Tax Tip #267

The qualified business income (QBI) deduction allows eligible business owners to deduct up to 20% of the QBI from their total income. It applies to pass-through entities, sole proprietors, and single-member LLCs. Originally scheduled to expire after 2025, this deduction has now been made permanent as part of One Big Beautiful Bill (OBBB), with improvements starting in 2026. The 2025 income threshold for single is $197,300 and phases out at $247,300, with MFJ being $394,600 and $494,600, respectively. 

Starting in 2026, the upper income threshold increases from $50,000 to $75,000 for single and $100,000 to $150,000 for MFJ. The phaseout amount of $247,300 will increase to $272,300. 

In addition, there is a new minimum QBI deduction of $400 for taxpayers earning at least $1,000 in QBI. 

Some examples:

• If a taxpayer with QBI of $1,000 receives a $200 deduction in 2025, that deduction will be $400 in 2026. 

• Brian and Nicole file a joint return. They have $200,000 of QBI and are in the 24% federal tax bracket. Without the QBI deduction, federal tax is $48,000 ($200K × 24%). With the QBI deduction, federal tax is $38,400 ($200K × 80% x 24%). Their tax savings equals $9,600. 

There are multiple strategies to receive the full benefit of the QBI deduction. To take advantage of these in the upcoming tax year, or if you have questions about OBBB, reach out to a team member.