Section 199A Is Now Permanent What the OBBBA Means for Business Owners and Investors

Section 199A Remains a Core Tax Planning Tool

Internal Revenue Code Section 199A allows many business owners and investors to deduct up to twenty percent of eligible income, including qualified business income from an active trade or business without regard to organizational type, plus certain qualified REIT dividends and publicly traded partnership income. The deduction can apply to sole proprietors and to owners of passthrough entities such as S corporations and partnerships, as long as the income meets the Section 199A requirements and is properly reported.

Since its introduction in 2017, the deduction has been subject to technical limits tied to taxable income, W 2 wages, qualified property, and specified service trade or business rules. The One Big Beautiful Bill Act enacted on July 4 2025 did not remove these limits, but it changed the long term planning landscape by making Section 199A permanent and adding a statutory minimum deduction for qualifying active owners beginning in tax years starting after December 31 2025.

Schedule a Consultation to evaluate how these rules apply to your operating business income or your K-1 investment income.

Section 199A Applies Regardless of Entity Type

Section 199A is available to sole proprietors, S corporation shareholders, partners in partnerships, LLC members taxed as partnerships, and certain trusts and estates. Entity form does not determine eligibility. What matters is whether the taxpayer has qualified business income from a qualified trade or business, subject to the statutory exclusions and limitations.

Even when eligibility is available, the mechanics differ by structure. S corporations exclude reasonable compensation paid to shareholder employees from qualified business income. Partnerships exclude guaranteed payments. Sole proprietors do not have a reasonable compensation adjustment, but net income must still reflect ordinary and necessary business expenses.

Specified Service Trade or Business Rules

Certain service based businesses are classified as specified service trades or businesses, including health, law, accounting, consulting, financial services, and similar fields. These businesses are not automatically excluded from the deduction. Instead, eligibility is reduced and may be eliminated based on taxable income.

For tax year 2025, the specified service limitation phases out once taxable income exceeds the applicable threshold and is fully disallowed once income exceeds the upper limit.

• Married Filing Jointly: Phaseout begins at $394,600 and ends at $494,600
• Single or Head of Household: Phaseout begins at $197,300 and ends at $247,300
• Married Filing Separately: Phaseout begins at $197,300 and ends at $247,300

Within the phaseout range, the deduction is partially reduced and the wage and property limitations are applied on a phased in basis. Above the upper limit, specified service trade or business income does not qualify for the deduction.

What Changes After 2025

The One Big Beautiful Bill Act permanently extended Section 199A and added a minimum qualified business income deduction for qualifying active owners beginning in tax years starting after December 31 2025. This change can be especially meaningful for owners with low wages, limited qualified property, or uneven income.

The law also modifies how inflation adjustments apply beginning after 2026. As a result, final 2026 thresholds for specified service businesses depend on updated Treasury and IRS guidance and the annual inflation procedure.

Why This Matters for Planning

With Section 199A now permanent, planning decisions around entity structure, compensation levels, wage reporting, and basis tracking can create recurring tax outcomes. The deduction is a structural feature of passthrough taxation rather than a temporary benefit.

See current federal rates on the Economic Dashboard .