The QBI Deduction Is Gone. Here's Your 2026 Tax Playbook.
You're running a successful business — $480,000 a year in revenue, maybe more. For the last several years, your CPA has been taking a 20% deduction on your business income that saved you somewhere around $25,000 to $40,000 every April. You probably didn't even think about it. It was just baked into your return.
That deduction is gone.
The 20% Qualified Business Income deduction — Section 199A, the one that let business owners, franchise owners, and real estate investors deduct a fifth of their business income — expired with the Tax Cuts and Jobs Act at the end of 2025. We're now six months into 2026, and if you haven't looked at what that means for your tax bill, you're about to be unpleasantly surprised next April.
Let's talk about what changed, by how much, and what you can do about it right now.
The Deduction That Disappeared
The QBI deduction was simple in concept: if you ran a pass-through business — an S-Corp, an LLC, a sole proprietorship, a partnership — you could deduct up to 20% of your qualified business income before calculating your tax. For a business owner clearing $400,000 in profit, that was an $80,000 deduction. At the old 37% top rate, that saved roughly $29,600 in federal tax.
Every year. Just for existing in the right entity structure.
For real estate investors with significant rental activity, the same deduction applied to their rental income. For franchise owners, same deal. For doctors and attorneys running their own practices through an S-Corp? Same.
It was the single biggest tax break most business owners never thought about — because their CPA just quietly applied it.
Now it's gone. And unlike some provisions that phase out gradually, this one didn't. December 31, 2025 was the cutoff. January 1, 2026, the deduction stopped existing.
What 2026 Actually Looks Like for High Earners
The QBI deduction wasn't the only thing that changed when TCJA expired. Here's what the 2026 tax landscape looks like for someone earning $500,000 or more:
The top rate is back to 39.6%. For the last eight years, the highest marginal rate was 37%. It's now 39.6% — a 2.6 percentage point increase on every dollar above roughly $609,000 (married filing jointly). For a surgeon earning $850,000, that's about $6,200 in additional tax just from the rate change on their top-end income.
The standard deduction was cut roughly in half. It dropped from about $29,200 to around $15,000 (adjusted for inflation since 2017 levels). That's $14,000 less tax-free income — which means more of your income is exposed to tax. At the 39.6% rate, that's about $5,500 more in tax.
Personal exemptions are back. This partially offsets the standard deduction cut, but the net effect for high earners is still negative — especially when combined with the loss of QBI.
Add it up for a business owner earning $500,000 through their S-Corp: the QBI loss alone costs roughly $30,000 in additional tax. Combined with the rate increase and deduction changes, you're looking at $40,000 to $50,000 more in federal tax than you paid in 2024.
That's not a typo. That's the new math.
Move 1: Accelerate Your Retirement Savings — Aggressively
The best immediate response to a higher tax rate is to push more income into vehicles the tax code still protects. And for high earners, the most powerful option isn't a 401(k).
A defined benefit plan — also called a cash balance plan — lets business owners and high-earning W-2 professionals contribute dramatically more than standard retirement accounts. While a 401(k) caps out at $23,500 (2025 numbers), a defined benefit plan can shelter $200,000 or more per year, depending on your age and income.
The math is straightforward: every dollar you contribute to a defined benefit plan reduces your taxable income dollar-for-dollar. At the new 39.6% rate, contributing an additional $100,000 to a cash balance plan saves you $39,600 in federal tax — plus state tax if you're in California, which adds another 9-13%.
For a surgeon or executive earning $650,000, a well-structured defined benefit plan can bring their taxable income down by $150,000 to $250,000 per year. That's money that grows tax-deferred until retirement — and at that point, you'll likely be in a lower bracket.
We've written about defined benefit plans before, and the strategy only became more valuable in 2026.
Move 2: Revisit Your Entity Structure
If you set up your entity structure during the QBI era, it was optimized for a world that no longer exists.
The QBI deduction had complex phase-in rules based on W-2 wages and the cost of depreciable property. Many business owners structured their S-Corps to maximize the deduction — paying themselves a "reasonable salary" and taking the rest as distributions, often coordinating across multiple entities to stack the wage test.
Without QBI, those structures may no longer be optimal. Some considerations:
S-Corp vs. C-Corp calculus has shifted. With corporate rates at a flat 21% and individual rates back to 39.6%, the gap between corporate and individual rates is wider than it's been in years. For some businesses, a C-Corp election — or a multi-entity structure with a C-Corp component — starts to make more sense, especially if you reinvest profits rather than distributing them.
Multi-entity coordination still works, but for different reasons. The value of having separate entities now comes from isolating liability, enabling different retirement plans, and creating flexibility for state-level planning — not from stacking QBI.
Payroll and compensation strategy needs a reset. Without the QBI wage test, the balance between salary and distributions changes. Your "reasonable salary" no longer has a deduction optimization component — it's purely an employment tax calculation.
If you haven't reviewed your entity structure since 2024, it's worth a fresh look. The rules changed. Your structure should too.
Move 3: Lean Into Real Estate — The Deduction Engine That Survived
Not every tax strategy died with TCJA. Real estate — specifically, strategies that generate "paper losses" on your tax return — remains one of the most powerful tools for high earners.
Cost segregation studies let you accelerate depreciation on commercial and rental properties, turning 39-year depreciation into 5-, 7-, and 15-year schedules. A well-executed study on a $2 million commercial building can generate $150,000 or more in accelerated depreciation in the first year alone.
Real estate professional status allows you to use those rental losses to offset your active income — your W-2 wages, your business income, your capital gains — without the passive activity loss limitations that apply to most investors.
Short-term rental strategies (think Airbnb, VRBO) can be structured to generate significant paper losses through the "short-term rental loophole" — which survived the TCJA sunset largely intact.
For a high earner who lost $30,000 in QBI savings, a single cost segregation study on a qualifying property can more than make up the difference. And unlike QBI, these strategies are still available in 2026.
We've covered cost segregation in depth and short-term rental strategies in previous posts — both are more relevant now than when they were published.
You Don't Have to Figure This Out Alone
The TCJA sunset created a fundamentally different tax environment for high earners. Strategies that worked flawlessly in 2024 are gone. Rates are higher. Deductions have evaporated.
But the tax code still rewards people who plan ahead — especially when they work with someone who structures strategy year-round, not just files a return in April.
Most CPA firms file your return in March and you don't hear from them again until next January. That model doesn't work in this new environment. You need someone who knows your numbers, your entities, your goals — and who keeps watching the tax code for opportunities on your behalf.
That's what Roadmap Tax was built to do.
Book a free 30-minute strategy session. No obligation. No sales pitch. Just a conversation about where you're leaving money on the table and what the 2026 landscape means for you.
Phone: (619) 280-2700 Email: info@RoadmapTax.com
FAQ
What is the QBI deduction and why did it expire?
The QBI (Qualified Business Income) deduction, also called Section 199A, allowed pass-through business owners to deduct up to 20% of their business income. It was part of the Tax Cuts and Jobs Act of 2017, which expired at the end of 2025.
How much more will I pay in taxes in 2026 without QBI?
For a business owner earning $500,000 through their S-Corp, the loss of QBI alone costs roughly $25,000 to $40,000 in additional federal tax, depending on their specific income and entity structure.
Can I still contribute more than the 401(k) limit to retirement?
Yes. A defined benefit plan (cash balance plan) allows high earners to contribute $150,000 to $250,000 or more per year, depending on age and income. Contributions are tax-deductible and grow tax-deferred.
Should I convert my S-Corp to a C-Corp now that QBI is gone?
It depends on your specific situation. The wider gap between the corporate tax rate (21%) and individual rates (39.6%) makes C-Corps more attractive for some businesses that reinvest profits rather than distributing them.
Does real estate still provide tax advantages after the TCJA sunset?
Yes. Cost segregation studies, real estate professional status, and short-term rental strategies all survived the TCJA sunset largely intact and remain powerful tools for generating tax deductions against active income.
How is Roadmap Tax different from a regular CPA firm?
Roadmap Tax provides year-round tax strategy, not just annual filing. We work with high-income earners and business owners to proactively identify strategies most CPA firms never bring up, with a focus on entity structuring, retirement planning, and real estate tax optimization.
