The QBI Deduction Is Now Permanent: What Small Business Owners Should Know for 2026

The Section 199A Qualified Business Income (QBI) deduction was set to expire after 2025. It didn’t. The One Big Beautiful Bill Act made it permanent starting in 2026. If you own a pass-through business — sole proprietorship, S-Corp, partnership, or LLC — this deduction directly reduces your taxable income by up to 20% of your qualified business income.

Here’s what the QBI deduction is, how it works, who qualifies, and what changed now that it’s permanent.

What the QBI Deduction Does

The QBI deduction allows eligible pass-through business owners to deduct up to 20% of their qualified business income from their taxable income. It’s taken on your personal return — it reduces the income you pay tax on, not your self-employment tax. For a business generating $200,000 in qualified income, that’s potentially a $40,000 reduction in taxable income.

The deduction is available regardless of whether you itemize or take the standard deduction. It’s calculated on Form 8995 or 8995-A depending on your income level.

Who Qualifies

If you have income from a pass-through entity — Schedule C, S-Corp K-1, partnership K-1 — you’re potentially eligible. The deduction applies to domestic qualified business income, which generally means income from a trade or business conducted within the United States.

There are limitations based on taxable income, the type of business you operate, and the W-2 wages your business pays. Below the income threshold, the deduction is straightforward. Above it, the calculation gets more complex — particularly for specified service trades or businesses (SSTBs) like law, accounting, consulting, and health services.

What Changed Under the OBBBA

The biggest change is permanence. Before the OBBBA, the QBI deduction was scheduled to sunset after December 31, 2025. Business owners couldn’t count on it for long-term planning. Now it’s part of the permanent tax code, which means you can build it into your ongoing tax strategy with confidence.

The OBBBA also established a minimum QBI deduction of $400 for taxpayers with at least $1,000 in qualified business income. This is a minor change for most business owners, but it ensures that even lower-income pass-through owners get some benefit.

The SSTB Trap

If your business is classified as a specified service trade or business, your QBI deduction begins to phase out once your taxable income exceeds the threshold ($191,950 single / $383,900 married filing jointly for 2026, indexed for inflation). Above a certain range, SSTB owners lose the deduction entirely.

This is where tax planning matters. If you’re near the threshold, timing income and deductions — or evaluating whether your business actually qualifies as an SSTB — can have a significant impact on your tax liability. The classification isn’t always obvious, and the IRS has issued guidance that narrows (or expands) what counts depending on the specific facts.

Why Documentation Matters More Now

With the deduction now permanent, the IRS will build more examination resources around it. That means more scrutiny on QBI calculations, SSTB classifications, W-2 wage limitations, and the accuracy of the underlying business income being used in the calculation.

If you’re claiming the QBI deduction, your tax preparer should be able to explain how each limitation was applied and why your business qualifies. If that explanation doesn’t exist, the deduction is vulnerable during an examination.

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If you’re not sure how the QBI deduction applies to your business — or whether your current calculation would hold up under review — our advisory services are designed for exactly this kind of analysis. Or schedule a consultation to talk through your situation.