The Section 199A deduction, otherwise known as the Qualified Business Income Deduction (QBID) was set to expire after 2025 but has been made permanent by the One Big Beautiful Bill Act (OBBBA).

The OBBBA has also set a minimum QBID of $400 for eligible taxpayers with at least $1,000 of qualified business income for 2026.

How Do They Define QBID?

Qualified Business Income generally refers to the net income your business earns from normal operations, not including items like capital gains, certain dividends, or wages you earn as an employee.

This deduction was designed to give pass-through businesses—such as sole proprietorships, partnerships, LLCs, and S-corporations—tax relief similar to what larger corporations received when corporate tax rates were lowered.

For many small businesses, this deduction can significantly reduce taxable income and help owners keep more of what they earn.

Are There Limits?

Yes. While the deduction can be up to 20% of qualified business income, the deduction may be limited by W-2 wages and qualified business property.

For Specified Service Trades or Businesses (SSTBs), the deduction is completely disallowed when taxable income exceeds the top of the phase-in range.

Who Qualifies?

Many small business owners may qualify for the Section 199A deduction.

Businesses that commonly qualify include:

• Sole proprietorships
• Partnerships
• S-corporations
• LLCs taxed as pass-through entities

These businesses are often referred to as pass-through entities, meaning the business income is reported on the owner’s personal tax return rather than being taxed at the corporate level.

Eligibility ultimately depends on factors such as income level, the type of business activity, and how the business is structured. Because of these variables, some businesses may qualify for the full deduction while others may qualify for only a partial deduction.

How Is It Reported?

The Section 199A deduction is typically calculated and reported on IRS Form 8995 or Form 8995-A, depending on the complexity of the taxpayer’s situation. Schedule K-1 contains the pass-through information from partnerships and S corporations.

Haworth & Company Can Help!

At Haworth & Company, we work with small businesses across Minnesota to simplify accounting, payroll, and tax planning so business owners can focus on growth.

If you have questions about how the 20% Qualified Business Income deduction may apply to your business, our team is here to help guide you through the process and identify opportunities to make the most of your financial strategy.

Disclaimer: This blog content is for general informational purposes only, should not be considered professional advice, and does not establish a client relationship. Haworth and Company is not liable for the accuracy of this information or the content of external links. Please use this information at your own risk, ensuring it suits your specific needs, and consult with a certified tax professional for your own personalized guidance.