QBI Deduction Made Permanent
Posted by Brian Kern on September 09, 2025
The One Big Beautiful Bill Act (OBBBA) has brought a major win for service-based businesses by making the Qualified Business Income (QBI) deduction permanent and expanding its benefits. If you own a law firm, medical practice, consulting agency, or any other service-oriented business, these changes could significantly reduce your tax burden for years to come.
What Is the QBI Deduction?
The QBI deduction, introduced under the Tax Cuts and Jobs Act (TCJA), allows eligible owners of pass-through entities—such as sole proprietorships, partnerships, S corporations, and most LLCs—to deduct up to 20% of their qualified business income. This deduction applies whether you itemize deductions and even counts for alternative minimum tax purposes.
Qualified Business Income (QBI) generally includes the net amount of income, gains, deductions, and losses from your business, excluding reasonable compensation, guaranteed payments, and certain investment items.
The Challenge for Service-Based Businesses
Before OBBBA, owners of specified service trades or businesses (SSTBs) including law, accounting, consulting, health, and financial services, faced strict income-based phaseouts. Once taxable income exceeded the upper limit of the phase-in range, the QBI deduction disappeared entirely.
For 2025, the phase-in range is:
- Single filers: $197,300 to $247,300
- Joint filers: $394,600 to $494,600
Above these amounts, SSTBs received no deduction.
What’s New Under OBBBA?
Starting in 2026, the OBBBA introduces several key changes:
- Permanent QBI Deduction
No more expiration date—the deduction is here to stay.
- Expanded Phase-In Range
The range increases from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers.
For 2026 (before inflation adjustments), the range will be:
- Single filers: $197,300 to $272,300
- Joint filers: $394,600 to $544,600
This means more high-income service providers will retain at least a partial deduction.
- Minimum Deduction for Active Businesses
Taxpayers with at least $1,000 of QBI from an active business in which they materially participate will receive a minimum deduction of $400, adjusted annually for inflation.
Planning Opportunities for Service Businesses
If your income is near or above the threshold, consider these strategies:
- Maximize Retirement Contributions
Contributions to retirement plans can reduce taxable income and help you stay within the phase-in range.
- Review Entity Structure
Restructuring your business could optimize QBI eligibility and deduction amounts.
- Increase W-2 Wages
For businesses subject to wage and property limits, shifting work from contractors to employees can improve your deduction calculation.
Why This Matters
The permanence of the QBI deduction and the expanded phase-in ranges provide long-term certainty and planning opportunities for service-based businesses. With proactive tax strategies, you can maximize your savings and reinvest in your business.
Next Steps
Now is the time to review your income projections and tax planning strategies for 2026 and beyond. Small adjustments today can lead to significant tax savings tomorrow.
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Brian is an experienced tax professional who devotes his professional time to structuring tax strategies in the areas of compliance, consulting, planning, and transactional work. He works closely with a broad range of high-net-worth individuals and privately owned commercial businesses, specializing in the areas of energy, financial institutions, professional services, and real estate, and serves as the tax practice leader for our manufacturing niche. Brian joined Lumsden McCormick in 2006 as a staff accountant; he was named partner in 2018.