The Qualified Business Income (QBI) deduction allows many small business owners to deduct up to 20% of their qualified business income. For 2026, the deduction remains in place and continues to be one of the most valuable tax benefits available to pass-through businesses.
What Is the QBI Deduction?
The QBI deduction (Section 199A) lets eligible owners of sole proprietorships, partnerships, LLCs, and S corporations deduct up to 20% of qualified business income on their personal tax return.
This deduction reduces federal income tax. It does not reduce self-employment tax.
2026 Income Thresholds
- Single / Head of Household: Full deduction if taxable income is $201,750 or less. Limitations phase in up to $276,750.
- Married Filing Jointly: Full deduction if taxable income is $403,500 or less. Limitations phase in up to $553,500.
Below the threshold, the calculation is straightforward: 20% of qualified business income (subject to an overall taxable income limit).
Who Qualifies?
Common qualifying businesses include:
- Sole proprietors
- LLC members
- Partnership owners
- S-Corp shareholders
Specified service businesses (such as certain professional services) may face additional limits once income exceeds the thresholds above.
Key Planning Tips for Arizona Business Owners
- Review your projected 2026 taxable income before year-end.
- Consider retirement contributions to stay below the phase-in thresholds when possible.
- S-Corp owners should review reasonable compensation, since wages affect QBI calculations at higher income levels.
- Keep clean books so qualified business income is calculated correctly.
Need Help Claiming the QBI Deduction?
Vault Financials helps Arizona small business owners determine eligibility, calculate the deduction correctly, and plan ahead so they don’t leave money on the table.
Contact us today to review your QBI situation.
Disclaimer: This article is for educational purposes only. Tax rules can change and individual situations vary. Consult a qualified tax professional for advice specific to your situation.