If you run a small business, there's a good chance you have access to one of the most valuable tax deductions available right now. And if you've heard about it before but weren't sure whether it was still around, here's your answer: it's permanent.
Let's talk about the Qualified Business Income deduction, what it actually means for you, and why 2026 is a good time to make sure you're using it correctly.
What Is the QBI Deduction?
The Qualified Business Income (QBI) deduction, also called the Section 199A deduction, allows eligible business owners to deduct up to 20% of their business income on their personal tax return. That's a meaningful number. If your business generates $200,000 in qualified income, you could potentially deduct $40,000 before calculating what you owe.
It was originally introduced in 2018 as part of the Tax Cuts and Jobs Act, but it came with an expiration date. It was set to disappear after 2025, which created a lot of uncertainty for business owners trying to plan ahead.
That uncertainty is now gone.
What Changed in 2026
The One Big Beautiful Bill Act, signed into law in July 2025, made the QBI deduction permanent. No more sunset. No more wondering whether it will be renewed. You can now plan around this deduction with confidence, which changes the way you think about compensation structures, business growth, and long-term tax strategy.
Beyond permanence, a few other things improved:
More business owners can now qualify. The income thresholds at which limitations start to phase in were expanded. For married couples filing jointly, that phase-in window widened from $100,000 to $150,000 above the base threshold. For single filers, it expanded from $50,000 to $75,000. In plain terms, more business owners who were previously phased out can now claim a full or partial deduction.
There's a new minimum deduction. Starting in 2026, if your business generates at least $1,000 in qualified income and you actively participate in running it, you're guaranteed a minimum deduction of $400. It's a small floor, but it ensures that even businesses with modest income see some benefit.
Service businesses may have more access than before. If you're in a field like consulting, financial services, or another professional service, you've historically faced additional restrictions on this deduction. The expanded income ranges mean some of those business owners will now qualify for a deduction they couldn't access under the old rules.
Who Is Eligible?
The QBI deduction applies to owners of pass-through businesses, meaning the income flows through to your personal tax return. That includes:
- Sole proprietorships
- Partnerships
- S-Corporations
- LLCs (taxed as any of the above)
C-Corporations are not eligible because they're taxed separately from their owners.
One thing worth knowing: you can claim this deduction whether you itemize or take the standard deduction. It shows up as a separate line item on your personal tax return.
What It Doesn't Cover
The deduction applies to qualified business income, which means the net income your business actually generates. It doesn't apply to your W-2 salary if you pay yourself as an employee of your own S-Corp, investment income, or certain other types of earnings.
For higher-income business owners, there are additional rules around W-2 wages and qualified property that can affect how much you're able to deduct. This is where working with the right financial team makes a real difference.
Why This Matters Beyond Tax Season
Most business owners think about the QBI deduction once a year when taxes are due. But now that it's permanent, it's worth building into your ongoing financial strategy.
That might look like reviewing how you pay yourself, how your business is structured, or how much to reinvest versus distribute. These decisions compound over time. Getting them right in 2026 isn't just about this year's tax bill, it's about setting up smarter habits going forward.
At Light, we help business owners think through exactly these kinds of decisions, not in a complicated way, but in a clear, practical way that actually makes sense for where your business is right now.
How to Know If You Already Got This Deduction
Look at your Form 1040 from your most recent tax return. On line 13, it should say "Qualified business income deduction." If there's a number there, you got it. If that line is blank or zero, it either wasn't claimed or you didn't qualify under the old thresholds.
If you're not sure how to find it, just ask your CPA directly: "Did I take the Section 199A deduction this year?" A good tax person will be able to tell you immediately, and if you didn't get it, they should be able to explain why.
A Few Questions Worth Asking Your Team
- Is my business structured to maximize the QBI deduction?
- Am I paying myself in a way that could be limiting my deduction?
- Did my income level previously phase me out of this deduction? If so, the new thresholds may change that.
- Is my CPA calculating this correctly on my return?
If you don't know the answers, that's exactly the kind of clarity we help create.
Let's talk about your numbers. Schedule a conversation with the Light team. lightconsulting.co/contact
