Hi,
If you own a pass-through business – an S-corp, partnership, LLC, or sole proprietorship – there is a deduction that lets you write off 20% of your business profit before you are taxed on it.
It is called the QBI deduction, and it is one of the largest breaks in the code for business owners. On $400,000 of profit that is $80,000 off your taxable income. On larger numbers it runs well into six figures, with no fixed ceiling. Most owners either do not know it exists or lose part of it every year without realizing.
Here is the part worth your attention: the size of the deduction is decided by your taxable income, not your revenue. That makes it a number you can move, not a fact you have to accept.
The rules just changed in your favor, permanently:
- The 20% deduction is now permanent – no sunset, no expiration. Planning around it is finally a long-term decision instead of a bet on whether it survives.
- The phase-in range widened for 2026 – from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint. More owners now get at least a partial deduction where they used to get zero.
- A new $400 minimum applies if you have at least $1,000 of profit from a business you actively work in, no matter what the other limits say.
The bigger the business, the bigger the number: a larger, well-structured business can carry a deduction of $200,000 or more – $70,000 and up in tax saved annually – now that the break is permanent. There is no dollar ceiling on it.
How much you actually keep comes down to which side of the income threshold you land on:
- Below the threshold ($201,750 single or $403,500 married): you deduct a clean 20% of profit automatically, with no wage test. That $80,000 deduction on $400,000 of profit is worth roughly $28,000 in federal tax at a 35% rate – every single year.
- Above the threshold: non-service businesses face the wage limit – the deduction caps at the greater of 50% of the W-2 wages you pay, or 25% of wages plus 2.5% of property value. Structured right it stays large; pay too little in wages and it shrinks no matter how profitable you are.
- Service businesses (law, medicine, consulting, accounting, financial services) lose it entirely above the top of the range – though engineering and architecture are carved out, which a lot of firms in those fields do not realize.
That last point is the whole game: reasonable compensation cuts both ways. Set it too low and you fail the wage limit. Set it too high and you shrink the profit the deduction is based on. There is an optimum, and it is different for every business.
The levers that move it are ones you already control: owner compensation, retirement plan contributions that pull taxable income back under the threshold, aggregation elections across multiple entities, and sometimes a change of entity type altogether. None of it can be worked out from a finished tax return – it takes clean books, accurate payroll data, and a projection run before year end rather than a calculation done in April.
That is why we put everything under one roof:
- Entity optimization review – reasonable compensation, entity type, and aggregation modeled against your actual numbers
- Monthly and annual bookkeeping with a dedicated bookkeeper, plus QuickBooks and payroll cleanup so the wage figures the deduction depends on are right
- Quarterly tax planning with your projected QBI position updated as the year moves, not discovered in April
- Technical memos documenting the positions behind your deductions, so they hold up if questioned
- Fractional CFO services for owners who want entity, compensation, and distribution strategy managed continuously
- A full one hour review of every credit and deduction you qualify for, by the same team that files your return
- Personal and business tax returns handled by the same team
Reply to this email by Friday and we will set up a complimentary 15-minute diagnostic review with our COO and Enrolled Agent, Liliya Maksimov. Upload your most recent business and personal tax returns to our portal at https://dimovtax.com/upload-documents/ and we will show you exactly what your 199A deduction was, and prove what it should have been.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com