The Qualified Business Income (QBI) deduction, introduced in 2018, remains a powerful tax-saving opportunity for eligible business owners. It allows a deduction of up to 20% of qualified business income, capped at 20% of total taxable income. This benefit also extends to 20% of qualified REIT dividends.
Key Legislative Update: Permanency via the OBBBA
The One, Big, Beautiful Bill Act (OBBBA) has made the QBI deduction permanent, removing the original sunset provision set for the end of 2025.
What Qualifies as QBI?
QBI includes the net income, gains, deductions, and losses from a qualified U.S. trade or business. Eligible taxpayers include:
- Sole proprietors
- Owners of pass-through entities (e.g., partnerships, S corporations, and LLCs taxed as such)
C corporations are not eligible.
Income Thresholds and Limitations (2025 figures)
The deduction begins to phase out when taxable income exceeds:
- $197,300 for individuals
- $394,600 for joint filers
It phases out completely at:
- $247,300 for individuals
- $494,600 for joint filers
For those above the threshold, the deduction is limited to the greater of:
- 50% of W-2 wages paid by the business, or
- 25% of W-2 wages + 2.5% of the unadjusted basis of qualified property (e.g., depreciable real estate used in the business)
Specified Service Trades or Businesses (SSTBs)
If your business is in a SSTB—such as law, healthcare, consulting, performing arts, or athletics—the deduction phases out entirely above the income thresholds. Notably, engineering and architecture are excluded from this limitation.
Enhancements Effective 2026
Starting in 2026, the OBBBA introduces:
- Expanded phase-in ranges:
- $75,000 for individuals
- $150,000 for joint filers
- Minimum QBI deduction of $400 for materially participating taxpayers with at least $1,000 in QBI
- Both thresholds will be adjusted annually for inflation beginning in 2027
Next Steps for Tax Planning
With these changes, now is the time to revisit your tax strategy. Consider:
- Reviewing entity structure
- Evaluating W-2 wage levels
- Assessing property basis for deduction optimization
Consult a qualified tax advisor to ensure you’re maximizing your QBI deduction under the new rules.
© 2025