QBI Deduction Made Permanent: Action for S-corps, LLCs, and Partnerships in Richmond
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings transformative tax changes for Richmond's vibrant business community. With the Qualified Business Income (QBI) deduction now permanent, pass-through entities including S-corporations, LLCs, and partnerships can confidently plan for long-term tax savings. This groundbreaking legislation ensures that Richmond's estimated 8,154 pass-through businesses can continue benefiting from this crucial deduction beyond the original 2025 expiration date
Understanding the QBI Deduction's Permanence
The QBI deduction, officially known as Section 199A, allows owners of pass-through entities to deduct up to 20% of their qualified business income from their taxable income. This effectively reduces the maximum tax rate on pass-through business income from 37% to approximately 29.6%, helping level the playing field with C-corporations that pay a flat 21% tax rate.
Under the OBBBA, several key enhancements make this deduction even more valuable:
Increased phase-in ranges: The income threshold phase-in ranges increase from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for married filing jointly
New minimum deduction: Businesses with at least $1,000 in QBI from active trades can claim a minimum $400 deduction
Inflation adjustments: Both the minimum deduction and phase-in ranges will be indexed for inflation after 2026
Richmond's Business Landscape
Richmond's economic vitality stems from its diverse business ecosystem. According to recent Virginia Works data, the city hosts 9,106 businesses, with the vast majority organized as pass-through entities. The breakdown reveals:
Richmond Business Distribution by Employee Count
This distribution shows that 62.1% of Richmond businesses employ fewer than 5 people, highlighting the city's strong entrepreneurial foundation. These micro-businesses, along with Richmond's larger pass-through entities, stand to benefit significantly from the permanent QBI deduction.
The Richmond metropolitan area's economy continues to grow, with total non-farm employment reaching 734,700 in June 2025. Key sectors benefiting from the QBI deduction include:
Professional and business services (125,200 employees)
Trade, transportation, and utilities (134,000 employees)
Construction (44,600 employees)
Health care and social assistance (111,400 employees)
Calculating Your QBI Deduction
For Richmond business owners, understanding how to calculate the QBI deduction is crucial for tax planning. Here's how it works:
Basic Calculation
For businesses with taxable income below $197,300 (single) or $394,600 (married filing jointly) in 2025, the calculation is straightforward:
QBI Deduction = Qualified Business Income × 20%
Example Scenarios
Tax Savings Comparison for Richmond S-Corp ($350K QBI)
Consider a Richmond S-corporation with $500,000 in business income and $150,000 in owner salary. The QBI would be $350,000, resulting in:
20% QBI deduction: $70,000
Federal tax savings: $25,900 (at 37% tax rate)
Combined with Virginia PTET: Total tax savings of $31,857
Virginia's Pass-Through Entity Tax Synergy
Richmond businesses can maximize their tax benefits by combining the federal QBI deduction with Virginia's Pass-Through Entity Tax (PTET) election. The Virginia PTET, available through 2025, allows pass-through entities to pay state income tax at the entity level at a rate of 5.75%, providing a workaround for the federal SALT deduction limitation.
Key benefits of combining QBI and PTET:
Double deduction effect: PTET payments reduce federal taxable income before applying the QBI deduction
SALT cap workaround: Entity-level state tax payments aren't subject to the $10,000 individual SALT deduction limit
Refundable credit: Eligible owners receive a Virginia tax credit for their share of PTET paid
Industry-Specific Considerations
Specified Service Trades or Businesses (SSTBs)
Richmond's numerous professional service firms need special attention to QBI limitations. SSTBs include:
Law firms
Accounting practices
Consulting businesses
Financial services
Healthcare providers
These businesses face phase-outs beginning at $197,300 (single) or $394,600 (joint) in 2025, with complete elimination of the deduction at $272,300 and $544,600 respectively under the new OBBBA thresholds.
Non-SSTB Businesses
Manufacturing, retail, real estate, and other non-SSTB businesses in Richmond enjoy more favorable treatment. Even above income thresholds, they can still claim QBI deductions subject to wage and property limitations.
Comparing Entity Structures
QBI Deduction Comparison: 20% vs Potential 23% Rate
The choice between S-corporation and LLC structure impacts QBI benefits:
S-Corporation Advantages:
W-2 wages paid to shareholder-employees count toward wage limitations
Better positioned to meet wage tests for high-income taxpayers
Flexibility in salary/distribution planning
LLC Advantages:
Simpler structure with fewer formalities
No restrictions on ownership types
Greater flexibility in profit allocations
Action Steps for Richmond Businesses
Immediate Actions (2025)
Review entity structure: Evaluate whether your current structure maximizes QBI benefits
Assess Virginia PTET election: Make the election by paying estimated taxes or filing Form 502PTET
Calculate wage ratios: Ensure adequate W-2 wages for businesses approaching income thresholds
Document material participation: Track hours and activities to qualify for the new minimum deduction
Long-term Planning Strategies
Optimize owner compensation: Balance salary and distributions for S-corporations
Consider entity conversions: Some LLCs may benefit from S-corp election
Implement succession planning: QBI permanence allows for confident long-term planning
Expand strategically: Consider how growth impacts QBI limitations
Additional OBBBA Benefits for Richmond Businesses
Beyond the QBI deduction, the OBBBA provides several other advantages:
100% bonus depreciation: Reinstated permanently for property acquired after January 20, 2025
Section 179 expensing: Increased limit to $2.5 million
Interest deduction: Section 163(j) limitation calculation returns to more favorable EBITDA basis
R&D expensing: Retroactive relief for small businesses meeting gross receipts test
Richmond-Specific Resources
Local businesses can access support through:
Capital Region Small Business Development Center: Free counseling on tax planning strategies
Richmond Economic Development Authority: Business incentive programs and resources
Metropolitan Business League: Networking and education for minority-owned businesses
Chamber RVA: Advocacy and business support services
Conclusion
The permanent extension of the QBI deduction represents a watershed moment for Richmond's pass-through entities. With over 8,000 businesses potentially benefiting, this provision will inject significant capital back into the local economy. By understanding the nuances of the deduction and coordinating with Virginia's PTET, Richmond businesses can achieve tax savings exceeding 21% compared to scenarios without these benefits.
Business owners should work closely with their tax advisors to optimize their structure and ensure compliance with the complex QBI rules. The permanence of this deduction now allows for confident, long-term tax planning that can support business growth and investment in Richmond's thriving economy.
Whether you operate a micro-business in the Fan District or manage a growing manufacturing concern in Southside, the QBI deduction’s permanence provides the tax certainty needed to invest, expand, and contribute to Richmond’s continued economic success. Contact The RVA Accountant, PLLC today to ensure you’re maximizing these benefits for your specific situation.