The QBI Deduction: Good News for Eligible Business Owners

Sarah B

If you’re a small business owner or you’re self-employed, there’s good news on the tax front. The Section 199A qualified business income (QBI) deduction, a powerful tax-saving opportunity since 2018, was initially set to expire in 2025. But thanks to the recent enactment of the One Big Beautiful Bill Act (OBBBA), it’s not only here to stay, it’s also improved.


What Is the QBI Deduction?

This tax break allows eligible business owners to deduct up to 20% of their QBI from their taxable income. It applies to owners of pass-through entities, including S corporations, partnerships and, usually, LLCs, as well as sole proprietors.

QBI typically includes net business income but excludes investment capital gains and losses, dividends, interest income, owner wages, and guaranteed payments to partners or LLC members. And, you don’t need to itemize deductions to claim this deduction.


How Income Affects QBI Eligibility

While the full 20% deduction is available to many, it’s subject to certain limits that phase in based on taxable income and other factors. Your tax advisor can help with this.


If your business is a specified service trade or business (SSTB), your deduction reduces gradually as your income increases beyond the threshold, $197,300 ($394,600 if you’re married filing jointly) for 2025. If your income exceeds the top of the income range, $247,300 ($494,600 if you’re filing jointly) for 2025, you lose the deduction entirely.


SSTBs include professions like law, medicine, accounting, financial planning and consulting, but not engineering or architecture.

Non-SSTBs face other limitations. If their income exceeds the top of the range, their deduction can’t exceed the greater of their share of:

  • 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
  • The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.

If their income falls within the range, these limits apply only partially. If the rules and thresholds seem daunting, lean on us.


Better News for 2026 and Beyond

Here’s what pass-through business owners can look forward to:

  • The top of the income range for the additional limits increases from $50,000 above the threshold to $75,000 above the threshold (from $100,000 to $150,000 for joint filers).
  • A new minimum QBI deduction of $400 is introduced for taxpayers earning at least $1,000 in QBI, provided they materially participate in the business.

As a result of these changes, more business owners will be eligible for the deduction in 2026 and beyond, and some owners’ deductions will increase.


Bottom Line

The QBI deduction can significantly reduce your tax bill. With the deduction now made permanent and set to improve in 2026, it’s worth revisiting your tax strategy with the help of a qualified advisor. Contact the office to ensure you’re making the most of this valuable opportunity.


September 2025 Newsletter

By Sarah Bolton • September 9, 2025
Our regularly updated newsletter provides timely articles to help you achieve your financial goals. Please come back and visit often. Feature Articles The QBI Deduction: Good News for Eligible Business Owners 3 Family-Friendly Tax Benefits in the New Tax Law Before a Weather Emergency Closes Your Business, Make a Plan Tax Tips Seniors May Be Eligible for a New Deduction Separated or Divorced? Know Your Tax Obligations An Employee Benefit That Also Saves Tax for Your Business Just Got Better

September 2025: Upcoming Tax Due Dates

By Sarah Bolton • September 9, 2025
September 15 Individuals: Pay the third installment of 2025 estimated taxes (Form 1040-ES), if not paying income tax through withholding or not paying sufficient income tax through withholding. Calendar-year corporations: Pay the third installment of 2025 estimated income taxes, completing Form 1120-W for the corporation’s records. Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1 if an automatic six-month extension was filed. Pay any tax, interest and penalties due. Calendar-year S corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed. Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K1 (Form 1065) or a substitute Schedule K1 if an automatic six-month extension was filed. Employers: Deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies. Employers: Deposit nonpayroll withheld income tax for August if the monthly deposit rule applies. September 30 Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) if an automatic five-and-a-half-month extension was filed. Pay any tax, interest and penalties due. October 10  Individuals: Report September tip income of $20 or more to employers (Form 4070).

An Employee Benefit That Also Saves Tax for Your Business Just Got Better

By Sarah Bolton • September 9, 2025
If a couple gets separated or divorced, it affects tax obligations. The IRS considers couples married for tax purposes until a final decree is issued. After separating or divorcing, update your Form W-4 with your employer and check withholding using the IRS estimator.  Generally, alimony payments and child support payments aren’t deductible by the paying spouse or included in the taxable income of the recipient spouse. (Tax treatment of alimony payments is different if they’re being made under agreements entered into on or before December 31, 2018.) Property transfers due to divorce typically aren’t taxed but may require a gift tax return. Also, be aware that only one parent can claim a child as a dependent.