Section 199A: What Business Owners Need to Know for 2026

If you own a business structured as a sole proprietorship, partnership, or S corporation, the Section 199A Qualified Business Income (QBI) deduction can provide a valuable tax break—potentially allowing you to deduct up to 20% of your qualified business income.

The good news for business owners is that the QBI deduction is now permanent, and the rules have become more favorable beginning in 2026.

What Is the QBI Deduction?

The Section 199A deduction was created to provide a tax benefit to owners of many pass-through businesses. Unlike a traditional business expense, the QBI deduction is generally taken at the individual level and can reduce taxable income.

For eligible business owners, the deduction can be worth thousands of dollars. However, your ability to claim the full deduction depends on your taxable income, the type of business you operate, and other factors.

2026 Income Thresholds

For 2026, taxpayers with taxable income at or below the following amounts can generally qualify for the QBI deduction regardless of whether their business is an SSTB:

• Married Filing Jointly: $403,500 or less

• Single or Head of Household: $201,750 or less

  
  

Once taxable income exceeds these levels, additional rules can apply.

This is particularly important for higher-income business owners because the type of business you operate can affect how much of the deduction remains available.

Why Your Type of Business Matters

Section 199A separates businesses into different categories when taxable income exceeds the applicable threshold.

Some businesses continue to qualify for the deduction at higher income levels, while certain Specified Service Trades or Businesses (SSTBs) face additional limitations.

SSTBs can include businesses such as consulting, health, law, accounting, financial services, and other service-based businesses.

For 2026, the deduction for an SSTB can be completely phased out once taxable income exceeds:

• $553,500 for married couples filing jointly

• $276,750 for single or head-of-household taxpayers

  
  

However, the deduction does not necessarily disappear immediately after crossing the lower threshold.

A Wider Phase-In Range

One important 2026 change is that the phase-in range is now 50% wider.

This means certain business owners with income above the initial threshold may still receive a partial QBI deduction at income levels where the deduction may have been more limited under previous rules.

For higher-income business owners, this makes tax planning and accurate income projections especially important.

Can Mixing Business Activities Affect Your Deduction?

It can.

Some businesses perform activities that may fall within the SSTB category while also generating income from activities that are not considered SSTBs.

The tax rules include de minimis provisions that may allow the entire business to be treated as a qualified business when the amount of SSTB activity is sufficiently small.

Generally, if receipts from the SSTB activity are less than 10% of the business's total gross receipts, the business may qualify for treatment as a non-SSTB. For businesses with gross receipts exceeding $25 million, the applicable threshold is generally 5%.

This makes understanding exactly what your business does—and how its revenue is generated—important for QBI planning.

Keeping Separate Businesses Separate

Another potential strategy is to operate genuinely separate trades or businesses.

For example, a business owner may have one activity that qualifies for the QBI deduction and another activity that falls under the SSTB rules.

Maintaining clear separation can be important. Separate books, invoices, records, and, when appropriate, employees can help establish that the activities are truly separate businesses rather than simply different labels for the same operation.

The key is that the separation must reflect the actual facts and circumstances of the businesses.

Don't Overlook the Importance of Bookkeeping

For higher-income business owners, bookkeeping is more than simply keeping financial records organized.

Accurate bookkeeping can help you:

• Identify different business activities

• Track revenue by activity

• Separate qualified and non-qualified income

• Maintain documentation supporting the business structure

• Provide the information needed for QBI calculations

  
  

In some situations, proper separation and documentation can make a significant difference in the amount of QBI deduction available.

What About the New $400 Minimum Deduction?

Beginning in 2026, a new $400 minimum deduction applies in certain circumstances.

However, this provision does not create a QBI deduction for a pure SSTB whose taxable income is already above the applicable phase-out ceiling.

That means higher-income service business owners should not assume the minimum deduction will preserve their QBI benefit.

Plan Before Tax Season

The Section 199A deduction can be valuable, but determining the deduction is not always as simple as multiplying business income by 20%.

Your taxable income, business type, wages, property, business activities, and other factors can affect the final calculation.

For business owners approaching or exceeding the 2026 income thresholds, waiting until tax filing season may leave fewer planning opportunities.

The Bottom Line

The 2026 Section 199A rules create new opportunities for many business owners, but the details matter.

If your income is near one of the thresholds—or your business includes both qualifying and SSTB activities—now is the time to review your structure, bookkeeping, and business activities.

Proactive tax planning can help you understand how the rules apply to your specific situation and avoid leaving a valuable deduction on the table.