Qualified Business Income Deduction Made Permanent Under New Law

The qualified business income (QBI) deduction, introduced in 2018, has been a valuable tax benefit for many business owners. It allows eligible taxpayers to deduct up to 20% of qualified business income, capped at 20% of taxable income. Taxpayers may also deduct up to 20% of qualified real estate investment trust (REIT) dividends.

With the passage of the One, Big, Beautiful Bill Act (OBBBA), this deduction has become even more advantageous. Most notably, the OBBBA makes the QBI deduction permanent — it was previously scheduled to expire on December 31, 2025.

Who Qualifies?

QBI generally includes the net amount of qualified income, gain, deduction, and loss from a U.S. trade or business. Eligible taxpayers include:

• Sole proprietors

• Owners of pass-through entities such as partnerships, S corporations, and LLCs taxed as partnerships or S corporations

** C corporations are not eligible for this deduction.

Income Thresholds and Limitations

The deduction has income limits. In 2025, phase-ins start when taxable income is above $197,300 for single filers or $394,600 for married couples filing jointly. When taxable income reaches $247,300 for singles and $494,600 for joint filers, the limits are fully applied.

When limits apply, the deduction is restricted to the greater of:

• 50% of W-2 wages paid by the business, or

• 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property used in the business

Additionally, taxpayers above the threshold in specified service trades or businesses (SSTBs) — like law, health, consulting, performing arts, athletics, and financial services — face stricter limits, with deductions phasing out at higher incomes. Engineering and architecture are exempt from SSTB restrictions.

Enhancements Starting in 2026

The OBBBA makes the QBI deduction more accessible beginning in 2026 by:

• Instead of $50,000 (single) or $100,000 (joint), the phase-in range will increase to $75,000 (single) and $150,000 (joint). This change allows more taxpayers to claim larger deductions.

• Taxpayers with at least $1,000 of QBI from a business in which they materially participate will qualify for a minimum deduction of $400, adjusted annually for inflation.

Next Steps for Business Owners

With these changes, now is the time to reassess your tax strategy. Decisions about wages, property investments, and business structure can all affect the size of your QBI deduction.

Our team can help you evaluate your situation and implement planning strategies to ensure you maximize this valuable benefit under the new law.