A Republican Bill Would Make This Big Tax Deduction for Small Businesses Permanent

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The Main Street Tax Certainty Act would make the 20% QBI deduction permanent. Here’s what you should know. 

Since 2017, American small business owners have enjoyed the ability to deduct a large chunk of business-related income. This tax provision, also known as the qualified business income (QBI) deduction, is set to expire in 2025. But House Republicans want to turn the deduction permanent — and they might just have the votes to do it. Read on to learn more about the QBI deduction, the bill that would extend it, and the chance it has of passing.

The QBI deduction

A legacy of the Trump administration, the qualified business income deduction offered many small business owners a way to reduce their taxes. The provision allows certain businesses to deduct up to 20% of certain income. Here’s how it works.

Only owners of so-called “pass-through” businesses, such as sole proprietorships, partnerships, and S corporations may claim the deduction. Taxpayers must also have taxable income of below $364,200 if filing jointly or $182,100 if filing as single in 2023 to qualify. Those above the threshold may still qualify in some cases, such as if you are a doctor, lawyer, or in another “specified service trade or business.”

Qualified business income is defined very broadly as the net taxable income from a qualified business. QBI does not include investment gains or losses, or outside income such as dividends, interest, or W-2 wages. There are many nuances to determining your QBI deduction eligibility and amount, so consult with your accountant or tax specialist before claiming the deduction.

The Main Street Tax Certainty Act

House Republicans have recently rallied around a bill to extend the QBI deduction indefinitely. The so-called Main Street Tax Certainty Act has had a warm reception by Republican leadership, being touted in a press release by the House Committee on Ways and Means.

The bill itself is very short with only two sections, one naming the bill, and one striking the QBI sunset from its original tax bill. Introduced by Rep. Smucker (R-PA) on July 17, the bill garnered support from 92 co-sponsors, and is supported by the entire Republican majority of the Ways and Means Committee.

The proposition is straightforward: to eliminate the 2025 sunset provision of the QBI in the tax code. Currently there are no additional riders on the bill, but that could change as it passes through Congress. If passed, the bill would remove any expiration of the QBI deduction, effectively allowing taxpayers to claim the benefit in future years.

Playing politics

For what has generally been viewed as a Republican objective , the tax-reducing Main Street Tax Certainty Act has already gathered bipartisan support. Two House Democrats co-sponsored the bill upon its introduction, signaling common ground between the parties. Meanwhile, some 160 organizations across many industries have come out in support of the bill.

The bill appears to have the support it needs to pass the House, but Senate approval may be harder to earn. While Democrats and Independents hold a majority in the Senate, a few defectors could push the bill through. And although President Biden has not indicated whether or not he would sign the bill into law, a broad base of support could force his hand.

The qualified business income deduction has been a boon for small business owners for years. Originally scheduled to expire in 2025, the bipartisan Main Street Tax Certainty Act could give the provision some longevity. With a high degree of public support, and a handful of Democrat backers, the odds of this bill becoming law aren’t the longshot you might expect.

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