The QBI Deduction: A Florida Business Owner's Guide
By Timothy LeGendre, CPA · Florida License #AC62625 · Published 2026-07-16
A Florida CPA's guide to the Section 199A QBI deduction, how the 20% pass-through deduction works, the 2026 income limits, and the wage rule.
The Short Answer
The qualified business income (QBI) deduction, Section 199A of the tax code, lets most pass-through business owners deduct up to 20% of their business profit before figuring their federal income tax. If your 2026 taxable income is at or below $201,750 single or $403,500 married filing jointly, the math is simple: 20% off the top, whether you itemize or take the standard deduction. Above those thresholds, two limits kick in, one tied to the W-2 wages your business pays, and one that phases out the deduction entirely for certain service businesses. The 2025 tax law made this deduction permanent, so it is no longer the expiring provision it was for its first eight years. For a Florida owner, it is a purely federal break, but it is one of the largest still on the table, and it rewards clean books, because the deduction is only as accurate as the profit figure it is built on.
What the QBI deduction actually is
The qualified business income deduction lets you subtract up to 20% of your business's net profit from your taxable income. It was created in the 2017 tax law to give pass-through businesses, sole proprietorships, partnerships, and S-Corporations, a break roughly parallel to the corporate rate cut that C-Corporations got. If your business nets $100,000 and you qualify for the full deduction, you deduct $20,000 and pay federal income tax as if you earned $80,000.
Two features make it unusually valuable. First, it is a deduction you take whether or not you itemize. It comes off your income after the standard deduction, not instead of it. Second, you don't pay for it with anything: unlike a retirement contribution or an equipment purchase, claiming QBI costs you no cash. It is close to free money for the businesses that qualify, which is exactly why Congress wrapped it in limits for higher earners.
One thing it does not do: it reduces income tax only, never self-employment tax. A sole proprietor still pays the full 15.3% self-employment tax on net profit; the QBI deduction shrinks the income-tax base sitting on top of that. That is a common point of confusion, the deduction is generous, but it is not a payroll-tax break.
What counts as qualified business income
QBI is the net income from your active U.S. trade or business, revenue minus the ordinary deductions that produced it. For most of my clients that's simply the bottom line of a Schedule C, or the ordinary business income on a partnership K-1 or an S-Corp K-1. But the code deliberately carves several things out of QBI, and the carve-outs are where owners miscalculate:
Reasonable compensation from your S-Corp
The W-2 salary you pay yourself as an S-Corp owner is wage income, not QBI. Paying yourself more salary shrinks the QBI figure, but that same wage can help you clear the wage limitation above the income thresholds.
Guaranteed payments to partners
Fixed payments a partnership makes to a partner for services are carved out of QBI the same way an S-Corp salary is.
Capital gains and losses
Gains on the sale of business or investment property are excluded, as are most dividends and interest income not tied to the operating business.
Income earned outside the U.S.
Only income effectively connected with a U.S. trade or business counts toward QBI.
The S-Corp carve-out is the one that trips people up most, because it cuts against the reasonable-salary instinct. When you pay yourself a W-2 salary from your S-Corp, that salary is not QBI, so a higher salary lowers the profit that qualifies for the 20% deduction. Below the income thresholds, that pushes toward a lower salary. Above them, it can flip, because your W-2 wages are exactly what the wage limitation measures. I cover the trade-off in depth in my S-Corp reasonable salary guide, the salary number and the QBI deduction have to be solved together, not one at a time.
The 2026 income thresholds, the fork in the road
Everything about how the QBI deduction works for you turns on one number: your taxable income (not your business profit. Your whole return's taxable income, before the QBI deduction itself). Below the threshold for your filing status, you get the clean 20% with no further tests. Inside the phase-in range above it, extra limits gradually take hold. Above the top of the range, they apply in full. For tax year 2026, per IRS Rev. Proc. 2025-32:
| Filing status | Threshold (full 20% below this) | Limits fully apply above |
|---|---|---|
| Single / head of household | $201,750 | $276,750 |
| Married filing jointly | $403,500 | $553,500 |
| Married filing separately | $201,775 | $276,775 |
So a married contractor with $350,000 of taxable income in 2026 is under the $403,500 threshold and takes the full 20%, no wage test, no service-business test, regardless of what kind of business it is. Push that same couple to $500,000 and they land inside the phase-in range, where the deduction starts getting measured against wages (for a regular business) or squeezed toward zero (for a service business). The threshold is the whole game; a good chunk of year-end planning is simply keeping taxable income on the favorable side of it where that's realistic.
Above the threshold: the W-2 wage and property limit
Once your taxable income clears the threshold, a non-service business's QBI deduction is capped at the greater of two figures:
- •50% of the W-2 wages the business paid, or
- •25% of W-2 wages plus 2.5% of the unadjusted basis (the original cost) of qualified depreciable property the business holds.
The second formula exists for capital-heavy businesses, real estate, equipment-intensive trades, that carry a lot of property but few employees. Whichever number is larger becomes your ceiling: your deduction is the lesser of 20% of QBI or that wage/property cap. A high-earning consultant paying no W-2 wages and owning no equipment has a cap of essentially zero and loses the deduction entirely; a manufacturer with a real payroll clears it easily.
This is where the S-Corp salary decision reverses for higher earners. Because the salary you pay yourself is W-2 wages, a bigger salary raises the 50%-of-wages ceiling, sometimes enough to rescue a deduction that a rock-bottom salary would have forfeited. It is a genuine optimization, and it runs opposite to the payroll-tax instinct. The right salary for a $600,000-profit S-Corp is rarely the lowest defensible one; it's the number that balances self-employment tax against the QBI wage limit, and you can't eyeball it. My tax calculators are a starting point, but this is the kind of figure I'd rather model against your actual numbers.
Not sure you're getting the full 20%?
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Service businesses and the phase-out
The code singles out a category called a specified service trade or business, an SSTB, and treats it more harshly. If your taxable income is above the top of the phase-in range ($276,750 single or $553,500 married filing jointly for 2026), an SSTB gets no QBI deduction at all. Inside the range, the deduction phases out proportionally. Below the threshold, the SSTB label doesn't matter, a service business owner under $201,750 single gets the full 20% like anyone else.
The SSTB list covers businesses in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and investing or investment management, plus a catch-all for any business whose principal asset is "the reputation or skill of one or more of its owners or employees." That last clause is narrower than it sounds; the IRS reads it to mean things like celebrity endorsement and licensing income, not simply any business where the owner is good at the job.
Two points worth knowing: architecture and engineering were deliberately left off the SSTB list, so those firms keep the deduction at any income. And for owners near the line, the reputation-or-skill catch-all is a frequent source of over-worry. Most trades, contractors, and product businesses are plainly not SSTBs. If you're a high-earning professional in one of the listed fields, though, the SSTB rule is the single biggest thing standing between you and this deduction, and it deserves real planning rather than a shrug.
What the 2025 tax law changed
The QBI deduction was originally set to expire at the end of 2025. The 2025 tax law, the One Big Beautiful Bill Act, made it permanent, which is the most important change for planning: you can now build a multi-year strategy around it instead of bracing for it to vanish. For pass-through owners that removes a real cloud of uncertainty that had hung over the deduction since it was enacted.
Two smaller changes take effect for tax years beginning in 2026. The phase-in range widened, from $50,000 to $75,000 for single filers, and from $100,000 to $150,000 for joint filers, which is why the 2026 range runs from $201,750 up to $276,750 (single) and $403,500 up to $553,500 (joint). A wider range means the wage limit and the SSTB phase-out take hold more gradually, which softens the cliff for owners who land just over the threshold.
The law also added a minimum deduction of $400 for a taxpayer with at least $1,000 of qualified business income from an actively conducted trade or business, with both figures indexed for inflation after 2026. It's a modest floor aimed at small-scale active businesses. Most owners I work with are far above it and take the full 20%, but it guarantees a baseline deduction for someone with a genuine side business and thin margins.
How this lands for a Florida owner
Because Florida has no personal income tax, the QBI deduction is a purely federal calculation for the sole proprietors, single-member LLCs, partnerships, and S-Corp owners I work with. There is no separate state deduction to coordinate and no Florida return where it shows up. That actually makes the planning cleaner than it is for an owner in a state with its own income tax, who has to check whether the state conforms to Section 199A (many don't).
The catch for Florida owners is the opposite one: because there's no state income tax softening the blow, every dollar of federal deduction you miss is a dollar you feel in full. There's no state refund to partially make you whole. That raises the stakes on getting the deduction right, the taxable-income threshold, the S-Corp salary, the SSTB classification, because in Florida the federal number is the whole number. It also raises the stakes on the profit figure underneath it. The QBI deduction is 20% of a number your books produce; if the books are wrong, the deduction is wrong, and a deduction this size is not one to build on a guess.
How I handle this for clients
For an owner comfortably under the income thresholds, the QBI deduction mostly takes care of itself, the 20% flows through and the job is making sure the profit figure it's built on is right. Where it gets interesting is near and above the thresholds, where the salary decision, the entity choice, retirement contributions, and taxable-income timing all pull on each other. Lowering taxable income under the threshold with a larger retirement contribution can be worth far more than the contribution's own deduction, because it unlocks the full 20% on everything below the line.
Because I keep the books and prepare the return, I'm not discovering your QBI number in April. I watch profit build through the year and can act on it while there's still time to change the outcome, whether that's tuning an S-Corp salary, timing income, or funding a plan. If you're weighing the S-Corp election in the first place, my Florida S-Corp guide walks through how the QBI deduction factors into that decision alongside the self-employment-tax savings.
If you want a straight answer on whether you're capturing the full deduction you're entitled to, I'm in Mount Dora and I work with businesses across Lake County, Seminole County, and remotely throughout Florida. The first conversation is a 30-minute discovery call, and the figures in this guide are current as of the 2026 tax year.
Frequently asked questions
- Who qualifies for the QBI deduction?
- Owners of pass-through businesses, sole proprietorships, single-member LLCs, partnerships, and S-Corporations, plus some trusts and estates, can qualify, along with holders of qualified REIT dividends and publicly traded partnership income. C-Corporations do not qualify, and ordinary W-2 wage income is not qualified business income. You take the deduction whether you itemize or claim the standard deduction. Below the income thresholds anyone with qualifying business profit gets it; above them, wage and service-business tests decide how much survives.
- How much is the QBI deduction?
- The deduction is up to 20% of your qualified business income. It is then capped at 20% of your taxable income minus net capital gain, so it can never exceed a fifth of your income after the business deduction is set aside. For an owner under the income thresholds the calculation is straightforward 20% of business profit, while above the thresholds the wage/property limit or the service-business phase-out can reduce it below the full 20%.
- What are the 2026 income limits for the QBI deduction?
- For tax year 2026, per IRS Rev. Proc. 2025-32, the taxable-income threshold is $201,750 for single filers and $403,500 for married filing jointly (with $201,775 for married filing separately). At or below that threshold you get the full 20% with no further tests. The extra limits phase in over the next $75,000 of income for single filers and $150,000 for joint filers, so they apply in full above $276,750 single and $553,500 joint. These figures are inflation-adjusted each year.
- What is a specified service trade or business (SSTB)?
- An SSTB is a business the tax code singles out, health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, and investing or investment management, plus any business whose principal asset is the reputation or skill of its owners. Above the top of the income phase-in range, an SSTB gets no QBI deduction at all; inside the range it phases out. Below the income threshold, the SSTB label does not matter and the owner gets the full 20%. Architecture and engineering were deliberately excluded from the list.
- How does my S-Corp salary affect my QBI deduction?
- The W-2 salary you pay yourself from an S-Corp is not qualified business income, so a higher salary lowers the profit eligible for the 20% deduction. Below the income thresholds that argues for a lower reasonable salary. Above the thresholds it can reverse: because the deduction is then capped at 50% of W-2 wages (or 25% of wages plus 2.5% of property), a higher salary raises that ceiling and can rescue a deduction a rock-bottom salary would forfeit. The salary and the QBI deduction have to be optimized together.
- Did the One Big Beautiful Bill change the QBI deduction?
- Yes. The 2025 tax law made the Section 199A deduction permanent. It had been scheduled to expire after 2025. Effective for tax years beginning in 2026 it also widened the phase-in range (to $75,000 for single filers and $150,000 for joint filers, up from $50,000 and $100,000), which softens the limits for owners just over the threshold, and it added a minimum deduction of $400 for a taxpayer with at least $1,000 of qualified business income from an active business, indexed for inflation after 2026.