Ask a reseller about the tax deduction that knocks 20% off their business profit before it's taxed, and most have never heard of it. It isn't hidden — it's Section 199A, the Qualified Business Income deduction, and it applies to a plain Schedule C reselling business the same as it applies to any other sole proprietorship. It just doesn't get talked about on reseller forums the way mileage or the home office deduction do, and the actual math behind it isn't "take your net profit times 20%," which is where most DIY explanations stop short.
What changed, and why "2026" matters here
The 20% QBI deduction has existed since the 2017 tax law, but it was written with a sunset date — it was scheduled to expire after the 2025 tax year. The One Big Beautiful Bill Act, signed in July 2025, removed that sunset and made the 20% deduction a permanent part of the tax code starting with 2026. The same law also widened the income phase-out range that limits the deduction for higher earners: for 2026, the phase-in zone is $75,000 wide for single filers and $150,000 wide for joint filers, up from $50,000 / $100,000 before. For 2026, that phase-out starts at $201,750 of taxable income for single filers and $403,500 for joint filers, running up to $276,750 and $553,500 respectively. It also added a new minimum deduction of $400 for anyone with at least $1,000 of qualifying business income, aimed at very small businesses where 20% of QBI would otherwise round down to almost nothing.
Most resellers running this part-time or full-time as a side business are nowhere near those upper thresholds, which matters: below the threshold, none of the limitations that make Section 199A complicated for bigger businesses (the wage/property limits, the service-business exclusion) apply to you at all. You just get the deduction.
Who actually qualifies
If you sell on eBay or Shopify as a sole proprietor or a single-member LLC taxed as a sole proprietor — filing a Schedule C, which is the default setup for almost every individual reseller — you have "qualified business income" from a "qualified trade or business," and retail resale of goods isn't one of the service-business categories (law, accounting, financial services, consulting, and similar) that Section 199A treats differently. A reselling business is about as clean a fit for this deduction as exists.
You also don't need to itemize to get it. It's a separate deduction computed on Form 8995 (or the longer Form 8995-A if your income is above the threshold, or you have income from certain other pass-through sources) and it comes off your taxable income on top of the standard deduction, not instead of it.
The part almost every summary skips: QBI isn't your net profit
This is where "just take 20% of your Schedule C profit" goes wrong. Your Qualified Business Income for this calculation is your net Schedule C profit minus a few things the IRS treats as not really business income for this purpose:
- The deductible half of your self-employment tax attributable to that
- business
- Any self-employed health insurance deduction attributable to that business
- Any deductible contributions to a self-employed retirement plan (SEP-IRA,
- Solo 401(k), etc.) attributable to that business
If you deduct any of those elsewhere on your return, they come back out of QBI before the 20% is applied. Skip that step and you'll overstate the deduction.
Then there's a second cap, separate from the QBI number entirely: the deduction is the lesser of 20% of your QBI, or 20% of your taxable income for the year minus any net capital gains. On a modest-income year, that second cap is often the one that actually binds — not the QBI-based number.
A worked example
Say your Schedule C shows $50,000 in net profit for the year from reselling, and that's your only qualified business income.
- Self-employment tax: 92.35% × $50,000 = $46,175 taxable base; 15.3% ×
- $46,175 = $7,065 in SE tax
- Deductible half of that SE tax: $3,532
- QBI (assuming no self-employed health insurance or retirement
- contributions this year): $50,000 − $3,532 = $46,468
- 20% of QBI: $9,294
Now the second cap. Say that after your standard deduction and other adjustments, your total taxable income for the year works out to $40,000.
- 20% of taxable income: $8,000
The deduction is the lesser of the two: $8,000, not the $9,294 the QBI number alone would suggest. On this taxable income, at a 12% marginal rate that's $960 in tax savings; at 22%, $1,760 — for a deduction that required nothing beyond filing a normal Schedule C correctly.
What it doesn't do
The QBI deduction reduces your income tax. It does nothing to your self-employment tax — that 15.3% is calculated on your full net profit before this deduction ever applies, the same way it's calculated for quarterly estimated payments. Don't build a QBI assumption into your quarterly SE tax math; it's an income-tax-only benefit that shows up when you file, not something that lowers what you owe throughout the year.
It's also a federal deduction. Whether your state recognizes it varies — many states that use federal taxable income as a starting point automatically follow it, but not all do, so don't assume it flows through to your state return without checking.
What to actually do
- Make sure your preparer or software is actually filing Form 8995.
- If you're piecing together your own return with a basic tool, this is
- an easy deduction to simply never see, because nothing forces the
- question the way a W-2 box does.
- Don't estimate QBI as your raw net profit. Back out the deductible
- half of SE tax, and any self-employed health insurance or retirement
- contributions, first.
- Check both caps, not just the QBI-based one. On a lower-income year,
- the 20%-of-taxable-income limit is often the number that actually applies.
- Don't let it change your quarterly estimated payments. It affects your
- income tax bill at filing time, not your self-employment tax, and not the
- cash you should be setting aside throughout the year.
PalmFlow tracks your real net profit — sale price minus cost basis, platform fees, and shipping, not a gross-sales guess — which is the starting number this whole calculation runs on. It doesn't calculate your QBI deduction or file anything for you; for the actual Form 8995 math, a CPA or tax software is the right tool. Free plan, 50 items, no card.
Disclaimer: this is general information, not tax advice. The 2026 threshold amounts and the QBI calculation depend on your full return, and Section 199A has enough edge cases (rental real estate, multiple businesses, aggregation elections) that a CPA is worth it the first year you claim it. Confirm your own numbers before you file.