Summary
This post explains that the One Big Beautiful Bill Act made the Section 199A Qualified Business Income deduction permanent starting with the 2026 tax year, removing its prior expiration date and widening certain phase-in income ranges. It explains why permanence changes long-term planning for LLC owners and how the deduction connects to entity structure and tax elections, a point where legal and tax planning intersect. Closes with a call to book a Risk-Free Strategy Session to review entity structure.
By: Jordan Gerheim, CEO – Outside Chief Legal LLC
For years, the Qualified Business Income deduction came with an expiration date attached, which made it hard for LLC owners to plan ahead with much confidence. That changed when the One Big Beautiful Bill Act, signed into law in July 2025, made the deduction permanent for tax years beginning after December 31, 2025. For LLC owners, that permanence is worth understanding, even though the deduction itself is not new.
What the QBI Deduction Actually Does
The Qualified Business Income deduction, also known as the Section 199A deduction, allows owners of pass-through entities, including LLCs taxed as sole proprietorships, partnerships, or S corporations, to deduct up to 20 percent of their qualified business income on their individual tax return. It was created under the 2017 Tax Cuts and Jobs Act as a way to give pass-through business owners a tax benefit roughly comparable to the corporate tax rate cut that came with the same legislation.
The deduction was originally scheduled to expire at the end of 2025. For years, LLC owners relying on it had to do long-term planning against that sunset date. That uncertainty is now gone.
What Changed and What Did Not
The core deduction rate stayed at 20 percent. What changed is that the sunset date is gone, and the deduction now applies to tax years beginning after December 31, 2025, without a built-in expiration.
The legislation also widened the income phase-in ranges that apply to certain limitations, including the wage and property tests and the restrictions on specified service trades or businesses such as law, accounting, health, and consulting. The phase-in range increased from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers, with those thresholds indexed for inflation going forward. There is also a new inflation-adjusted minimum deduction of $400 for certain taxpayers with at least $1,000 of qualified business income, even if the regular calculation would otherwise produce a smaller amount.
Why Permanence Matters
A temporary tax benefit changes how a business plans. An LLC owner deciding whether to reinvest profits, take a larger distribution, or restructure entirely has been making that decision for years with an asterisk attached: this benefit might not exist next year. That kind of uncertainty discourages the long-term planning that actually helps a business grow.
With the deduction now permanent, decisions about entity structure, compensation, and reinvestment can be made against a more stable set of rules instead of a moving target. That does not mean every LLC is automatically set up to capture the full benefit. It means the planning conversation can now assume the deduction will still be there in five years, which changes what kind of planning makes sense.
What This Means for LLC Structure
The QBI deduction interacts with how an LLC is taxed, whether as a disregarded entity, a partnership, or an S corporation, and with how income is characterized between wages and distributions for LLCs taxed as S corporations. Getting that structure right can affect how much of the deduction an owner actually captures.
This is where the legal and tax sides of running an LLC meet. The entity structure is a legal decision, made through the operating agreement and any elections filed with the IRS, but the consequences of that structure show up on the tax return every year. An LLC that has not revisited its tax election or ownership structure since formation may be leaving planning opportunities on the table now that the deduction is a permanent part of the landscape instead of a temporary one.
A Practical Next Step
The QBI deduction itself is a tax issue, and the specific numbers depend on your income, your industry, and how your business is structured, which is why this deserves a direct conversation with your CPA or tax advisor. Where Outside Chief Legal fits in is the legal side of that picture: making sure your LLC’s operating agreement, ownership structure, and any tax elections actually reflect the plan you and your accountant decide on.
If your LLC’s structure has not been reviewed since formation, or your ownership situation has changed since then, a Risk-Free Strategy Session is a good place to start that conversation.
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General information, not legal advice.
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Outside Chief Legal LLC is a modern, forward-thinking law firm serving as fractional chief legal officers and outside general counsel for businesses and their owners. With over 200 years of combined litigation, in-house, general counsel, and administrative legal experience, the firm delivers approachable, comprehensive counsel that blends legal expertise with practical business insight to help clients navigate ownership complexities with confidence. OCL is a trusted partner for founders, business owners, and leadership teams nationwide. Learn more about our firm, meet our team, or schedule a Risk-Free Strategy Session to talk with an attorney about how we can help your company.
