The qualified business income (QBI) deduction is staying at 20% for 2026 — and the real news is better than a rate change. It's now permanent, the income ranges where the deduction phases out got wider, and business owners now have a $400 minimum deduction to count on. Here's what that means in practice, and why it's worth a conversation with your advisor this fall.
Three things changed, all effective 2026. First, the 20% deduction is now permanent. It used to be scheduled to disappear after 2025, so every decision about how a business was structured had to hedge against that. That uncertainty is gone. Second, the income ranges where the deduction starts shrinking got wider — for single filers, from $50,000 up to $75,000; for joint filers, from $100,000 up to $150,000. Third, there's a new floor: if you have at least $1,000 of qualifying business income and you're actively involved in running that business, your deduction is now at least $400, and that floor will adjust upward each year for inflation.
On its own, $400 doesn't sound like much — most established businesses clear that easily without the floor. It matters most for newer or smaller operations. As an illustrative example only: a side business earning $1,500 of qualifying income would normally produce a $300 deduction. The floor lifts that to $400. It only applies to active involvement, though — if a business is really a passive investment someone else runs day to day, the floor isn't available.
Above certain income levels, the QBI deduction starts to shrink, and for some service-based businesses — medical, legal, accounting, consulting, financial services, and similar — it can disappear altogether. Where that shrinking starts hasn't moved much, but the range over which it happens got longer: $75,000 for single filers and $150,000 for joint, up from $50,000 and $100,000. In practice, more owners will land somewhere in the middle instead of losing the deduction all at once — and that middle ground is exactly where planning around retirement contributions, the timing of income, and how you're paid through an S corporation can make a real difference.
Since 2018, every conversation about how to structure a business carried an asterisk: this only works if QBI survives past 2025. That asterisk is gone. If your structure was last reviewed with that expiration date in mind, it's worth a fresh look — and that's a conversation for your advisor, not something to decide from an article.
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Our Woodland Hills team helps private business owners put the 2026 rules to work — structure, compensation, and timing, reviewed together.
Book a discovery meetingYes. The 20% deduction, previously scheduled to expire after 2025, is now permanent under current law. Entity and compensation decisions no longer need to hedge against a sunset date.
Business owners with at least $1,000 of qualifying income who are actively involved in running that business — not just holding a passive stake. The $400 is indexed for inflation going forward.
No separate election — it applies automatically once you qualify. Confirming your involvement counts as "active" rather than passive is the detail worth getting right with your advisor.
Potentially, yes. The range widened to $75,000 (single) and $150,000 (joint), so more service-business owners keep a partial deduction instead of losing it abruptly. Where you land is manageable with timing, retirement contributions, and compensation planning — worth modeling before year-end.
This article is general information for business owners, not tax, legal, or financial advice. Figures reflect federal law as of August 2026; the side-business example is illustrative only. Please speak with your advisor about your specific situation.