QBI Deduction Planning: Maximizing Your 20% Pass-Through Deduction (2026)

Key Takeaways

• The QBI deduction (Section 199A) is now permanent under the OBBBA, providing long-term planning stability
• 2026 thresholds: $203,000 single / $406,000 MFJ before limitations apply
• New for 2026: $400 minimum deduction if you have $1,000+ of QBI
• Above the threshold, wage and property limitations may reduce your deduction
• SSTB owners (consultants, lawyers, doctors) face stricter rules but have planning options
• Try our QBI calculator to estimate your deduction

QBI deduction planning is one of the most valuable tax strategies available to pass-through business owners. The Section 199A deduction allows a 20% deduction on qualified business income, effectively reducing your tax rate on business profits.

But the rules are complex. Income thresholds, wage limitations, SSTB classifications, and aggregation rules create planning opportunities and pitfalls. Understanding how these rules interact lets you maximize your deduction instead of losing thousands to overlooked limitations.

The good news: Under the One Big Beautiful Bill Act (OBBBA), the QBI deduction is now permanent. No more sunset concerns. You can plan with confidence that this deduction will be available for years to come.

This guide covers the QBI planning strategies that make the biggest difference for 2026 and beyond.

What Is the QBI Deduction?

The Qualified Business Income deduction (Section 199A) provides a 20% deduction on income from pass-through businesses.

Who Qualifies:

• S-Corporation shareholders
• Partnership/LLC members
• Sole proprietors (Schedule C)
• Certain rental activities
• REIT dividends and PTP income

What’s Excluded:

• W-2 wages (employee income)
• C-Corporation income
• Capital gains and losses
• Investment income (interest, dividends)
• Guaranteed payments to partners (generally)

Why It Matters: A 20% deduction effectively reduces your tax rate on business income. If you’re in the 32% bracket, a full QBI deduction means you’re paying 25.6% on business income instead of 32%.

Now Permanent: The OBBBA signed in 2025 made Section 199A permanent. It was previously scheduled to expire after 2025. This change provides long-term planning certainty that didn’t exist before.

For foundational concepts, read our qualified business income deduction guide.

2026 QBI Thresholds and Limits (OBBBA Updates)

The QBI deduction has income-based limitations. Understanding where you fall relative to thresholds is the first step in planning.

Income Thresholds for 2026

Full Deduction (No Limitations):

• Single/Head of Household: Below $203,000
• Married Filing Jointly: Below $406,000

If your taxable income is below these thresholds, you generally get the full 20% deduction on QBI without worrying about wage or property limitations.

Phase-Out Range:

• Single/Head of Household: $203,000 – $272,300
• Married Filing Jointly: $406,000 – $544,600

In this range, limitations phase in gradually. The higher your income, the more the limitations affect your deduction.

Complete Limitations:

• Single/Head of Household: Above $272,300
• Married Filing Jointly: Above $544,600

Above these thresholds, wage and property limitations apply fully. SSTB owners get zero QBI deduction on SSTB income.

The New $400 Minimum Deduction

OBBBA added a new provision: If your QBI is $1,000 or more, you’re guaranteed at least a $400 deduction.

Who this helps:

• Small business owners with modest income
• Businesses where the 20% calculation would yield less than $400
• Situations where limitations would otherwise reduce the deduction below $400

Example: You have $1,500 in QBI. Normal calculation: 20% × $1,500 = $300. With the new minimum: You get $400 instead.

What OBBBA Changed

The One Big Beautiful Bill Act made several QBI-related changes:

1. Made QBI deduction permanent — No longer expiring after 2025
2. Expanded the phase-in range — More gradual phase-in of limitations
3. Added $400 minimum deduction — Floor for small QBI amounts
4. Inflation adjustments — Thresholds increase with inflation

These changes provide long-term planning certainty and slight enhancements to the deduction.

The Wage and Property Limitation

Above the income threshold, your QBI deduction may be limited by W-2 wages paid by the business and qualified property owned by the business.

When Limitations Apply

Below threshold ($203K/$406K): No limitations. Full 20% deduction.

In phase-out range: Limitations phase in proportionally. The closer to the upper threshold, the more limitations apply.

Above phase-out ($272.3K/$544.6K): Full limitations apply.

The Two Limitation Tests

Your QBI deduction (when limited) equals the lesser of:

• 20% of QBI, OR
• The greater of:
  • Test 1: 50% of W-2 wages paid by the business
  • Test 2: 25% of W-2 wages + 2.5% of unadjusted basis of qualified property

You use whichever test gives you the higher limitation.

Example Calculation:

Business has:

• $500,000 QBI
• $100,000 W-2 wages
• $200,000 unadjusted basis in qualified property

Step 1: Calculate full 20% deduction

• 20% × $500,000 = $100,000

Step 2: Calculate wage/property limitations

• Test 1: 50% × $100,000 = $50,000
• Test 2: 25% × $100,000 + 2.5% × $200,000 = $25,000 + $5,000 = $30,000
• Greater of tests: $50,000

Step 3: Apply limitation

• Deduction limited to $50,000 (not the full $100,000)

This business owner loses $50,000 in deduction due to insufficient wages and property.

Strategies to Maximize Within Limitations

If you’re above the threshold, consider these strategies:

Increase W-2 Wages: More wages = higher limitation. For S-Corp owners, this means balancing the FICA cost of higher salary against QBI benefits.

Acquire Qualified Property: If your business needs equipment anyway, the property adds to your limitation. Property must be:

• Depreciable tangible property
• Used in the production of QBI
• Depreciation period not ended

Time Income Below Threshold: If you’re close to the threshold, strategies to reduce taxable income (retirement contributions, timing) can avoid limitations entirely.

Aggregate Businesses: Combining multiple businesses can pool wages and property from one to support QBI from another.

SSTB Rules and Workarounds

Specified Service Trade or Business (SSTB) owners face additional QBI restrictions.

What Is an SSTB?

SSTBs are businesses where the principal asset is the reputation or skill of employees or owners. IRS guidance lists these categories:

SSTB Categories:

• Health (doctors, dentists, nurses, etc.)
• Law (attorneys, paralegals)
• Accounting (CPAs, bookkeepers)
• Actuarial science
• Performing arts
• Consulting (broad category)
• Athletics
• Financial services
• Brokerage services
• Any trade or business where principal asset is reputation/skill

Specifically Excluded (NOT SSTB):

• Engineering
• Architecture

These professions were explicitly carved out despite being service-based.

How SSTB Rules Work

Below Threshold ($203K/$406K): SSTB status doesn’t matter. You get the full 20% deduction as if you weren’t an SSTB.

In Phase-Out Range: You get a partial deduction based on how far you are through the phase-out range. As income increases, deduction decreases.

Above Phase-Out ($272.3K/$544.6K): Zero QBI deduction on SSTB income. The deduction is completely phased out.

Key Point: SSTB rules only hurt you above the threshold. Below threshold, being an SSTB has no negative impact.

SSTB Planning Strategies

Income Management: If you’re close to the threshold, reducing taxable income can preserve your QBI deduction.

• Maximize retirement contributions (401(k), SEP, defined benefit)
• Time income recognition (defer revenue, accelerate expenses)
• Charitable giving strategies

Example: Consultant with $220,000 taxable income (single). Above threshold, partial deduction only.

• Contribute $24,500 to Solo 401(k)
• New taxable income: $195,500 (below threshold)
• Result: Full QBI deduction preserved

Separate Non-SSTB Activities: If your business has both SSTB and non-SSTB activities, consider separating them:

• SSTB activity in one entity (subject to SSTB rules)
• Non-SSTB activity in separate entity (no SSTB limitation)

Example: Marketing consultant (SSTB) also sells software products (not SSTB). Separating the software business preserves QBI on software income even if above threshold.

Entity Separation: Keep SSTB and non-SSTB businesses in different legal entities with separate books and operations.

Common SSTB Traps

Consulting Classification: “Consulting” is broadly defined. If you provide advice based on expertise, you may be an SSTB even if you don’t call yourself a consultant.

Professional Services Default: Professional services firms (law, accounting, medicine) are SSTB by default. You can’t avoid it through entity structure.

Mixed Businesses: If your SSTB activity is less than 10% of gross receipts (5% for businesses over $25 million), you may escape SSTB treatment entirely. But the threshold is strict.

Aggregation Strategies for Multiple Businesses

Business owners with multiple entities can sometimes combine them for QBI purposes.

What Is QBI Aggregation?

Aggregation treats multiple businesses as a single business for QBI calculation. This allows:

• Wages from one business to support QBI from another
• Property from one business to support QBI from another
• Combined calculation instead of separate limitations

When Aggregation Helps

Scenario: Business A has high QBI but low wages. Business B has low QBI but high wages.

Without aggregation:

• Business A: Limited by low wages
• Business B: Full deduction (has plenty of wages)

With aggregation:

• Combined: Business B’s wages support Business A’s QBI
• Result: Higher total deduction

Example:

• Business A: $300,000 QBI, $30,000 wages → Limited deduction
• Business B: $100,000 QBI, $150,000 wages → Full deduction

Aggregated:

• Combined QBI: $400,000
• Combined wages: $180,000
• 50% wage test: $90,000 limitation
• 20% of QBI: $80,000
• Deduction: $80,000 (full, because limitation exceeds 20%)

Aggregation Requirements

Not all businesses can aggregate. IRS regulations require:

Ownership Test: Same person or group must own 50%+ of each business being aggregated.

Common Business Requirement (one of three):

1. Common management: Significant centralized direction
2. Interdependent operation: Reliance on each other for products/services
3. Common supplies: Share significant facilities, employees, accounting

SSTB Restriction: You cannot aggregate an SSTB business with a non-SSTB business.

Irrevocable Election: Once you elect to aggregate, you must continue aggregating in future years (unless facts change).

When NOT to Aggregate

One Business Has Losses: If one business generates losses, aggregating can waste QBI deduction from the profitable business.

One Business Is SSTB: Can’t mix SSTB and non-SSTB.

Ownership Differs: If different people own each business, aggregation may not be available.

QBI Planning by Entity Type

Different entity types have different QBI planning considerations.

S-Corp QBI Planning

S-Corp owners face a unique tension: W-2 wages affect both the limitation AND the deductible QBI.

Higher salary:

• Increases wage limitation (good)
• Decreases QBI (wages aren’t QBI)
• More FICA tax

Lower salary:

• Decreases wage limitation (potentially bad if above threshold)
• Increases QBI
• Less FICA tax

Finding the Optimization Point: Above the threshold, run both calculations:

1. FICA cost of additional salary
2. QBI benefit of higher wage limitation

The optimal salary maximizes after-tax income considering both factors.

Link to: S-Corp tax planning strategies

Partnership QBI Planning

Partnership QBI planning involves guaranteed payments and allocation issues.

Guaranteed Payments:

• Reduce partnership QBI
• Don’t qualify as QBI for the receiving partner
• Reduce QBI for all partners

Strategy: Minimize guaranteed payments when possible to preserve QBI. Use distributions instead.

W-2 Wage Allocation: Partnership wages are allocated to partners. Ensure allocation follows income allocation for partners who need wage limitation support.

Link to: Partnership tax planning strategies

Sole Proprietor QBI Planning

Sole proprietors (Schedule C) face challenges with the wage limitation.

No W-2 Wages Unless Employees: If you have no employees, you have no W-2 wages for the limitation.

Property Basis Helps: If you own depreciable property used in the business, it contributes to the alternative limitation (25% wages + 2.5% property).

Consider S-Corp Election: If you’re above the threshold and need wage limitation support, S-Corp election creates W-2 wages through your salary.

Link to: LLC vs S-Corp comparison

Rental Real Estate QBI Qualification

Whether rental income qualifies for QBI depends on the type of rental activity.

Is Rental Income QBI?

Self-Rental to Your Business: If you rent property to a business you own (like renting an office to your S-Corp), the rental is generally treated as part of that business. QBI treatment follows.

Triple Net Lease to Unrelated Party: Passive triple-net leases to unrelated parties are generally NOT QBI. The activity doesn’t rise to the level of a trade or business.

Active Rental Activity: Actively managed rentals may qualify if they constitute a trade or business.

IRS Safe Harbor for Rental QBI

IRS Notice 2019-07 provides a safe harbor for rental QBI.

Requirements:

• 250+ hours of rental services annually
• Separate books and records for each rental enterprise
• Contemporaneous time logs documenting hours

Qualifying Activities (counted toward 250 hours):

• Advertising and marketing
• Tenant screening
• Lease negotiation
• Rent collection
• Property maintenance and repairs
• Property inspections
• Financial management

Not Qualifying:

• Travel time (generally)
• Financial analysis for acquisition
• Time arranging financing

Link to: Real estate entity planning and real estate CPA services

Year-End QBI Planning Moves

QBI optimization requires year-end action.

October:

• Project full-year income vs. QBI thresholds
• Evaluate SSTB status and planning options
• Review aggregation opportunities across businesses
• Model scenarios for different income levels

Link to: Year-end tax planning checklist

November:

• Make equipment purchase decisions (property basis for limitation)
• S-Corp salary optimization discussions
• Retirement contribution planning to reduce taxable income

December:

• Final income timing decisions (defer to stay below threshold?)
• Maximize retirement contributions
• Document aggregation election if beneficial
• Verify rental safe harbor hours if applicable

QBI Calculator and Tools

Try Our QBI Calculator

Modeling your QBI deduction helps you make informed decisions.

Our QBI calculator lets you:

• Input income, wages, and property basis
• See deduction with and without limitations
• Compare scenarios (higher wages vs. lower wages)
• Evaluate SSTB impact

When to Use Professional Help

Consider working with a CPA when:

• Income near threshold: Optimization is valuable and mistakes are costly
• SSTB status uncertain: Classification affects your entire deduction
• Multiple businesses: Aggregation analysis requires expertise
• Complex ownership: Tiered partnerships, trusts, or mixed structures

Frequently Asked Questions

Is the QBI deduction permanent now?

Yes. The One Big Beautiful Bill Act (OBBBA) signed in 2025 made the QBI deduction (Section 199A) permanent. It was previously scheduled to expire after 2025. This provides long-term planning stability for business owners.

What are the 2026 QBI income limits?

For 2026, the threshold before limitations apply is $203,000 (single) or $406,000 (married filing jointly). The phase-out range extends to $272,300 (single) or $544,600 (MFJ). Above the phase-out, full limitations apply and SSTB income gets zero deduction.

What is the new $400 minimum QBI deduction?

Under OBBBA, if your qualified business income is $1,000 or more, you’re guaranteed at least a $400 deduction regardless of income level or SSTB status. This helps small business owners who would otherwise get very small deductions.

Can I get the QBI deduction if I’m a consultant?

It depends on your income level. Consulting is an SSTB (Specified Service Trade or Business). If your taxable income is below the threshold ($203,000 single / $406,000 MFJ), you get the full 20% deduction. Above the phase-out ($272,300 single / $544,600 MFJ), consulting income gets zero QBI deduction.

How do I maximize QBI if I’m above the threshold?

Focus on the wage and property limitations. Strategies include: increasing W-2 wages (balancing FICA cost), acquiring depreciable property that the business needs, timing income to stay below threshold in some years, and aggregating businesses to pool wages and property.

Should I aggregate my businesses for QBI?

Aggregation helps when one business has high QBI but low wages and another has wages that could support more deduction. However, you cannot aggregate SSTB with non-SSTB businesses, and aggregation is generally irrevocable once elected. Analyze both scenarios before deciding.

Get QBI Optimization Help

The QBI deduction involves multiple interacting rules. Threshold management, wage limitations, SSTB status, aggregation elections, and entity structure all affect your deduction.

Decisions have multi-year implications. Aggregation elections are irrevocable. Entity structure changes take time. The right analysis today prevents regret tomorrow.

What a QBI Planning Engagement Includes:

1. Threshold analysis — Where do you fall? How close are you to boundaries?
2. Limitation modeling — Wage and property calculations for your businesses
3. SSTB evaluation — Classification and planning options
4. Aggregation analysis — Should you combine businesses?
5. Entity optimization — Is your current structure serving you?
6. Year-end action plan — Specific steps to maximize deduction

Ready to optimize your QBI deduction? Schedule your QBI planning consultation with SDO CPA.