William Martens, CPA | Director of Tax Planning - Mach 1 Financial Group
In this article, we will discuss a section of the code applicable to those who run their own businesses, specifically what is known as the Sec 199A Qualified Business Income deduction, or simply QBI.
Section 199A starts with a basic rule: a taxpayer other than a corporation may deduct 20% of qualified business income with respect to the qualified trade or business, subject to a limitation based on 20% of taxable income less net capital gains.
This is the very basic starting point for a complex set of rules and calculations that whoever wrote the law probably doesn’t even fully understand, but essentially, for people who own and operate certain types of businesses, a 20% deduction of the income from that business is potentially available to them.
Where does the OBBBA come in here?
While the QBI concept was introduced by the 2017 Tax Cuts & Jobs Act, it was set to expire in 2025. The OBBBA made this deduction permanent. We’ll caveat that "permanent" here means it’s there until another administration decides to change it.
The OBBBA also made a couple of small changes to the concept:
Like several IRS deductions, there are some limitations that come in based on income range levels, with more caps and limitations applied at higher income levels. The OBBBA expanded these income ranges ($25,000 more for single and $50,000 more for MFJ), effectively meaning that the transition from a “full benefit” to a “limited or no benefit” is spread out over a wider income band.
A new minimum deduction of $400 is available for taxpayers with QBI of at least $1000 from active trades or businesses. “Active” here means you materially participate in the business.
While neither of these changes is huge, they both have the effect of expanding access to the QBI deduction for taxpayers who own and operate their own businesses. It’s possible, then, that a taxpayer who was not able to take any QBI deduction in 2025 might be able to take at least a partial deduction in 2026, even with unchanged facts & circumstances and income levels.
Looking for more information on this topic?
The One Big Beautiful Bill Act"—or OBBBA— was signed into law about a year ago. But other than being big and beautiful, what exactly does this mean for you as a taxpayer? Read more in this article: https://www.linkedin.com/pulse/standard-deduction-made-permanent-what-obbba-means-tax-erqkc
Explore some unique opportunities for those with deductible expenses and charitable goals who still wish to itemize in this article: https://www.linkedin.com/feed/update/urn:li:activity:7483235329634652160
Content Prepared by Mach 1 Financial Group
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