Tax
Section 199A
The Internal Revenue Code section behind the QBI deduction — up to 20% off qualified passthrough business income, made permanent by OBBBA.
Section 199A is the statute; the QBI deduction is what it delivers. Enacted in the 2017 Tax Cuts and Jobs Act and originally scheduled to expire after 2025, it was made permanent by the One Big Beautiful Bill Act (2025), removing the sunset that had loomed over passthrough owners' planning.
The mechanics live in the section's limitations: above income thresholds (adjusted annually), the deduction is capped by W-2 wages paid and depreciable property held, and owners of 'specified service trades or businesses' (SSTBs — health, law, accounting, consulting, financial services) phase out of the deduction entirely.
Because the deduction depends on entity-level facts — W-2 wages, reasonable compensation, aggregation elections across related businesses — it's one of the main reasons entity structure and owner compensation deserve an annual review rather than a set-and-forget decision.
Common pitfalls
- Setting S-corp salary without modeling the 199A effect — wages reduce QBI but also support the W-2 wage limitation; the optimum is a calculation, not a guess
- Missing aggregation elections that let related businesses share wage and property limits
- Assuming rental real estate automatically qualifies — it needs to rise to a trade or business or fit the safe harbor
Related service
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