If you own a pass-through business, there’s an important piece of good news as you begin your 2026 year-end tax planning:
The Qualified Business Income deduction isn’t going away.
The QBI deduction—also known as the Section 199A deduction—was originally scheduled to expire after 2025. But the 2025 tax legislation made the deduction permanent for qualified active trades or businesses and made other changes to the rules beginning in 2026.
For eligible business owners, the deduction can potentially be worth up to 20% of qualified business income.
That’s significant.
But “up to 20%” doesn’t mean every business owner automatically gets a deduction equal to 20% of their profits. Your taxable income, type of business, wages, business structure, and other factors can affect how much you’re actually able to claim.
And for our two audiences—law firm owners and franchise restaurant owners—the rules can work quite differently.
That’s why October is an excellent time to take a closer look.
First, What Exactly Is the QBI Deduction?
The QBI deduction was created to provide certain owners of pass-through businesses with a deduction based on qualified business income.
Potentially eligible taxpayers can include owners of:
- Sole proprietorships
- Partnerships
- S corporations
- Certain trusts and estates
C corporations don’t qualify for the deduction, and wages you earn as an employee aren’t considered QBI.
The deduction can generally be as much as 20% of qualified business income, although additional limitations apply. Your total QBI deduction is also subject to a taxable-income limitation.
That’s where things start getting more complicated.
What’s Different for 2026?
One of the biggest changes is simple but important:
The QBI deduction is now permanent under current federal law.
The 2025 legislation also expanded the phase-in ranges used when certain QBI limitations apply.
For tax years beginning in 2026, the IRS lists the QBI threshold amounts as:
- $403,500 for married taxpayers filing jointly
- $201,775 for married taxpayers filing separately
- $201,750 for other returns
The phase-in ranges extend to $553,500 for married couples filing jointly, $276,775 for married filing separately, and $276,750 for other returns.
The new law also introduced a minimum QBI deduction of $400 for certain taxpayers with at least $1,000 of qualified business income, effective for tax years beginning after December 31, 2025.
Those changes make QBI worth revisiting as part of your 2026 year-end tax planning.
Why Law Firm Owners Need to Pay Particular Attention
Here’s where the distinction between our two audiences becomes especially important.
For QBI purposes, the IRS considers the practice of law a “specified service trade or business,” commonly called an SSTB.
That doesn’t mean attorneys can’t claim the QBI deduction.
It means taxable income becomes especially important.
When taxable income is within the applicable phase-in range, the amount of QBI from an SSTB that can be taken into account can become limited. Above the applicable threshold plus the phase-in range, QBI from the SSTB generally isn’t taken into account for the deduction.
So imagine two law firm owners with otherwise similar firms.
Their businesses could generate similar profits, but differences in their overall taxable income could produce very different QBI results.
That’s why attorneys shouldn’t simply look at firm profit and assume:
“I’ll deduct 20% of that.”
The calculation may be more complicated.
What About Franchise Restaurant Owners?
A typical restaurant operation isn’t automatically classified as an SSTB simply because it’s a service-oriented business.
That can make the QBI calculation different for franchise restaurant owners.
However, that doesn’t mean every restaurant owner automatically receives the full 20% deduction either.
Once taxable income exceeds applicable thresholds, limitations involving factors such as W-2 wages and the unadjusted basis immediately after acquisition (UBIA) of qualified property may affect the calculation.
For a franchise restaurant, those factors can be particularly relevant.
Restaurants tend to have significant payroll and may own substantial business property and equipment.
That means accurate payroll, bookkeeping, and fixed-asset records can become an important part of QBI planning.
What Should Business Owners Review Before Year-End?
You don’t need to calculate your own Section 199A deduction in October.
But you should make sure your tax professional has accurate information to work with.
Start with these four areas.
1. Year-to-Date Business Profit
Review your current Profit & Loss Statement.
Ask:
- Is profit higher or lower than expected?
- Are all expenses properly recorded?
- Are bank and credit card accounts reconciled?
- Are there unusual transactions that need review?
An inaccurate P&L can lead to an inaccurate tax projection.
2. Your Projected Taxable Income
QBI limitations are tied to taxable income—not simply the revenue of your business.
That means your broader tax picture matters.
If your income is approaching or entering an applicable threshold range, year-end planning may become particularly valuable.
This is especially important for attorneys because of the SSTB rules.
3. W-2 Wages and Business Property
For taxpayers above certain income levels, W-2 wages paid by the business and the UBIA of qualified property may factor into QBI limitations.
Franchise restaurant owners should make sure payroll records are accurate and significant business assets have been properly recorded.
Law firms should do the same, although SSTB limitations may create additional considerations.
4. Other Year-End Tax Decisions
QBI shouldn’t be considered in isolation.
Business owners may also be evaluating:
- Retirement contributions
- Equipment purchases
- Bonus depreciation
- Section 179 deductions
- Owner compensation
- Other deductible expenses
One decision can affect another.
For example, reducing taxable income through one strategy could potentially change how QBI limitations apply.
That’s why year-end tax planning works best when you look at the whole picture, rather than chasing individual deductions.
Don’t Let the Tax Tail Wag the Business Dog
There’s an important point to remember with QBI planning—or any tax strategy:
A tax benefit shouldn’t be the only reason you make a business decision.
Don’t hire someone you don’t need simply because wages may factor into a calculation.
Don’t buy unnecessary equipment just because a deduction is available.
And don’t make major financial decisions based on a simplified tax tip you saw online.
Instead, start with what makes sense for the business.
Then work with your financial and tax professionals to understand how those decisions affect your tax position.
That’s the difference between proactive tax planning and simply chasing deductions.
Why October Is the Right Time to Have This Conversation
By October, you have roughly nine months of financial information available.
That’s enough to build a much more realistic projection of your 2026 income than you had at the beginning of the year.
And unlike December, there’s still time to act.
You can review:
✔ Year-to-date profitability
✔ Projected taxable income
✔ Payroll and W-2 wages
✔ Business assets
✔ Retirement contributions
✔ Planned year-end purchases
✔ Other potential deductions
If adjustments make sense, you still have time to coordinate them thoughtfully.
Making the QBI deduction permanent gives eligible business owners an important tax-planning opportunity beyond 2026.
But the rules aren’t one-size-fits-all.
For law firm owners, the SSTB rules make taxable-income thresholds especially important.
For franchise restaurant owners, wages, business property, taxable income, and business structure can all affect the calculation.
The key is not to wait until your tax return is being prepared to find out where you stand.
Use October to review your numbers, project the rest of the year, and understand how QBI fits into your overall tax strategy.
Could You Be Leaving QBI Tax Savings on the Table?
If you’re unsure how the QBI deduction could affect your 2026 tax picture, now is a great time to take a closer look.
Contact us today to schedule a year-end bookkeeping and tax-planning review. We can help you get your financial records current, review your year-to-date numbers, and make sure you have the information needed to work with your tax professional on a proactive year-end strategy.
The QBI deduction may be here to stay—but getting the most from it still starts with understanding your numbers.