By Gary G. Wallace, CPA, Managing Partner
Overview of changes to the Qualified Business Income deduction post H.R.1
Introduced by the Tax Cuts and Jobs Act (TCJA) of 2017, the Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, created a 20% deduction of qualified business income for owners of pass-through entities. The deduction was implemented with the goal of reducing tax burdens on business owners who report income on personal returns, such as owners of sole proprietorships, partnerships, and S corporations. For some professions, called specified service trades or businesses (SSTBs), the entire deduction did not apply. Under TCJA, the deduction’s phase-out range for SSTBs was set to $100,000 above the income threshold for joint filers, and $50,000 for others. Before H.R.1 (formerly the One Big Beautiful Bill Act – OBBBA) was passed, this deduction was set to expire after 2025.
With H.R.1 now effective, the QBI deduction has been made permanent. Beginning in tax years starting in 2026, the SSTB income phaseout for the deduction is now $150,000 for joint filers and $75,000 for others, with amounts indexed to inflation beginning in 2027. A new minimum deduction has also been introduced; if the cumulative QBI for active businesses is $1,000 or more, the taxpayer will receive the greater of either a minimum deduction of $400 or the taxpayers regular calculated deduction. This minimum deduction of $400 is to be adjusted for inflation beginning in 2027.
What might QBI deduction changes mean for you and your business?
The permanency of the QBI deduction and the installation of higher income phaseout amounts expand deduction eligibility for owners of SSTB pass-through entities. Taxpayers below the phaseout threshold will likely be able to claim the entire deduction, while taxpayers within the phaseout range will only be able to claim part of the deduction. Under these expanded eligibility changes, more taxpayers in professions like health, law, accounting, and financial services qualify for a portion of the deduction.
Is your privately-held business prepared to thrive under H.R.1’s tax changes? Keiter’s tax team will continue to update you on business tax planning opportunities and updates as the IRS releases guidance. This is an ideal time to consult your Keiter Opportunity Advisor, Email, or Call: 804.747.0000 to discuss your specific planning or saving strategy.
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About the Author
Gary G. Wallace, CPA, Managing Partner
Gary provides tax and business advisory services to business and individual clients. He has advised clients in various aspects of restructurings, including tax aspects of debt workouts and foreclosures, forgiveness of indebtedness, bankruptcy restructurings and liquidations, establishing liquidating trusts and partner-partnership transactions. Gary also has significant knowledge and experience in individual taxation, business taxation, and advising clients on all aspects of tax matters. He is the Managing Partner of the Firm.
More Insights from Gary G. WallaceThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
