For the past several years, many owners of pass-through businesses have been able to deduct up to 20% of their income before calculating federal tax, thanks to the Qualified Business Income (QBI) deduction created by the Tax Cuts and Jobs Act of 2017.
And for just as long, there’s been a familiar line that shows up in almost every conversation about it:
Enjoy it while it lasts.
When the deduction was first introduced, that warning was justified. Under the original law, the QBI deduction was scheduled to expire after 2025, along with several other provisions of the Tax Cuts and Jobs Act.
That expiration date shaped a lot of tax planning conversations over the past several years. Advisors helped business owners benefit from the deduction while it existed, but there was always a question lingering in the background: How much should you rely on a rule that might disappear in a few years?
Recent legislation changed that conversation. The One Big Beautiful Bill Act passed in 2025 removed the sunset provision and made the Section 199A QBI deduction permanent.
The mechanics of the deduction didn’t suddenly change overnight. But the planning horizon did. What had been treated as a temporary opportunity now looks like a long-term feature of the tax landscape for pass-through businesses.
Before getting into why that matters strategically, it’s worth revisiting how the deduction actually works.
What QBI actually is:
The Qualified Business Income deduction applies to many businesses that operate as pass-through entities, the structure used by most privately held companies in the United States.
That includes businesses operating as:
Unlike C-corporations, which pay tax at the entity level, pass-through businesses send their profits directly to the owner’s personal tax return.
The QBI deduction allows eligible owners to exclude up to 20% of that qualified business income when calculating federal tax.
Put another way, if a business generates $500,000 of qualified business income and the owner qualifies for the full deduction, as much as $100,000 of that income may never be taxed at the federal level.
For many business owners, that’s not a rounding error. It’s a meaningful annual tax benefit.
Put simply, QBI is one of the few places in the tax code where business structure and planning decisions can meaningfully change how much tax an owner pays.
That’s why the rule gets so much attention from advisors—and why it’s worth understanding even if the mechanics feel technical at first glance.
Of course, it isn’t quite that simple:
Despite the name, not every dollar that flows through a business qualifies as qualified business income.
Generally speaking, the deduction applies to the net income generated from operating the business itself. Certain types of income are carved out of the calculation, including capital gains, dividends, and most investment income.
Another common point of confusion involves S-corporation owners.
If you run your business as an S-corp, the salary you pay yourself does not count as qualified business income. Only the remaining business profit may qualify for the deduction. That distinction is one of the reasons compensation planning often intersects with QBI strategy.
Once income rises above certain thresholds, the rules become more nuanced. The deduction may be limited based on the wages paid by the business, the value of certain business assets, and whether the company falls into a category known as a Specified Service Trade or Business.
That category includes professions such as accounting, consulting, law, medicine, and financial services. Owners in those industries may see the deduction phase out once income reaches certain levels.
In other words, the deduction can look very different depending on the type of business and the owner’s income.
Why Congress created the deduction in the first place:
The QBI deduction didn’t appear out of thin air.
When the Tax Cuts and Jobs Act lowered the corporate tax rate to 21%, lawmakers faced a challenge. Most businesses in the United States don’t operate as C-corporations. They operate as pass-through entities.
Without some kind of adjustment, those businesses could have found themselves paying significantly higher effective tax rates than large corporations.
The QBI deduction was designed to narrow that gap.
By allowing pass-through business owners to deduct up to 20% of their business income, the rule helps keep the tax treatment of those businesses more competitive with the corporate structure.
What permanence changes for business owners:
For several years, the biggest question surrounding QBI wasn’t how it worked; it was whether it would still be around. With the deduction now permanent, that uncertainty largely disappears.
That doesn’t mean every business owner will automatically qualify for the full deduction, or that the calculation suddenly becomes simple. But it does mean the rule can now be treated as part of the long-term tax environment, not just a temporary window of opportunity.
That shift has real planning implications.
Business owners thinking about entity structure can evaluate their options knowing the deduction is likely to remain part of the equation.
Owners of S-corporations can look more carefully at the balance between salary and profit, since only the profit portion qualifies for the deduction.
And decisions involving retirement contributions, income timing, and long-term planning can be evaluated with a longer horizon in mind.
What business owners should actually be thinking about:
Knowing the rule exists is helpful, but the real value of QBI comes from understanding how it fits into the broader financial strategy of the business.
Now that the deduction appears to be a permanent part of the tax code, several planning questions become more important.
For many owners, these questions aren’t about squeezing out every possible deduction. They’re about making sure the structure and financial strategy of the business are aligned with how the tax code actually works.
The takeaway:
The Qualified Business Income deduction has been one of the most significant tax benefits available to owners of pass-through businesses over the past several years.
What changed recently isn’t the calculation. It’s the certainty.
Many business owners first hear about the QBI deduction when they happen to come across it in an article or a conversation with another business owner.
Ideally, it shows up earlier than that — as part of a planning discussion. Because the deduction doesn’t just affect how a return is prepared. In many cases, it influences decisions about entity structure, compensation strategy, and long-term financial planning.
Those are conversations worth having before tax season arrives.