Qualified Business Income

Qualified Business Income deduction (QBI) allows business owners to deduct a percentage of qualified business income from their personal income. It's considered a good thing to many small-business owners because it directly reduces taxable income, without requiring extra spending or special tax strategies. Meaning less taxes leading to extra money to reinvest or spend.

Key Changes - Major Modifications 2026

There are some changes with QBI deductions for the 2026 tax year and beyond. As well some things are staying the same. Most notably is that QBI is now permanent, minimum deductions for small-businesses, and wider limitation ranges.

QBI Forever

The Qualified Business Income (QBI) Deduction was originally set to expire after 2025, creating uncertainty for millions of small business owners. Under the One Big Beautiful Bill Act (OBBB), the deduction is now made permanent, ensuring the eligible pass-through businesses can continue receiving the valuable break well beyond 2026. This change provides long-term stability and clarity, helping business owners plan for the future in confidence!

Minimum Deduction for Small-Business Owners

If a taxpayer earns at least $1,000 in Qualified Business Income from an eligible active trade or business, they automatically qualify for a minimum deduction of $400.
These $1,000 and $400 thresholds will be adjusted for inflation beginning after 2026.
This means that even business owners with relatively small amounts of QBI can now receive a guaranteed minimum deduction—something that wasn’t assured under previous rules.

Wider Phase-In / Limitation Ranges

For taxpayers with taxable income above certain limits, the deduction may be reduced—such as through wage and property limitations—or completely phased out for specified service trades or businesses (SSTBs).
Beginning in 2026, those phase-in ranges become wider. For example, one key threshold increases from $50,000 to $75,000 for single filers, and from $100,000 to $150,000 for joint filers, when applying certain limitations.
Specified Service Trade or Business (STBBs) and non-(STBBs) at the top of the phase-out range for joint filers will increase from $494,600 to $544,600.

Things to Watch / Limitations Still

Even with the 2026 updates, the core QBI rules still apply. Including the standard wage-and-property limitations and the phaseouts that affect higher-income taxpayers and specified service trades or businesses (SSTBs). The expanded phase-in range provides relief, but the deduction can still be reduced or eliminated.

Wage and Property Limits

The 50% W-2 wage limit or the alternative 25% wages + 2.5% unadjusted property basis test remains a major restriction once income exceeds the thresholds.

Income Thresholds

Even with expanded phase-in ranges, taxpayers with higher taxable income will still face reductions or full phaseouts of the deduction.

SSTBs

Professions like law, health, consulting, athletics, and financial services continue to face stricter phaseouts and may lose the deduction entirely at higher incomes.

Active vs. Passive Income

The new minimum deduction only applies when the taxpayer has at least $1,000 of active QBI. Passive business income may not qualify the same way.

Aggregation

Combining multiple businesses for a better outcome is still allowed, but the rules remain technical and highly fact-specific.

Entity Structure Impacts Eligibilty

How a business is organized—sole proprietor, partnership, S-corp—still affects whether W-2 wages are required and how the deduction is calculated.

Income Timing & Compensation

When income is recognized and how owners are compensated (wages vs. distributions) can significantly impact the deduction.

Record-Keeping Requirements

Businesses still need clear documentation of wages, basis in property, and qualified income—especially if the IRS challenges eligibility.