What is Section 199A Deduction?
The Qualified Business Income (QBI) deduction allows self-employed expats and pass-through business owners to deduct up to 20% of qualified business income from US taxes.
Definition
The Section 199A deduction, also called the Qualified Business Income (QBI) deduction, was introduced by the Tax Cuts and Jobs Act of 2017 and is available through at least 2025. It allows owners of pass-through businesses (sole proprietors, partnerships, S-corporations, and some trusts and estates) to deduct up to 20% of their qualified business income from their US taxable income. For self-employed US expats, this deduction can significantly reduce US tax liability alongside the FEIE or Foreign Tax Credit. However, FEIE-excluded income does not qualify as QBI — only income subject to US tax is eligible. Certain service businesses (Specified Service Trades or Businesses — SSTBs) face income-based phase-out limitations.
Who Needs to Know This?
Self-employed US expats, freelancers, consultants, and small business owners filing as pass-through entities who have income subject to US tax (not fully excluded by FEIE).
Key Deadline
Claimed annually on Form 8995 or 8995-A with your US tax return
Potential Penalties
Incorrectly claiming the deduction on FEIE-excluded income can trigger accuracy-related penalties
Related Forms
Common Mistakes to Avoid
- 1Claiming QBI deduction on income that was excluded under FEIE
- 2Not knowing your business type (SSTB vs non-SSTB) and applicable income limits
- 3Forgetting to claim the deduction when you have US-source self-employment income
- 4Assuming the deduction is permanent — it currently expires after 2025 unless renewed
Related Terms
Harsh Agarwal, EA · IRS Enrolled Agent
Reviewed for accuracy by Zenith Financial Advisors
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