One Big Beautiful Bill and Your LLC: How the Permanent QBI Deduction Changes the Formation Math in 2026
The Section 199A deduction is now permanent. Formation companies are not making this connection. Here is what the One Big Beautiful Bill actually changes about how LLC owners should think about structure, and what to ask your CPA before acting.
By Jillian Dupree | statellcservice.com | Published April 2026 | Not legal advice
An LLC owner in Nashville got a call from her accountant in August 2025. "That deduction you have been taking every year? The 20% QBI? It is permanent now. The new tax bill made it permanent."
She had been treating the Section 199A deduction as a planning variable that might or might not be there. The fact that it was now permanent changed how she thought about her business structure decisions going forward.
This is the conversation that formation companies are not having in 2026. Tax software companies and CPA firms are covering the One Big Beautiful Bill. The connection between the permanent QBI extension and how you should structure your LLC has barely been written for non-accountants.
This article makes that connection. It is written for LLC owners, not tax professionals. Verify all of this with a CPA before making any tax election or formation decision.
What the One Big Beautiful Bill Did to the QBI Deduction
The One Big Beautiful Bill Act was signed on July 4, 2025. One of its provisions permanently extended the 20% Qualified Business Income deduction under Internal Revenue Code section 199A.
Before the OBBBA, the Section 199A deduction was scheduled to expire after December 31, 2025. Pass-through business owners, including LLC owners who file as sole proprietors, partnerships, or S corporations, had been using the deduction since 2018 but had no guarantee it would survive the 2025 sunset.
The OBBBA makes the deduction permanent. For 2026 and beyond, an eligible LLC owner can potentially deduct up to 20% of qualified business income, reducing the effective federal income tax rate on pass-through income.
The OBBBA also introduced a minimum deduction of $400 for taxpayers with at least $1,000 of qualifying QBI, starting in tax year 2026. The income thresholds above which W-2 wage and qualified property limitations begin were increased to $75,000 for single filers and $150,000 for married filing jointly, with these thresholds adjusted for inflation going forward.
What the QBI Deduction Actually Does for an LLC Owner
Section 199A allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through business. The deduction applies at the individual level, reducing taxable income before the individual income tax rate applies.
As an illustration only: an LLC owner with $200,000 of qualified business income who qualifies for the full 20% deduction could potentially reduce taxable income by $40,000. At a 37% marginal tax rate, that reduction could represent approximately $14,800 in federal income tax savings for that individual at that rate. Actual outcomes depend on your full income picture, deduction phase-ins, applicable specified service trade or business (SSTB) rules, and state tax treatment. Consult a CPA for the calculation specific to your situation.
Several important qualifications apply:
Specified Service Trades or Businesses (SSTBs). Section 199A limits the deduction for businesses in certain professional service categories, including health, law, accounting, financial services, and several others. For SSTBs, the deduction phases out above the income thresholds. If your LLC is in an SSTB category and your income is above the threshold, the deduction may be reduced or eliminated.
W-2 wage and qualified property limitations. Above the income thresholds, the deduction is limited by the greater of 50% of W-2 wages paid by the business or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. For a single-member LLC with no employees and minimal depreciable property, this can reduce or eliminate the deduction at higher income levels.
Net income requirement. The deduction is based on qualified business income, which is the net income from the pass-through business. A loss-producing LLC does not generate QBI for the deduction.
A CPA who specializes in pass-through taxation is the essential resource for determining your actual QBI deduction eligibility.
How This Changes LLC Formation Thinking
Before the OBBBA made QBI permanent, there was a reasonable argument for deferring some structure decisions because the deduction might not exist in a few years anyway. That argument no longer applies.
The permanence of the QBI deduction means that the structure decisions that affect how you claim the deduction are now long-term decisions, not temporary planning exercises.
The single-member LLC pass-through structure. A single-member LLC that is a disregarded entity for federal tax purposes flows its income and losses to the owner's Schedule C. The owner qualifies for the QBI deduction based on their net business income, subject to the SSTB and wage limitations described above. This is the simplest structure for many small LLC owners and is the default tax treatment for a single-member LLC.
The S-Corporation election and QBI. An LLC can elect S-Corporation tax treatment by filing Form 2553 with the IRS. Under an S-Corp election, the owner pays themselves a reasonable salary, which is subject to payroll taxes. The remaining profits flow through as pass-through income. The QBI deduction interacts with S-Corp elections in a way that requires CPA analysis: S-Corp distributions may qualify for the QBI deduction, but the structure of the salary vs. distribution split affects the outcome. Making this decision permanent because QBI is now permanent increases its importance.
Multi-member LLC and partnership treatment. A multi-member LLC is treated as a partnership for federal tax purposes by default. Partnership income flowing to members is generally eligible for the QBI deduction. The wage limitation above the income threshold applies at the partnership level. Larger multi-member LLCs with employees and payroll may be better positioned for the full deduction at higher income levels than single-member disregarded entities.
Formation State Choice and QBI: What Is Actually Relevant
The QBI deduction is a federal tax provision. Formation state choice does not directly change whether you qualify for the deduction or how much you can deduct. A Wyoming LLC, a Delaware LLC, and a Florida LLC all receive the same federal QBI deduction treatment.
What formation state choice does affect is the state-level tax treatment that applies alongside the federal deduction.
States with no personal income tax. Wyoming, Nevada, Texas, and Florida do not impose a personal income tax. LLC owners who are residents of these states pay federal income tax on pass-through income but no state income tax. The QBI deduction reduces the federal portion; the state portion is already zero.
States with high personal income tax. California (13.3% top rate), New York (10.9%), New Jersey (10.75%), and others impose high state income taxes on pass-through income. The federal QBI deduction reduces federal tax; the state income tax is a separate, additional burden that the QBI deduction does not reduce.
The one scenario where formation state affects state income tax: if you actually relocate. A business owner who moves from California to Texas, where they genuinely reside and operate their business, eliminates the California income tax on that income. But it flows from the relocation, not from the formation state choice.
What to Ask Your CPA About QBI in 2026
If you are meeting with a CPA for 2026 tax planning, these are the questions worth asking in the context of the OBBBA QBI changes:
- Does my LLC qualify for the full 20% QBI deduction, or does my business fall in an SSTB category?
- Am I above the income threshold where the W-2 wage and qualified property limitation applies?
- Should I consider an S-Corp election, and does the permanent QBI extension change the cost-benefit analysis for that election?
- If I am a high-income professional in an SSTB, what structure changes, if any, can reduce the phase-out effect on my QBI deduction?
- Does the $400 minimum QBI deduction for smaller businesses change anything about how my business income should be structured?
The CPA conversation is the place for these questions. Formation companies help you structure the entity. CPAs help you optimize how the entity is taxed. The QBI deduction lives in that second conversation.
This article is educational content and does not constitute legal or tax advice. We provide formation and registered agent services, not legal, accounting, or tax services. The One Big Beautiful Bill Act provisions described in this article reflect publicly available information as of April 2026. Tax law is complex and individual circumstances vary significantly. Consult a licensed CPA or tax professional for advice specific to your income, business structure, and tax situation before making any entity structure or tax election decisions. Sources: One Big Beautiful Bill Act (H.R. 1, signed July 4, 2025), as publicly reported; Internal Revenue Code section 199A (Qualified Business Income Deduction); IRS guidance on Section 199A (irs.gov); Treasury Regulations sections 1.199A-1 through 1.199A-6. This article reflects publicly available legislative summaries and IRS guidance as of April 2026. Verify current IRS guidance and your specific eligibility with a licensed CPA.