Daperis CPAThe QBI Deduction for NYC Small Business Owners
If you run your business as a sole proprietorship, LLC, partnership, or S-Corp, you may be able to deduct up to 20% of your business profit before it even hits your tax bracket. It's called the Qualified Business Income Deduction, and it's now a permanent part of the tax code. It's also easy to overestimate what it does, so here's what it actually saves you and what you need to know
The Basics
It's a 20% deduction on qualifying profit. If your business generates $150,000 in qualified business income, you can potentially deduct up to $30,000 of it before calculating your federal income tax, provided you're under the relevant income thresholds.
It's now permanent. The deduction was set to expire after 2025. Legislation passed in 2025 removed that sunset date and widened the income ranges where the deduction starts to phase out, effective for 2026.
There's a new floor for smaller businesses. Starting in 2026, if your qualified business income is at least $1,000 and you materially participate in the business, you're guaranteed a minimum $400 deduction even if the full calculation would otherwise land lower.
Where It Starts to Phase Out
For 2026, the phase-in range starts at $201,750 of taxable income for single filers and $403,500 for married couples filing jointly. Below those numbers, most business owners get the full 20% with no added complications. The phase-out completes at $276,750 for single filers and $553,500 for joint filers. Above that top number, the rules get considerably less generous, and how much less depends heavily on what kind of business you run.
If your business is a "specified service trade or business," think consulting, law, accounting, financial services, health, or a business built primarily around the reputation or skill of the owner, the deduction no longer disappears completely, but it is severely limited. Once you clear the upper threshold, a 75% limitation rule kicks in, reducing your tax benefit substantially but allowing you to retain a partial deduction. If your business falls outside that category, a different limitation applies instead, tied to W-2 wages paid and the value of business property, which can preserve some or all of the deduction even at higher income.
This deduction reduces your taxable income, not your self-employment tax. It doesn't touch the 15.3% you owe on net self-employment earnings. It's also calculated against your total taxable income, not just your business profit, so investment income, a spouse's W-2 wages, and other income all factor into where you land relative to the thresholds.
Keep It Simple / Key Takeaway 🍕
If your income sits comfortably under the phase-in threshold, the QBI deduction is close to automatic and worth confirming your preparer is actually claiming it. If you're near or above it, especially if you're in a service business, this is exactly the kind of number worth planning around before year-end, not discovering after the fact.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.