OBBBA : Deduction for Qualified Business Income

The Qualified Business Income (QBI) deduction is one of the most valuable tax breaks available to business owners like you. If you're operating as a sole proprietor, S corporation, partnership, this deduction can help reduce your personal tax liability based on your business income.

The new Opportunity for Business and Benefit Act (OBBA)—recently passed by Congress and awaiting President Trump’s signature—includes changes that could make this deduction more generous and more accessible.

Here’s what’s changing in Section 70105 and what it means for your tax planning.

🔹 Expanded Phase-In Range for Income Limits

Historically, the QBI deduction would begin to phase out as your taxable income surpassed a certain threshold. This "buffer" is the income range where the deduction gradually reduces to zero.

The OBBA significantly expands this buffer to $75,000 for single filers and $150,000 for couples filing jointly, a substantial increase from the previous $50,000/$100,000. This larger buffer means the deduction phases out more slowly, allowing more small businesses with higher incomes to claim a partial deduction for a longer period.

🧾 What this means for you:

If your taxable income falls within that "middle range" – just above the established threshold – you'll now have greater flexibility to qualify for a full or partial QBI deduction before it completely disappears.

This change could translate into real tax savings, especially if your income is currently near those limits. Our CPA services in Houston are designed to help you identify and maximize these potential benefits.

Example:

Sarah’s taxable income is $207,100.

Her income is $15,149 above the threshold ($207,100 - $191,951).

Phase-out percentage: $15,149 ÷ $75,000 ≈ 0.202 (or 20.2%).

She retains 79.8% of her QBI deduction (100% - 20.2%).

Using the same $50,000 QBI:

Full deduction: $50,000 × 20% = $10,000.

Reduction: $10,000 × 0.202 = $2,020.

Final deduction: $10,000 × 0.798 = $7,980.

Comparison:

Old Rule (2024): Sarah’s QBI deduction is $6,970 (69.7% of $10,000).

New Rule (2026): Sarah’s QBI deduction is $7,980 (79.8% of $10,000).

The larger $75,000 buffer reduces the phase-out percentage, so Sarah keeps $1,010 more of her deduction under the new rule. This is a clear advantage for small business tax strategy.

🔹 New $400 Minimum QBI Deduction for Active Businesses

A brand-new provision within this section introduces a minimum QBI deduction of $400. This means even if your calculated 20% deduction falls below this amount, you could still receive $400, provided certain criteria are met.

To qualify:

• Your total qualified business income must be at least $1,000, and

• You must materially participate in the business (meaning you’re actively involved—not a passive investor).

🧾 What this means for you:

If your business is just beginning, or you manage a small side venture, this rule ensures you’ll still receive a meaningful tax benefit—even if your profit is modest. It's a welcome change for many independent contractors and very small entities we assist.

Example:

If your QBI is $1,100, your calculated deduction would normally be $220. Under this new rule, you’d still be able to claim $400, as long as your business is active and meets the other conditions.

🗓️ When These Changes Apply

Since the OBBA has now been signed into law, these significant updates will apply starting January 1, 2026. This means you'll see their impact when filing your 2026 tax return in 2027. 

✅ Bottom Line

Section 70105 of the OBBA provides two important new advantages for small business owners:

• Greater Flexibility: If your income is above the QBI threshold, more of your qualified business income can now be deducted.

• Guaranteed Minimum: A minimum deduction is now available, even for active businesses with modest income.

These changes make the QBI deduction more inclusive and powerful – especially if your business is growing or you’re managing multiple income streams. For personalized guidance on how the OBBA impacts your specific financial situation, reach out to our team.

As your dedicated Houston CPA, we offer comprehensive CPA services to clients across Pasadena, Deer Park, League City, La Porte, and Galveston, helping you optimize your tax strategy under these new rules.