The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows certain small-business owners to deduct up to 20% of their “pass-through” income. That is income reported on your personal tax return from businesses like sole proprietorships, partnerships, S-corporations, or LLCs—not corporations taxed separately. This deduction also applies to qualified REIT dividends and publicly traded partnership income.
This deduction was originally introduced under the 2017 Tax Cuts and Jobs Act and was set to expire after 2025. But with the One–Big–Beautiful–Bill Act (OBBBA) signed into law on July 4, 2025, the 20% QBI deduction is now permanent. That means business owners can now plan ahead with confidence, knowing this tax benefit won’t disappear in a few years.
The OBBBA didn’t just make the deduction permanent, it expanded eligibility and introduced new perks. It now includes higher income thresholds for individual filers. The income range where limits gradually apply has increased from $50,000 to $75,000; for joint filers, from $100,000 to $150,000. Starting in 2026, if your business is active and earns at least $1,000 of QBI, you’re guaranteed a minimum deduction of $400, even if your regular 20% calculation yields less or none. These changes make the deduction more accessible to low- and moderate-income small-business owners and those in specific industries.
These changes may help with long-term planning. Permanence means no chasing deadlines. You can invest, expand, or choose entity structures (like S-corporations) with the deduction in mind. It also offers more inclusion. With higher phase-in thresholds and a minimum deduction, even part-time or side-hustle income can earn a benefit. A straightforward 20 percent deduction, or at least $400, helps free up cash flow for reinvestment in your business.
Possible Downsides to Keep in MindThere are some complex limits over the income thresholds. If your income exceeds the phase-in limits, especially in certain professions (like law, consulting, or healthcare), your deduction can be reduced or eliminated, the rules involving wages and asset thresholds still apply. These are not for corporations or W-2 Wage Incomes. Only pass-through business income qualifies. If you’re an employee or own a C-corporation, your income doesn’t count. While the QBI deduction remains, the OBBBA included other controversial changes, such as cuts to clean energy incentives and safety-net programs, that could affect overall financial planning and household budgets.
For most small-business owners, the permanent 20 percent QBI deduction is a big win providing certainty, meaningful tax savings, and broader eligibility. But the rules can still be tricky, especially for higher-income business owners or those phased out by the limits.
Now is a great time to speak with a qualified tax adviser, and HNG can help. With this deduction now permanent and more inclusive, you’ll want to make sure you structure your business and income to get the most benefit. Our team is ready to help guide you through the process, answer your questions, and tailor a solution for your unique situation. Don’t hesitate to contact us to learn more!
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