Major Small Business Tax Deduction Gets a Permanent Boost

The Section 199A qualified business income deduction just received one of the most significant upgrades in tax law history, and most small business owners don't even know it happened yet.

What Changed

The One Big Beautiful Bill Act made the QBI deduction permanent (it was scheduled to expire after 2025) and increased the deduction percentage from 20% to 23% for qualifying businesses. Income thresholds for phase-outs have also been raised.

The Impact

For a business owner with $200,000 in qualified business income, the enhanced deduction could save an additional $1,400-$2,000 annually compared to the previous 20% deduction—and that's before considering the benefit of certainty that the deduction won't disappear.

Who Qualifies

Pass-through entities (S-corporations, partnerships, LLCs, sole proprietorships) generating qualified business income may claim the deduction. Specified service trades or businesses (SSTBs)—including legal, accounting, health, consulting, and financial services—face limitations at higher income levels.

Maximizing the Deduction

Income Management: If you're near the phase-out thresholds, managing taxable income through retirement contributions and expense timing can preserve the full deduction.

W-2 Wage Planning: Above thresholds, the deduction is limited by W-2 wages paid. Balancing salary vs. distributions affects both QBI deduction and self-employment tax.

Entity Structure: The permanent nature of the QBI deduction cements the tax advantage of pass-through structures for many businesses.

Long-Term Planning

With permanence comes the ability to plan confidently. Business acquisition decisions, entity structure choices, and retirement planning can all incorporate the QBI deduction as a reliable, ongoing benefit.