How Construction, Retail, and Logistics Businesses Can Claim the 20 Percent IRS QBI Deduction

The IRS provides a valuable deduction for many small business owners, but not all take full advantage of it. This article breaks down the Qualified Business Income (QBI) deduction in plain language, specifically for construction, retail, and logistics businesses. Learn what it is, who qualifies, how to maximize it, and why having your bookkeeping and business structure in order is critical.

Overview

If your business is a sole proprietorship, partnership, or S corporation, you may qualify for a deduction of up to 20 percent of your business income. But if you earn over a certain amount, you must meet additional requirements to keep the deduction. This post explains how the rules apply to non-Specified Service Trades or Businesses (non-SSTBs), such as construction, remodeling, logistics, and retail companies.

What Is the QBI Deduction?

The Qualified Business Income deduction, also known as the Section 199A deduction, allows business owners to deduct up to 20 percent of their qualified business income from their personal taxable income. It applies to pass-through businesses, which include:

• Sole proprietorships
• Partnerships and LLCs taxed as partnerships
• S corporations
• Some trusts and estates

C corporations are excluded from this deduction.

Example: If your construction business reports $100,000 in qualified business income, you could deduct $20,000 from your taxable income—provided you meet all other requirements.

Who Qualifies as a Non-SSTB?

Businesses involved in providing services like accounting, law, or medicine are considered SSTBs and face stricter limits. However, businesses that sell products, build structures, transport goods, or operate physical storefronts generally qualify as non-SSTBs. These businesses are given broader access to the deduction, even at higher income levels.

Examples of non-SSTB industries:

• General contractors
• Commercial or residential remodeling companies
• Retailers and e-commerce shops
• Freight or logistics providers

Income Thresholds: When Limitations Begin

The IRS uses taxable income—not just business profit—to determine how much of the QBI deduction you can claim. Once you exceed a set income level, additional tests apply.

2025 Thresholds (estimated):

• $191,950 for single filers
• $383,900 for married filing jointly

How to Preserve the Deduction at Higher Income Levels

W-2 Wage and UBIA Property Tests

1. The Wage Test

You must pay W-2 wages to employees. The deduction is limited to the greater of:

• 50 percent of your W-2 wages paid, or
• 25 percent of W-2 wages plus 2.5 percent of your UBIA property

2. The Property Test (UBIA)

UBIA stands for Unadjusted Basis Immediately After Acquisition. This is the original purchase price of tangible property such as machinery, vehicles, or buildings that are still being used by the business. It does not include land or inventory.

Common Scenarios

Construction Firm:

• Profit: $250,000
• W-2 Wages: $100,000
• UBIA: $150,000 (equipment and tools)

Retail Business:

• Profit: $300,000
• W-2 Wages: $75,000
• UBIA: $25,000 (fixtures and equipment)

Logistics Company:

• Profit: $500,000
• W-2 Wages: $200,000
• UBIA: $500,000 (fleet of delivery trucks)

Why Structure and Bookkeeping Are Essential

Claiming the QBI deduction—and keeping it—requires accurate records and the right business setup. Your books must clearly show your qualified business income. W-2 wage reports must match IRS filings. Tangible property must be tracked for UBIA purposes. And your business structure can affect eligibility.

Key Takeaways for Business Owners

• Non-SSTBs are more likely to keep the deduction, even at high incomes
• Track W-2 wages and equipment correctly
• Maintain accurate bookkeeping and file taxes on time
• Include QBI in your annual tax planning strategy

How EZQ Group Can Help

EZQ Group helps small business owners:

• Set up the correct entity structure
• Maintain clean books
• Ensure payroll compliance
• Capture tax deductions like QBI

We serve construction, logistics, remodeling, and retail businesses across Houston.

Explore our services:

• Bookkeeping and Financial Cleanup
• Tax Filing and Strategic Planning
• Business Entity Formation and S Corp Structuring