Understanding the Qualified Business Income Deduction (QBI)

The qualified business income deduction (QBI) has been a valuable tax benefit for business owners since its introduction in 2018. This powerful provision allows eligible taxpayers to deduct up to 20% of their qualified business income, offering significant tax savings that help businesses reinvest in growth and operations. With the recent passage of the One Big Beautiful Bill Act (OBBBA), this deduction becomes even more advantageous—and permanent.

What Is the QBI Deduction?

The QBI deduction provides eligible taxpayers with the ability to deduct up to 20% of their qualified business income, capped at 20% of taxable income. This deduction can also apply to up to 20% of income from qualified real estate investment trust dividends.

The qualified business income deduction is the net amount of qualified income, gains, deductions, and losses from a qualified U.S. trade or business. Eligible taxpayers include sole proprietors and owners of pass-through entities such as partnerships, S corporations, and limited liability companies treated as sole proprietorships, partnerships, or S corporations for tax purposes. C corporations don’t qualify for this deduction.

Understanding the Limitations

The deduction comes with certain limitations that phase in when taxable income exceeds specific thresholds. For 2025, these thresholds are: 

• $197,300 for individual filers
• $394,600 for married couples filing jointly

When income surpasses these amounts, the deduction becomes limited to the greater of:

• 50% of W-2 wages paid to employees by the qualified business during the tax year, or
• The sum of 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property owned by the business

Additionally, if income exceeds the threshold and the QBI comes from a “specified service business”—such as law, healthcare, consulting, performing arts, or athletics—the deduction will be reduced and potentially eliminated. Engineering and architecture practices are notably excluded from this limitation.

What’s Changing Under the OBBBA

The One Big Beautiful Bill Act brings welcome changes to the QBI deduction landscape. Most significantly, the OBBBA makes the QBI deduction permanent, eliminating the previous sunset date of December 31, 2025. This provides long-term certainty for business owners planning their tax strategies.

Starting in 2026, the income ranges over which wage/property and specified service business limits phase in will expand. The phase-in range will increase from $50,000 (or $100,000 for joint filers) to $75,000 (or $150,000 for joint filers). This wider range means potentially larger deductions for some taxpayers. These threshold amounts will continue to be adjusted annually for inflation.

The OBBBA also introduces a new minimum deduction of $400 for taxpayers who materially participate in an active trade or business with at least $1,000 of QBI. This minimum deduction will be adjusted for inflation after 2026, providing additional relief for smaller businesses.

Planning for Success

These changes to the QBI deduction present valuable opportunities for strategic tax planning. Whether you’re evaluating business structure, considering equipment purchases, or planning compensation strategies, understanding how these modifications affect your specific situation is essential.

At CJG Partners, we specialize in translating complex tax law changes into clear, actionable strategies. Our team stays ahead of regulatory developments to provide proactive guidance that helps you maximize tax benefits while maintaining compliance. We believe in making the complicated simple, so you can focus on what matters most—growing your business.

Contact CJG Partners today to discuss how the enhanced QBI deduction can work for your business and to develop comprehensive strategies that optimize your tax position under the new law.