If your specified service business operates as a proprietorship, a partnership, or an S corporation, tax code Section 199A can give you a deduction of up to 20 percent of your qualified business income. And here’s the good news: the deduction is now permanent, and beginning in 2026, the rules are friendlier than before.
When Your Specified Service Business Still Qualifies
For 2026, if your taxable income is $403,500 or less (married, filing jointly) or $201,750 or less (single or head of household), you qualify for the deduction regardless of your type of business.
Where Specified Service Businesses Lose the Deduction
Above those thresholds, the tax code splits businesses into two camps: in-favor businesses, which can still qualify, and out-of-favor — specified service trades or businesses (SSTBs) — such as consulting, which lose the deduction entirely once taxable income exceeds $553,500 (married) or $276,750 (single). There is one bright spot: the phase-in range between those numbers is now 50 percent wider, so a partial deduction survives at higher incomes than before.
Two Rules That Can Rescue a Mixed Business
If your business mixes in-favor and out-of-favor activities, two de minimis rules can rescue you:
- If out-of-favor receipts are less than 10 percent of gross receipts (5 percent if receipts exceed $25 million), the entire business is treated as in favor.
- You can operate two trades or businesses—one in favor, one out of favor—by keeping separate books, separate invoices, and ideally separate employees for each activity.
In short, careful bookkeeping can turn a zero deduction into a substantial one. Also note that the new $400 minimum deduction does not help a pure SSTB above the ceiling, which is one more reason to carve out a genuine in-favor business where possible.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
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