A huge sigh of relief for small business owners—the Qualified Business Income (QBI) deduction has been made permanent by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.
What is the QBID?
The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. The deduction was initially set to expire at the end of 2025 along with many other provisions of the Tax Cuts and Jobs Act of 2017 (TCJA).
Who is Eligible for QBI?
Eligible taxpayers include owners of sole proprietorships, partnerships, S-corps, and LLC’s. C-Corps are not eligible because they are taxed separately from their owner(s).
What Has the OBBBA Changed?
Not only was the QBI deduction made permanent, but new enhancements were introduced under OBBBA. Beginning in the 2026 tax year (for tax years starting after December 31, 2025):
- The QBI deduction is now made permanent at the same 20% level.
- A minimum deduction of $400 (inflation-adjusted after 2026) is now available for taxpayers with at least $1,000 of active QBI.
- The phase-in ranges for limitations tied to W‑2 wages, qualified property, and SSTB classification are increased to:
- $75,000 for single filers and indexed annually after 2026.
- $150,000 for joint filers and indexed annually after 2026.
What Changed for Specified Service Businesses?
Under TCJA, owners of specified service trades or businesses (SSTBs)—such as financial services, accounting, law, and health care—were excluded from receiving a partial QBI deduction once their taxable income surpassed a certain level.
With the changes under OBBBA, SSTB owners will now be allowed to receive a partial QBI deduction within the new, expanded phase-in ranges. They are still phased out at higher income levels, but they now benefit from a wider window before being excluded.
The Qualified Business Income Deduction, although beneficial, can become very complicated for high-income individuals. If you have questions regarding your specific scenario, reach out to your tax advisor.
