The Qualified Business Income (QBI) deduction is one of the most valuable tools available to business owners. And under the recently passed One Big Beautiful Bill Act (OBBBA), it is no longer temporary.
This deduction, first introduced in the 2017 Tax Cuts and Jobs Act, has now been made permanent. If you are a pass-through business owner, this gives you a powerful planning opportunity to reduce your taxable income without needing to worry whether the deduction will disappear in a few years.
Let’s take a look at what has changed in the tax landscape, why it matters, and how to take advantage of it.
What Is the QBI Deduction?
The QBI deduction allows owners of pass-through businesses, such as S-Corps, partnerships, sole proprietorships, and certain LLCs to deduct up to 20 percent of their qualified business income. This benefit applies at the individual level, directly reducing taxable income without needing to itemize deductions.
The original version of this provision was set to expire in 2025. Now, it is part of the permanent tax code, thanks to the OBBBA.
What’s New Under the One Big Beautiful Bill Act?
The most important changes are permanence and an increased passthrough deduction of 23% (up 3% from prior years, beginning in 2026). Business owners can now build long-term plans around this deduction with more certainty, and get an additional 3% benefit.
In addition to that:
- The law slightly increases the income phaseout thresholds, which is especially helpful for service-based business owners
- The rules around aggregating businesses have been clarified and modestly expanded, making planning more accessible for those with multiple entities
These changes open the door for more consistent benefits across income levels and business structures.
Key Planning Considerations for Business Owners
1. Optimizing Income and Compensation
If your income is above the QBI threshold, your deduction may be limited by the wages paid by the business or the cost of qualified property. This is especially relevant for S-Corp owners who have to carefully balance between W-2 wages and pass-through income.
If your salary is too low, the IRS may challenge it as not a “reasonable” salary for your role in the company.
If it is too high, you may be limiting your QBI deduction unnecessarily and giving too much money to Uncle Sam.
A proactive compensation review is an essential step to optimizing your plan.
Check out our Business Tax Services for more insight on how we work with clients.
2. Understanding Aggregation Rules
The IRS allows you to combine multiple businesses to calculate a single QBI deduction, but the requirements are specific. The businesses must:
- Be commonly owned (generally 50% or more by the same individual or group)
- Have shared operations or be part of a coordinated business structure
Proper aggregation can improve your deduction when one business has high income but low wages, and another has high wages but low income. However, if you do not formally elect to aggregate, the opportunity is lost.
3. Special Rules for Service Businesses
If you are in a “Specified Service Trade or Business” such as law, medicine, consulting, or financial services you may face QBI limitations once your income exceeds certain thresholds.
These phaseouts still apply under the OBBBA, but the income thresholds have been increased slightly. That means more professionals may qualify than before.
It also means there is more room for proactive tax planning. For example:
- Deferring income into future years
- Maximizing retirement contributions
- Adjusting entity structure
These moves can help bring income back within the allowable range.
Check out other tax savings tips for high-earning professionals.
The Bottom Line
For many years, business owners had to plan around the uncertainty of the QBI deduction’s expiration. That’s no longer the case.
The QBI deduction is now a permanent feature of the tax code. And that means it is time to look at your structure, income levels, and aggregation strategies through a long-term lens.
This is especially important for:
- Entrepreneurs with multiple business entities
- Professional service firms with income near the QBI limits
- Family businesses that want to optimize income and succession planning
Next Steps
Now is a good time to:
- Review your business structure and compensation strategy
- Assess whether aggregation would improve your tax position
- Plan ahead for income management, especially if you are near the phaseout thresholds
At SouthcoastFP, we help business owners and entrepreneurs make sense of the tax code, and put the most powerful strategies to work for their future.
If you would like to talk through your situation, we are here to help.
Disclosure: This article is for informational purposes only and does not constitute tax or legal advice. Always consult your tax advisor regarding your specific situation.
