Blog

We keep you up-to-date on the latest tax changes and news in the industry.

Understanding the Section 199A Deduction: Tax Savings for Your Business

The Section 199A deduction, often referred to as the Qualified Business Income (QBI) deduction, presents a significant tax break for eligible business owners. It allows up to a 20% deduction on qualified business income derived from domestic enterprises operating as sole proprietorships, partnerships, S corporations, trusts, or estates. Mastering the nuances of the Section 199A deduction is crucial for effective tax planning and compliance.

Image 1
  • Essentials of Section 199A Deduction

    Qualified Business Income (QBI): This refers to the net sum of qualified items like income, gain, deduction, and loss from any qualifying trade or business, excluding investment income like capital gains, dividends, and non-business interest income.

    Origins of Section 199A Deduction: This deduction was established by the Tax Cuts and Jobs Act (TCJA) of 2017 to provide tax relief to businesses not benefitting from the reduced corporate tax rate. Initially set to expire at the end of 2025, the One Big Beautiful Bill Act (OBBBA) made this deduction permanent, thereby extending its benefits.

  • Classifying Qualified Trades or Businesses (QTB) vs. Specified Service Trades or Businesses (SSTB)

    Qualified Trades or Businesses (QTB): Businesses can claim the full 20% deduction without income phaseouts if they meet certain wage or property criteria. Examples include manufacturing, retail, and non-service sectors.

    Specified Service Trades or Businesses (SSTB): SSTBs comprise industries such as health, law, accounting, and financial services, where professionals may face deduction phaseouts if income thresholds are exceeded.

    Rationale Behind the Distinction: Historically, service industries have received different tax treatments than manufacturing. Section 199A reflects this by incentivizing growth in manufacturing and other non-service sectors.

  • Calculating the Deduction and Understanding Income Thresholds

    Impact of Taxable Income: The deduction eligibility and amount for SSTBs is impacted by the individual's taxable income. It gets proportionally phased out at higher income levels, though adjustments under the OBBBA have somewhat relaxed these thresholds.

    Wage Considerations for QTB Deductions: For QTBs, the deduction is limited to the lesser of 20% of QBI or 50% of wages paid (or 25% of wages combined with 2.5% of the unadjusted basis of qualified business property).

  • Updates and Amendments Under the OBBBA

    Introduction of a Minimum Deduction in 2026: Commencing in 2026, a minimum deduction of $400 will apply to ensure small business owners benefit from a consistent deduction, fostering clearer tax planning for those with low wage or income bases. This threshold will be adjusted annually for inflation.

Image 2

For business owners, the Section 199A deduction is a pivotal tool in tax planning, equitably distributing tax incentives and encouraging economic stimulus. Navigating this complex deduction effectively necessitates the expertise of tax professionals. Our team at CPA Consulting Services stands ready to assist you in optimizing your tax strategy to maximize the benefits of this deduction. Reach out to us for a personalized consultation.

Share this article...

Want tax & accounting tips and insights?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .
CPA Consulting Services LLC We love to chat!
Please feel free to use the buttons below to contact us or use our Ai powered chat assistant.
Please fill out the form and our team will get back to you shortly The form was sent successfully