For years, the 20 percent qualified business income deduction came with an expiration date hanging over it. Starting in 2026, that uncertainty is gone. The Section 199A deduction is now a permanent part of the tax code, which means it belongs in your planning every year, not just while it lasts.
Here is the short version. If you own a pass-through business (a sole proprietorship, partnership, S corporation, or similar structure), you may be able to deduct up to 20 percent of your qualified business income. C corporations do not get this deduction.
The 2026 rules are friendlier than before. The income thresholds went up, so more owners now qualify for at least part of the deduction. For 2026, the threshold is $201,775 for single filers and heads of household, and $403,500 for married couples filing jointly. If your taxable income is at or below your threshold, the deduction is usually straightforward and most pass-through businesses qualify.
Above the threshold is where planning earns its keep. Your W-2 wages, the business property you own, your retirement plan contributions, and even your entity structure can all move the size of your deduction. Service businesses such as law, health, accounting, consulting, and financial services face extra limits once income climbs. There is also a new $400 minimum deduction for some owners with at least $1,000 of qualified business income from an active business.
It helps to understand the limit that kicks in above the threshold. Once your income is over the line, your deduction is capped at the greater of two amounts: 50 percent of the W-2 wages your business pays, or 25 percent of those wages plus 2.5 percent of the cost of the business property you own. The practical effect surprises people. A very profitable business that pays little or no W-2 wages and owns few assets can see this deduction shrink or even disappear, even though the profit is high. How you pay yourself and whether you own or lease your equipment suddenly matter a great deal.
That also points to the levers you can pull. Paying yourself a reasonable W-2 salary through an S corporation, timing an equipment purchase, or making retirement plan contributions to bring your taxable income back under the threshold can each protect or restore the deduction. In some cases, related businesses can be aggregated so that wages and property in one support the deduction in another. For service businesses, the deduction phases out completely once income clears the top of the range, so for those owners the entire strategy is about managing income to stay under the line.
What this means for you: If your income is near or above the threshold, small moves made before year-end (wages, retirement contributions, timing) can change your deduction meaningfully. This is worth a look now rather than at filing time. Ask us to run the numbers on your situation.
