The QBI Deduction Is Now Permanent: What That Means for Small Business Owners
Good news for pass-through business owners, the One Big Beautiful Bill (signed July 4, 2025) makes the 20% Qualified Business Income (QBI) deduction permanent. This deduction, also called the §199A deduction, was set to expire after 2025, but it’s now part of the tax code going forward.
What changed:
Permanent 20% deduction. Owners of sole proprietorships, S-corps, partnerships/LLCs, and certain trusts/estates can continue to deduct up to 20% of qualified business income each year. Importantly, you can claim this whether you itemize or take the standard deduction.
Wider income “phase-in” band. The law expands the phase-in range for the QBI limitations to $75,000 for single and $150,000 for joint filers (up from $50,000/$100,000). This gives more room before wage/property limits or SSTB limits fully bite.
Minimum deduction floor. Beginning with tax years starting after Dec. 31, 2025, taxpayers with at least $1,000 of QBI are eligible for a minimum $400 QBI deduction (indexed after 2026).
Why it matters:
Lower ongoing tax liability. Keeping §199A permanently reduces effective tax rates on pass-through income, helping owners retain cash for hiring, capital purchases, and debt reduction.
Planning certainty. With the sunset removed, you can make multi-year decisions (entity structure, compensation, distributions) without worrying about the deduction disappearing in 2026.
More taxpayers benefit. The expanded phase-in range means some owners who previously lost part (or all) of the deduction due to limits may now preserve more of it.
Quick reminders (still true):
The 20% deduction is calculated on qualified business income and is subject to wage/property tests and special rules for specified service trades or businesses (SSTBs) at higher income levels.
REIT dividends and PTP income can also generate a QBI-related deduction.
What to do before year-end:
Target your taxable income band. If you’re near the phase-in thresholds, consider timing income/expenses, retirement plan contributions, or bonuses to maximize the deduction preserved under the wider range.
Review wages and UBIA. For non-SSTBs above the thresholds, confirm your W-2 wages and unadjusted basis (UBIA) in qualified property support the deduction you expect.
Check owners compensation mix. Re-evaluate S-corp reasonable compensation and partnership guaranteed payments to optimize QBI going forward.