Qualified Business Income (QBI) Deduction: Year-End Moves That Can Affect the 20% Deduction
The QBI deduction can look deceptively simple — up to 20% of qualifying business income — until taxable income gets close to the phase-in ranges. That's where year-end decisions about wages, retirement contributions, and timing can change the deduction itself, not just taxable income.
The 2026 Thresholds and Wider Phase-In Ranges
For 2026, the full, unrestricted 20% deduction generally applies below taxable income of roughly $201,750 (single and most other filers) or $403,500 (married filing jointly). Above those thresholds, the phase-in range — where the W-2 wage and property limitations start to apply for non-SSTBs, and where the deduction phases toward zero for specified service businesses — was widened by the new law to $75,000 above the threshold for single filers and $150,000 for joint filers, up from $50,000 and $100,000 previously.
A New Minimum Deduction Starting This Year
Starting in 2026, a taxpayer who materially participates in a qualified trade or business with at least $1,000 of qualified business income is guaranteed a minimum $400 deduction, even if the standard calculation would produce less. This specifically doesn't help specified service trade or business owners above the upper threshold, since SSTB income above that point is excluded from the deduction entirely regardless of the minimum.
Why Taxable Income Near the Threshold Is Worth Watching Closely
For a business owner projected to land close to the phase-in range, year-end moves that shift taxable income — accelerating a deductible expense, deferring income, increasing a retirement plan contribution — can have an outsized effect on the QBI deduction itself, on top of their direct tax effect. Someone who can defer just enough income to stay below the threshold, or below the point where the SSTB exclusion fully applies, may preserve a meaningfully larger deduction than the direct dollar value of the deferral alone would suggest.
For Owners Above the Threshold, W-2 Wages Can Matter Directly
For a non-SSTB business owner whose income is above the phase-in range, the deduction is limited 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 qualifying property. Increasing W-2 wages — through a year-end bonus run through payroll, for example — can directly increase the wage limitation and, in the right situation, increase the allowable QBI deduction, even though the bonus itself is also taxable income. This is a case where a payroll decision and a QBI decision are directly connected, and it's worth running the actual numbers rather than assuming either direction is automatically better.
This information is educational and describes the general operation of the Section 199A deduction under current law, including 2026 thresholds. It does not calculate the deduction for a specific taxpayer or business, and QBI planning depends heavily on the specific facts involved. If your income is projected to land near one of these thresholds, that's worth modeling before year-end — our tax planning team can run the actual numbers with you.
Related service: Tax Advisory & Planning
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