What Is IRS Form 8895 and How Do I Use It?

IRS Form 8995 is a tax document used by eligible taxpayers to calculate their qualified business income (QBI) deduction. This deduction, also known as the Section 199A deduction, allows owners of certain pass-through businesses to deduct up to 20% of their qualified business income. Form 8995 is a simplified alternative to the more detailed Form 8995-A, which is required for taxpayers with higher incomes. The QBI deduction is set to expire for tax years after December 31, 2025, unless extended by Congress.

Determining Eligibility to Use Form 8995

To use the simplified Form 8995, a taxpayer’s taxable income before the QBI deduction must fall at or below specific thresholds. For the 2025 tax year, the income limit is $191,950 for individuals, heads of household, and those married filing separately. For married couples filing a joint return, the threshold is $383,900. Taxpayers who are patrons in a specified agricultural or horticultural cooperative are not eligible to use Form 8995.

For taxpayers who meet these income requirements, income from a Specified Service Trade or Business (SSTB) is treated as a qualified trade or business. An SSTB is a business in fields like health, law, accounting, consulting, and athletics, and its income can be used to calculate the deduction on Form 8995 if the taxpayer is under the income limits.

If a taxpayer’s income exceeds these thresholds, they must use Form 8995-A. The QBI deduction begins to phase out for taxable incomes between $191,951 and $241,950 for most filers, and between $383,901 and $483,900 for those married filing jointly. Form 8995-A requires additional calculations related to W-2 wages and the unadjusted basis of qualified property to determine if the deduction is limited.

Information Needed to Complete Form 8995

To complete Form 8995, you will need your total taxable income before the QBI deduction, which is calculated on your Form 1040. You also need the net qualified business income or loss for each of your business activities. For sole proprietors, this amount is found on Schedule C, while partners and S corporation shareholders receive this information on Schedule K-1.

You must also identify any qualified real estate investment trust (REIT) dividends or qualified publicly traded partnership (PTP) income. REIT dividends are reported in box 5 of Form 1099-DIV. Qualified PTP income or loss is reported on Schedule K-1 (Form 1065).

A Line-by-Line Guide to Form 8995

The calculation on Form 8995 begins on Line 1, where you list each trade or business and its corresponding qualified business income or loss. If you have multiple businesses, you will list them separately and then total the net amount on Line 2. This total is then combined with any loss carryforwards to determine your total QBI on Line 4. On Line 5, you calculate your QBI component by multiplying the total QBI by 20% (0.20).

The form then accounts for other types of qualified income. On Line 6, you enter your total qualified REIT dividends and qualified PTP income. You multiply this total by 20% on Line 9 to determine your REIT and PTP component. Line 10 is the sum of your QBI component and your REIT/PTP component.

The final calculation is subject to an income-based limitation. You will enter your taxable income before the QBI deduction on Line 11. On Line 13, you enter your taxable income minus your net capital gain, and this amount is then multiplied by 20% on Line 14. Your final QBI deduction, entered on Line 15, is the lesser of the amount on Line 10 or the amount on Line 14.

Filing and Reporting the Deduction

After calculating your QBI deduction, you must report the final figure on your individual income tax return. The total deduction amount from Line 15 of Form 8995 is transferred to the designated line for the qualified business income deduction on Form 1040.

You must attach the completed Form 8995 to your Form 1040 when you file your return. The IRS requires this form as supporting documentation for the deduction you are claiming. Failure to attach the form can result in processing delays or the disallowance of the deduction.