The QBI Deduction: Good News for Eligible Business Owners

If you’re a small business owner or you’re self-employed, there’s good news on the tax front. The Section 199A qualified business income (QBI) deduction, a powerful tax-saving opportunity since 2018, was initially set to expire in 2025. But thanks to the recent enactment of the One Big Beautiful Bill Act (OBBBA), it’s not only here to stay, it’s also improved.

What Is the QBI Deduction?

This tax break allows eligible business owners to deduct up to 20% of their QBI from their taxable income. It applies to owners of pass-through entities, including S corporations, partnerships and, usually, LLCs, as well as sole proprietors.

QBI typically includes net business income but excludes investment capital gains and losses, dividends, interest income, owner wages, and guaranteed payments to partners or LLC members. And, you don’t need to itemize deductions to claim this deduction.

How Income Affects QBI Eligibility

While the full 20% deduction is available to many, it’s subject to certain limits that phase in based on taxable income and other factors. Your tax advisor can help with this.

If your business is a specified service trade or business (SSTB), your deduction reduces gradually as your income increases beyond the threshold, $197,300 ($394,600 if you’re married filing jointly) for 2025. If your income exceeds the top of the income range, $247,300 ($494,600 if you’re filing jointly) for 2025, you lose the deduction entirely.

SSTBs include professions like law, medicine, accounting, financial planning and consulting, but not engineering or architecture.

Non-SSTBs face other limitations. If their income exceeds the top of the range, their deduction can’t exceed the greater of their share of:

• 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
• The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.

If their income falls within the range, these limits apply only partially. If the rules and thresholds seem daunting, lean on us.

Better News for 2026 and Beyond

Here’s what pass-through business owners can look forward to:

• The top of the income range for the additional limits increases from $50,000 above the threshold to $75,000 above the threshold (from $100,000 to $150,000 for joint filers).
• A new minimum QBI deduction of $400 is introduced for taxpayers earning at least $1,000 in QBI, provided they materially participate in the business.

As a result of these changes, more business owners will be eligible for the deduction in 2026 and beyond, and some owners’ deductions will increase.

Bottom Line

The QBI deduction can significantly reduce your tax bill. With the deduction now made permanent and set to improve in 2026, it’s worth revisiting your tax strategy with the help of a qualified advisor. Contact the office to ensure you’re making the most of this valuable opportunity.

3 Family-Friendly Tax Benefits in the New Tax Law

The One, Big, Beautiful Bill Act (OBBBA) brings a wide range of tax changes, with several key updates designed to support families. Among the many provisions, here are three with the potential to lower your tax bill.

1. Boosted Child Tax Credit with a New Rule

Beginning in 2025, the Child Tax Credit (CTC) increases to $2,200 per qualifying child under age 17 (up from $2,000). It will be adjusted annually for inflation starting in 2026. The refundable portion (the part you can receive even if you owe no tax) is locked in at $1,700 for 2025 and will also adjust for inflation moving forward.

The modified adjusted gross income (MAGI) thresholds for the phaseout of the CTC remain unchanged and permanent at:

• $200,000 for single and head of household taxpayers
• $400,000 for married couples filing jointly

Beginning in 2025, you must include valid Social Security numbers (SSNs) for both the child and the taxpayer claiming the credit. For joint filers, at least one spouse must have an SSN to qualify.

2. The $500 Credit for Other Dependents Lives On

Previously set to expire after 2025, the $500 Credit for Other Dependents (COD) is now permanent. The nonrefundable COD applies to dependents who don’t qualify for the child tax credit, such as college-aged children or elderly parents. The dependent must be a U.S. citizen, national or resident alien and must have a valid Social Security number or Individual Taxpayer Identification number.

The income-based phaseouts are the same as those for the CTC.

3. Adoption Credit Gets a Refundable Benefit

For 2025, the maximum credit is $17,280 per adoption. But the credit phases out at higher MAGI levels than the CTC and COD:

• Begins phasing out at $259,190
• Fully phases out at $299,190

These amounts apply to all filing statuses.

Under the OBBBA, up to $5,000 of the credit is now refundable, offering more immediate financial help to some adoptive parents. The nonrefundable portion can be carried forward; the refundable portion cannot.

Your tax advisor can offer more information about the tax side of adoption.

Questions?

These are just three highlights from the OBBBA’s roughly 870 pages of tax updates. Some families stand to benefit, but as always, contact the office to make the most of what’s available to you.

Before a Weather Emergency Closes Your Business, Make a Plan

It’s hurricane season, which is just one of several weather emergencies and other natural disasters companies may face, depending on location. Tornadoes, floods and wildfires also pose serious threats. According to the Federal Emergency Management Agency (FEMA), about 25% of businesses never reopen after a major disaster. And many that do reopen struggle to recover.

To lower the risk of closure and improve your chances of a strong recovery, establish a comprehensive emergency plan before disaster strikes. FEMA recommends the following multi-step approach to help safeguard your business.

Set Goals and Assign Responsibility

Start by carefully defining the goals of your disaster plan and identifying who’ll create, manage and execute it. Your priorities will likely include:

• Protecting employees and customers,
• Minimizing damage to assets, and
• Resuming operations as quickly as possible.

For legal and financial risk management, consider including an attorney and an insurance professional to your disaster planning team.

Craft Your Plan

Begin by identifying and prioritizing the risks your business may face. These will likely include physical injuries to employees or customers. Also important to consider are business interruption, revenue loss and damage to property, equipment, inventory or vital records.

Your plan should address:

Employee roles. Assign responsibilities to staff with relevant skills for different emergencies.

Evacuation procedures. Develop clear evacuation routes and protocols.

Safety equipment. Define needs for items such as first aid kits, fire extinguishers and sprinkler systems.

Data protection. Secure vital records and documents by means such as remote backups and physical copies.

Communication strategy. Establish how you’ll keep employees and customers updated as to status and recovery timeline.

Inventory and supplier list. Keep a current list of critical equipment and replacement suppliers.

Operational continuity. Create contingency plans to run essential functions remotely with a minimal team.

HR and payroll policies. Set guidelines for compensating nonexempt employees who can’t work during downtime.

Keep your plan thorough but manageable to ensure it’s practical, updatable and easy to follow.

Put the Plan to Work

To implement your plan, inform employees of their roles, assign responsibilities and provide any necessary training. Ensure that all essential emergency equipment is readily available and that your insurance coverage is sufficient to meet your needs.

Identify possible infrastructure gaps and address them promptly to ensure safety. An example would be inadequate emergency exits.

Do Run-Throughs

Regular practice strengthens preparedness. Conduct drills to ensure safe evacuation procedures are clear and compelling. Verify that safety equipment, data backups and other safeguards function as intended.

Be proactive. Don’t wait for a real emergency to discover weaknesses.

Monitoring and Tweaking

With a solid plan in place, relax, but not too much. Review and update your plan at least annually to reflect changes in staff, operations or layout.

Incorporate feedback from various sources, such as test results, employee input and new risks you’ve discovered or lessons learned. Adapting and refining your plan regularly will maintain its effectiveness and help keep your assets, especially your human assets, safe over time.

Assurance

Your business may never be directly impacted by a severe weather event or other natural disaster. But having a solid emergency preparedness plan can still offer tangible benefits, such as lowering certain business insurance costs. More importantly, it brings peace of mind that allows you to stay focused on running and growing your business, rather than worrying about the possibilities. Contact the office for guidance tailored to your situation.

Seniors May Be Eligible for a New Deduction

For 2025 through 2028, individuals age 65 and older may be able to claim a new senior deduction of up to $6,000, subject to income-based phaseouts. This deduction is available whether or not the taxpayer itemizes. It begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 for married couples filing jointly).

Does this new deduction replace the existing extra standard deduction for those age 65 and up? No. For 2025, single qualifying seniors can take the additional $2,000 standard deduction. Married couples who file jointly can take an extra standard deduction of $1,600 per qualifying spouse. Contact the office with questions.

Separated or Divorced? Know Your Tax Obligations

If a couple gets separated or divorced, it affects tax obligations. The IRS considers couples married for tax purposes until a final decree is issued. After separating or divorcing, update your Form W-4 with your employer and check withholding using the IRS estimator.

Generally, alimony payments and child support payments aren’t deductible by the paying spouse or included in the taxable income of the recipient spouse. (Tax treatment of alimony payments is different if they’re being made under agreements entered into on or before December 31, 2018.) Property transfers due to divorce typically aren’t taxed but may require a gift tax return. Also, be aware that only one parent can claim a child as a dependent.

An Employee Benefit That Also Saves Tax for Your Business Just Got Better

Employers seeking to offer low-cost, family-friendly benefits may want to consider flexible spending accounts (FSAs) for dependent care. These FSAs let employees make pre-tax contributions through payroll withholding to help cover eligible expenses. Thanks to the recently passed One Big Beautiful Bill Act, the annual contribution limit, currently $5,000, will rise to $7,500 in 2026.

Employee’s FSA contributions reduce their income and payroll taxes and their employers’ payroll tax. Withdrawals used to pay qualified expenses are tax-free. These include expenses for care for a child under age 13 or another dependent unable to care for themselves due to physical or mental limitations.

Upcoming Tax Due Dates

September 15

Individuals: Pay the third installment of 2025 estimated taxes (Form 1040-ES), if not paying income tax through withholding or not paying sufficient income tax through withholding.

Calendar-year corporations: Pay the third installment of 2025 estimated income taxes, completing Form 1120-W for the corporation’s records.

Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1 if an automatic six-month extension was filed. Pay any tax, interest and penalties due.

Calendar-year S corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K1 (Form 1065) or a substitute Schedule K1 if an automatic six-month extension was filed.

Employers: Deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for August if the monthly deposit rule applies.

September 30

Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) if an
automatic five-and-a-half-month extension was filed. Pay any tax, interest and penalties due.

October 10

Individuals: Report September tip income of $20 or more to employers (Form 4070).

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