The One Big Beautiful Bill Act (OBBBA) permanently extends the Qualified Business Income Deduction (QBID), a popular and influential provision introduced initially under the Tax Cuts and Jobs Act (TCJA). Business owners of pass-through entities such as LLCs, partnerships, S corporations, or sole proprietorships can now rely on the 20% deduction as a long-term part of their tax strategy.
For small and mid-size businesses in Ohio and across the country, this permanence removes a significant source of planning uncertainty. It opens the door to more strategic use of the deduction year over year.
The Basics: What Is QBID?
The QBID allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI) from a domestic pass-through entity. In other words, if a business owner earns $200,000 in qualified income from their LLC that is taxed as a partnership, S corporation, or disregarded entity, they may deduct $40,000 from their taxable income, subject to various limitations.
Until now, the deduction was scheduled to expire after 2025. OBBBA not only makes it permanent but also adds a new minimum deduction for small-scale entrepreneurs.
Key Changes Under OBBBA
While the structure of the deduction remains largely the same, OBBBA introduces one important update:
- Taxpayers with at least $1,000 of QBI are now guaranteed a minimum QBID of $400, indexed annually for inflation.
This change ensures that even modest-income business owners can benefit from the deduction, particularly those just starting out or operating part-time ventures.
All other thresholds, limits, and definitions applicable to QBID remain intact, including:
- The income thresholds that determine whether wage and property limits apply
- Limitations for specified service trades or businesses (SSTBs)
- The exclusion of investment income
Why This Matters for Planning
The most valuable part of this update isn’t structural; it’s certainty. Business owners no longer have to plan around an expiration date or worry that Congress might significantly reduce or eliminate the deduction any time soon.
That makes it easier to:
- Structure compensation for S corporation shareholders
- Manage income thresholds to preserve QBID eligibility
- Plan for retirement and succession while still factoring in the deduction
- Optimize entity structure for long-term tax efficiency
With permanence, QBID becomes a core feature of pass-through business planning, not just a temporary bonus.
Additional Considerations
Although the deduction is now permanent at the federal level, state conformity varies. Ohio currently does not conform to the QBID for state income tax purposes, meaning the deduction does not reduce Ohio taxable income.
In addition, while the deduction appears straightforward, the actual eligibility can be affected by how income is characterized, how wages are paid, and how assets are held. Taxpayers near the income threshold should continue working with their tax advisors to model eligibility accurately.
Taking the Long View
With the deduction here to stay, business owners should revisit their entity type, compensation strategy, and income forecasting through a long-term lens. This is particularly relevant for:
- Businesses transitioning to the next generation
- High-income owners navigating SSTB limitations
- Owners who previously engaged in last-minute income management to preserve eligibility
A permanent QBID supports more sustainable tax strategies, not just one-year workarounds.
How We Can Help
Our Business and Tax attorneys at Carlile Patchen & Murphy are ready to help you make the most of this newly permanent deduction. Whether you’re forming a business, restructuring an existing entity, or preparing for growth, we’ll work with you to ensure QBID plays a thoughtful and intentional role in your planning.
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