Own a small business? This 2026 tax deduction could reduce your taxable income by up to 20%

Small business tax break 2026: Small-business owners could get a valuable tax break in 2026 through the qualified business income deduction. Eligible pass-through businesses may deduct up to 20% of qualified income, but income thresholds, phase-in rules and additional limits for certain service businesses can affect how much taxpayers can claim.

Small business tax break 2026: If you own a pass-through business or are self-employed, the qualified business income deduction could affect your 2026 tax return. The deduction can be worth up to 20% of qualified business income, while income thresholds and other rules change for the new tax year.

The QBI deduction is sticking aroundThe qualified business income deduction, or Section 199A deduction, is available to eligible owners of pass-through businesses.

That includes sole proprietors, partnerships, S corporations and certain LLCs.

The deduction was originally set to apply through the 2025 tax year. The One Big Beautiful Bill made it permanent beginning in 2026, according to TurboTax.

For eligible taxpayers, the deduction can be up to 20% of qualified business income.

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The income thresholds are higher in 2026How the deduction applies depends in part on taxable income and filing status.

For single taxpayers and heads of household, the full-deduction threshold is $201,750 in 2026. The phase-out ends at $276,750.

For married couples filing jointly and qualifying surviving spouses, the full-deduction threshold is $403,500. The phase-out ends at $553,500.

For married individuals filing separately, the full-deduction threshold is $201,775, with the phase-out ending at $276,775.

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These are the income thresholds for the QBI deduction for 2026.

2026 tax deduction for small business owners

The QBI phase-in range is widerThe phase-in range is also changing in 2026.

TurboTax says the range has increased from $100,000 to $150,000 for married couples filing jointly. For other taxpayers, it has increased from $50,000 to $75,000.

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Within the phase-in range, the wage and property limitations are gradually phased in.

The rules therefore depend on both taxable income and filing status when determining how the deduction applies.

Service businesses face additional limitsThe QBI deduction has separate rules for specified service trades or businesses, commonly called SSTBs.

TurboTax lists accounting, consulting, financial services, health, investment management, law, performing arts and certain brokerage and trading activities among the fields that can fall into this category.

According to Clark.com, law and medicine are examples of specified service professions subject to the QBI limitations.

For taxpayers whose taxable income is above the phase-in range, TurboTax says income from an SSTB cannot be used to claim the QBI deduction. Taxpayers within the phase-in range can potentially claim the deduction, but additional limitations apply.

A new $400 minimum deductionThe 2026 rules also introduce a minimum QBI deduction of $400 for certain taxpayers.

TurboTax says qualified taxpayers can receive the minimum deduction if they have at least $1,000 of QBI from one or more businesses in which they materially participate.

Beginning in 2027, both the $400 minimum deduction and the $1,000 QBI amount will be adjusted annually for inflation.

You don't have to itemize to claim QBITaxpayers do not have to itemize deductions to claim the QBI deduction.

TurboTax says the deduction can be claimed whether a taxpayer takes the standard deduction or itemizes. The QBI deduction reduces taxable income.

There is also an overall limit. Generally, the deduction cannot exceed 20% of taxable income before the QBI deduction, reduced by net capital gain.

For 2026, the QBI deduction is permanent, the income thresholds and phase-in ranges have changed, and certain qualifying taxpayers can receive a new $400 minimum deduction. Specified service businesses remain subject to additional limitations at higher income levels.