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.


January 2026 Newsletter

By Sarah Bolton • January 7, 2026
Our regularly updated newsletter provides timely articles to help you achieve your financial goals. Please come back and visit often. Feature Articles Can You Claim a Tax Deduction for Tips or Overtime Income? Businesses: Act Soon to Take Advantage of Clean Energy Tax Incentives Make Smart Choices With a Sudden Windfall Tax Tips 2026 Tax Law Changes for Individuals Heavy Tax Breaks for Heavy Business Vehicles More Taxpayers May Qualify for the Casualty Loss Deduction

January 2026: Upcoming Tax Due Dates

By Sarah Bolton • January 7, 2026
January 15 Employers: Deposit nonpayroll withheld income tax for December 2025 if the monthly deposit rule applies. Individuals: Pay the fourth installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding. February 2 Employers: File 2025 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration. Employers: File a 2025 return for federal unemployment taxes (Form 940) and pay any tax due if all the associated taxes weren’t deposited on time and in full. Employers: Report Social Security and Medicare taxes and income tax withholding for the fourth quarter of 2025 (Form 941) if all of the associated taxes due weren’t deposited on time and in full. Employers: Provide 2025 Form W-2 to employees. Businesses: Provide 2025 Form 1098, Form 1099-MISC (except for those with a February 18 deadline), Form 1099-NEC and Form W-2G to recipients. Individuals: File a 2025 income tax return (Form 1040 or Form 1040-SR) and pay the tax to avoid penalties for underpaying the January 15 installment of estimated taxes. February 10 Employers: File a 2025 return for federal unemployment taxes (Form 940) if all associated taxes due were deposited on time and in full. Employers: Report Social Security and Medicare taxes and income tax withholding for the fourth quarter of 2025 (Form 941) if all associated taxes due were deposited on time and in full. Individuals: Report January tip income of $20 or more to employers (Form 4070). 

More Taxpayers May Qualify for the Casualty Loss Deduction

By Sarah Bolton • January 7, 2026
Starting in 2026, personal casualty loss deductions will no longer be limited to federally declared disasters. Certain state-declared disasters will also be eligible. For a disaster to qualify, the governor (or D.C. mayor) and the U.S. Treasury Secretary must agree that the damage is severe enough to apply these rules. Now more taxpayers affected by natural disasters or by fires, floods or explosions, regardless of the cause, may qualify.  Note that taxpayers can still claim personal casualty losses not attributable to federally or state-declared disasters, but only to the extent of any personal casualty gains. Need guidance? Contact the office for help.