Beginning in 2026, the Section 199A qualified business income deduction becomes a permanent part of tax planning for pass-through business owners.
This deduction can allow owners of sole proprietorships, partnerships, S corporations, and certain other pass-through businesses to deduct up to 20 percent of their qualified business income. C corporations do not qualify.
The 2026 rules bring several favorable changes. First, the deduction no longer expires after 2025. Second, the income phase-in ranges increase, which may allow more taxpayers to receive at least a partial 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 these amounts, the deduction is generally straightforward, and most types of pass-through businesses can qualify.
If your taxable income exceeds the threshold, planning becomes more important. W-2 wages, qualified business property, retirement plan contributions, and business structure may affect the amount of your deduction. Certain service businesses, such as law, health, accounting, consulting, and financial services, may face additional limits at higher income levels.
The new rules also create a $400 minimum deduction for some taxpayers with at least $1,000 of qualified business income from an active trade or business.
If you want to discuss the Section 199A deduction, please get in touch with us at hello@agfintax.com.
