., including:
- Net income from sole proprietorships reported on Schedule C.
- Partnership or S corporation income passed through via Schedule K-1.
- Qualified real estate investment trust (REIT) dividends.
- Qualified publicly traded partnership (PTP) income.
The deduction is generally 20% of your QBI, but it’s subject to limitations based on your taxable income and other factors. Importantly, it doesn’t include wages earned as an employee, capital gains, or certain types of investment income. Form 8995 simplifies this computation for taxpayers below specific income thresholds, making it easier to claim without detailed wage or asset calculations.
Who Can Use Form 8995?
Not everyone needs to use the full Form 8995-A. The simplified Form 8995 is available if you meet these criteria:
- Your taxable income (before the QBI deduction) is at or below $197,300 for single filers, heads of household, or married filing separately, or $394,600 for married filing jointly.
- You’re not a patron in a specified agricultural or horticultural cooperative.
- You have QBI, qualified REIT dividends, or qualified PTP income or loss.
Eligible taxpayers include individuals, certain estates, and trusts. S corporations, partnerships, and cooperatives themselves can’t claim the deduction but must report necessary information to owners via Schedule K-1 or Form 1099-PATR. If your income exceeds these thresholds or your business is a specified service trade or business (SSTB) like law, health, or consulting, you’ll need to switch to Form 8995-A for phase-in rules or limitations.
Estates and trusts should allocate the deduction based on distributable net income (DNI), while Electing Small Business Trusts (ESBTs) compute it separately for S and non-S portions.
Step-by-Step Guide to Completing Form 8995
Filling out Form 8995 is straightforward, but accuracy is key to avoid IRS audits. Attach it to your Form 1040, 1040-SR, 1040-NR, or 1041. Here’s a breakdown based on the official instructions:
- Gather Your Information: Collect Schedules K-1, Form 1099-DIV (for REIT dividends), and prior-year loss carryforwards. Use the QBI Flow Chart in the instructions to determine what counts as QBI—include items like self-employment taxes, health insurance deductions, and retirement contributions, but exclude tip income under certain rules.
- Line 1: List Your Trades or Businesses: Enter the name, EIN/SSN/ITIN, and net QBI or loss for each qualified trade or business (up to five; attach a statement for more). Exclude suspended losses or prior-year carryforwards here.
- Line 2: Total QBI: Sum the QBI from all businesses.
- Line 3: Prior-Year Loss Carryforward: Enter the qualified portion of any net loss carryforward from previous years.
- Line 4: Net QBI: Subtract Line 3 from Line 2. If negative, you may still qualify based on REIT/PTP income, but carry the loss forward.
- Lines 5-10: REIT and PTP Items: Add qualified REIT dividends (from Form 1099-DIV, Box 5) and PTP income or loss. Calculate the total combinable amount.
- Line 11: Taxable Income Before QBI: Pull this from your tax return (e.g., Form 1040, Line 15).
- Line 12: Net Capital Gain Adjustment: Enter your net capital gain plus qualified dividends.
- Line 13: Income Limitation: Compute 20% of (Line 11 minus Line 12).
- Line 14: QBI Deduction: Take the lesser of 20% of Line 10 or Line 13. This is your deduction amount.
If you have multiple businesses, consider aggregating them if you own at least 50% and they meet criteria like shared services (use Schedule B from Form 8995-A if needed). Track losses using the QBI Loss Tracking Worksheet to handle carryforwards properly.
Key Updates and Changes for 2025
The IRS adjusts thresholds annually for inflation. For 2025:
- Basic thresholds: $197,300 (single) or $394,600 (MFJ).
- Phase-in range for SSTBs or higher incomes: Up to $247,300 (single) or $494,600 (MFJ)—beyond this, use Form 8995-A.
New exclusions include certain tip income when calculating QBI under Section 224. Always check for post-publication legislation at IRS.gov/Form8995. If you’re dealing with suspended losses from before 2018, follow the FIFO method for allocation.
Download the Official IRS Instructions for Form 8995
For the most accurate guidance, download the official PDF of Instructions for Form 8995 directly from the IRS website: https://www.irs.gov/pub/irs-pdf/i8995.pdf. This document includes worksheets, flowcharts, and examples to help you navigate the form.
Final Tips for Claiming the QBI Deduction
- Consult a tax professional if your situation involves SSTBs, aggregations, or international income.
- Keep detailed records of QBI components to support your deduction.
- File electronically for faster processing and to reduce errors.
By leveraging Form 8995 correctly, you can significantly reduce your taxable income. Stay informed with IRS updates to ensure compliance and maximize benefits for your business.