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The QBI Deduction: Good News for Eligible Business Owners

As a business owner, finding ways to legally reduce your tax burden is key to keeping more of your hard-earned money. One of the most powerful tools available today is the Qualified Business Income (QBI) deduction. Thanks to new legislation, this deduction is now permanent — and starting in 2026, it’s becoming even more beneficial.

Let’s break it down step by step.

 

What Is the QBI Deduction?

The QBI deduction, also called the Section 199A deduction, was introduced in 2018 under the Tax Cuts and Jobs Act. It allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income.

This deduction is available to owners of pass-through entities, such as:

  • Sole proprietorships

  • Partnerships

  • S corporations

Because pass-through income isn’t taxed at the corporate level, this deduction helps business owners lower their individual tax bill in a big way.

 

Why the QBI Deduction Matters

Before this law, C corporations had a competitive tax advantage after their corporate rate was cut. The QBI deduction was designed to level the playing field by giving small business owners and self-employed individuals a similar break.

For example, if your business earns $100,000 in qualified business income, you could potentially deduct $20,000 before calculating your personal taxes. That’s real money saved.

 

The Big Update: It’s Now Permanent

Originally, the QBI deduction was set to expire after 2025. That uncertainty made it hard for business owners to plan for the long term.

Now, thanks to the One Big Beautiful Bill Act, the QBI deduction is permanent. This stability gives business owners confidence to plan ahead and incorporate the deduction into their long-term financial strategies.

 

Improvements Starting in 2026

The law doesn’t just make the deduction permanent — it makes it better. Here are the two big changes coming:

1. Expanded Income Ranges for Service Businesses

If you operate in a Specified Service Trade or Business (SSTB) — like accounting, law, or consulting — your deduction phases out once your income crosses a certain threshold.

Starting in 2026, the phase-out range is expanding:

  • Single filers: from $50,000 to $75,000 above the threshold

  • Married filing jointly: from $100,000 to $150,000 above the threshold

👉 Translation: More high-income business owners in service industries will be able to qualify for the deduction.

2. A Minimum Deduction Guarantee

Beginning in 2026, if you:

  • Materially participate in your business, and

  • Have at least $1,000 in qualified business income

You’ll automatically qualify for a minimum $400 QBI deduction.

This is especially helpful for new or lower-income business owners, ensuring they still see a tangible tax benefit.

 

Key Limitations to Keep in Mind

While the QBI deduction is powerful, the rules are complex. Some important considerations:

  • Qualified business income excludes capital gains, dividends, and the wages you pay yourself as an S corp owner.

  • Specified Service Trades or Businesses (SSTBs) face stricter rules and phase-outs.

  • High-income non-SSTBs must also meet W-2 wage and qualified property tests.

Because of these nuances, trying to navigate the deduction on your own can be risky — and could mean missing out on big tax savings.

 

Example Scenario

Imagine you run a consulting business that earns $180,000 in qualified business income.

  • Under the current rules, part of your deduction may be phased out if you file jointly.

  • Under the new expanded phase-out range (2026 and beyond), you’ll be able to claim a larger portion of that deduction, potentially saving thousands more in taxes each year.

 

Why This Matters

For small business owners, the QBI deduction is no longer a short-term perk — it’s a long-term strategy for reducing taxes. By understanding the rules and structuring your income properly, you can maximize the benefit and keep more money in your pocket.

Take Maria, a business owner who earns $120,000 in her marketing agency. Under the new law, she’ll qualify for a higher deduction than before, freeing up cash she can reinvest in her team and growth.

 

Conclusion

The QBI deduction is one of the most valuable tax-saving tools available to business owners today. With permanency and expanded benefits starting in 2026, now is the perfect time to revisit your tax strategy.

If you want to make sure you’re getting the full advantage of this deduction, consulting with a qualified CPA is essential.

📞 Contact Guerrero CPA at (210) 490-7100 to learn how the new QBI rules impact your business and how to structure your income for maximum savings.