The 2017 Tax Custs and Jobs Act provided many benefits to taxpayers. One of those benefits that was really significant to small business QBI (Qualified Business Income Deduction) The first year it was effective, the law was confusing and the IRS said to us practitioners, “Good Luck” It was confusing. Then they issued their regulations. Basically, you receive a 20% taxable income deduction on your net income, with all sorts of factors that can affect it.
If a business makes $200,000, they will receive a $40,000 deduction on the their tax return. Beginning in 2026 that deduction disappears, so in 2026 rather than $160,000 taxable income it would be $200,000 for a married tax payer, that would be $9,600 in more taxes at the current rate. However, as I posted in previous post the rates are going up too.
I believe most taxpayers are unaware of this deduction (almost no one asks about it). When it expires, tax preparers will be explaining a lot to taxpayers why their taxes went up so much. Goodbye QBI, Get ready to pay more in taxes.