Qualified Business Income Deduction Under the One Big Beautiful Bill Act (OBBBA): A Comprehensive Guide - Z Tax & Accounting

Z Tax & Accounting – 2025 Business Tax Insights

The Qualified Business Income (QBI) Deduction, created under the Tax Cuts and Jobs Act (TCJA) and extended under the One Big Beautiful Bill Act (OBBBA), remains one of the most valuable tax benefits available to small and mid-sized businesses. With OBBBA passed in 2025, key provisions of the QBI deduction have been extended and enhanced, ensuring continued tax relief for owners of sole proprietorships, partnerships, S-corporations, and certain trusts and estates.

This guide explains what the QBI deduction is, how OBBBA affects it, who qualifies, and what strategies business owners should consider to maximize tax savings. Z Tax & Accounting provides expert guidance to help businesses navigate these rules with clarity and confidence.

What Is the Qualified Business Income (QBI) Deduction?

The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from:

Sole proprietorships
Partnerships
S corporations
Some trusts and estates

The deduction applies to “pass-through income,” meaning income that flows directly to owners and is taxed on their individual returns. The QBI deduction does not apply to wages, guaranteed payments, or investment income.

How OBBBA Affects the QBI Deduction

OBBBA makes several significant adjustments intended to preserve and stabilize the QBI deduction for years to come.

1. Extension of the QBI Deduction Beyond 2025

Under prior law, the QBI deduction was set to expire after 2025. OBBBA extends the QBI deduction, allowing qualifying business owners to continue benefiting from the 20% pass-through deduction.

This extension creates long-term tax planning opportunities and supports small business growth.

2. Adjusted Income Thresholds and Inflation Indexing

OBBBA updates and increases the income phase-in thresholds for QBI. The deduction now scales with updated inflation adjustments, allowing more businesses to benefit even as earnings grow.

Higher thresholds mean:

Fewer taxpayers are subject to limitations
More high-earning businesses may qualify
Fewer deductions are reduced due to wage or property thresholds

3. Continued Limitations for Specified Service Trades or Businesses (SSTBs)

While OBBBA extends the deduction, it retains restrictions for SSTBs such as:

Law
Accounting
Consulting
Health professionals
Financial services
Certain performing arts

However, with OBBBA’s updated income thresholds, some SSTB owners who previously phased out may now regain partial or full eligibility depending on taxable income.

How the QBI Deduction Works Under OBBBA

To calculate the deduction, business owners must determine:

• Qualified Business Income (QBI)

Net income from the trade or business after allowable deductions.

• 20% QBI Deduction

Basic calculation for qualified taxpayers:
20% × Qualified Business Income

• Wage and Property Limitations

Applies when income exceeds the updated thresholds:

Based on W-2 wages paid
Based on the unadjusted basis of qualified property

• SSTB Phaseout Ranges

Higher income thresholds allow more flexibility, but high-income SSTB owners may still see deductions reduced or eliminated.

• Overall Income Limit

The deduction cannot exceed 20% of taxable income (before the deduction itself), minus net capital gains.

Who Benefits the Most Under OBBBA

1. Small and Mid-Sized U.S. Businesses

Businesses with stable or rising earnings benefit from the updated thresholds and extended deduction period.

2. Real Estate Investors with Active Participation

Those operating rentals as a trade or business continue to qualify if they meet material participation standards.

3. Non-SSTB Businesses with W-2 Employees

These businesses benefit from both the QBI deduction and the wage/property limitation structure.

4. Select SSTB Owners with Income Within New Ranges

With expanded phase-in thresholds, more SSTB professionals regain eligibility for partial deductions.

Tax Planning Strategies Under OBBBA

Recommended by Z Tax & Accounting

1. Optimize W-2 Wages

Businesses approaching QBI limits may increase wages to maximize deductible amounts.

2. Evaluate Entity Structure

A shift between sole proprietorship, partnership, and S-corporation may produce significant tax advantages.

3. Manage Taxable Income

Strategic planning can help keep income within QBI thresholds, especially for SSTBs.

4. Track and Maintain Qualified Property

The wage/property limitation often provides a deduction for capital-heavy businesses.

5. Use Retirement Plans to Control Income

Contributions to SEP, SIMPLE, or 401(k) plans may help maintain QBI eligibility.

6. Separate or Aggregate Businesses Where Beneficial

Proper aggregation can solve wage/property limitation issues or reduce phase-outs.

Common Pitfalls to Avoid

Misclassifying SSTB work as non-SSTB
Forgetting to account for QBI losses from prior years
Failing to track basis or W-2 wages
Incorrect aggregation of activities
Missing deductions due to poor recordkeeping

Z Tax & Accounting helps ensure compliance while maximizing tax-saving opportunities.

How Z Tax & Accounting Helps

At Z Tax & Accounting, our services include:

QBI deduction calculations
Tax projection and planning under OBBBA rules
Entity structure evaluation
SSTB classification analysis
W-2 wage and property limitation optimization
Multi-year tax planning strategies

Our expert team ensures your business receives every tax benefit available under the updated law.

Conclusion

With the One Big Beautiful Bill Act extending and enhancing the QBI deduction, small business owners and self-employed individuals can continue to enjoy substantial tax savings. Understanding the new thresholds, limitations, and strategic opportunities is essential — and Z Tax & Accounting is here to guide you every step of the way.

For personalized tax planning and QBI optimization, contact Z Tax & Accounting today.