Entity Setup
Entity Setup Strategies Under the One Big Beautiful Bill: QBI, Standard Deductions & Planning
New thresholds and permanent changes for qualified business income and deductions under the One Big Beautiful Bill law demand updated entity strategies.
By NomadicTax Research Team • 5-7 min read • August 15, 2026
## What Changed Under the One Big Beautiful Bill (OBBB) for 2026
The **One Big Beautiful Bill Act of 2025**, commonly OBBB, made several key tax cuts permanent and introduced higher thresholds:
- **Tax rate tables** for individuals were made permanent—seven rates ranging 10% up to 37%. ([irs.gov](https://www.irs.gov/newsroom/working-families-tax-cuts-individuals-and-workers?utm_source=openai))
- **Standard deduction** levels for 2026: **$32,200** (married filing jointly), **$16,100** (single or married filing separately), **$24,150** (head of household). ([irs.gov](https://www.irs.gov/newsroom/working-families-tax-cuts-individuals-and-workers?utm_source=openai))
- **Qualified Business Income Deduction (QBID)** is now permanent. If you have at least $1,000 in qualified business income from an active trade, you may be eligible for a minimum deduction of $400. Phase-in ranges increased. ([irs.gov](https://www.irs.gov/newsroom/working-families-tax-cuts-individuals-and-workers?utm_source=openai))
## Entity Types & QBID: How to Optimize
Entities often affected: **sole proprietorships**, **S-corps**, **partnerships**, **LLCs taxed as pass-throughs**, and **C-corporations** which generally don't receive QBID. Here are strategic considerations:
- **Pass-through entities**: Maximize active business income components and minimize passive income, since QBID applies only to active income. Consider paying owner salary in an S-corp scenario if doing personal services.
- **Separate business vs personal expenses** precisely. Only business expenses feed into QBI. Disallowed items (capital gains, dividends, etc.) can reduce eligible income.
- **Phase-in ranges**: These increased in OBBB for married filing jointly and other statuses. Plan taxable income to avoid abrupt phase-outs. Multiple years of estimating helps. ([irs.gov](https://www.irs.gov/newsroom/working-families-tax-cuts-individuals-and-workers?utm_source=openai))
## Standard Deduction vs Itemizing: Updated Comparison
Given the high deduction thresholds, many individuals may find standard deductions more attractive:
| Filing Status | 2026 Standard Deduction | Common Itemized Expenses* |
|---|---|---|
| Married Filing Jointly | $32,200 | Mortgage interest, charitable donations, state/local taxes (limited under SALT rules) |
| Head of Household | $24,150 | Medical expenses, property taxes, etc. |
| Single | $16,100 | Same categories, fewer deductions generally eligible |
> *SALT (State and Local Taxes) deduction remains capped at $10,000 for individuals (or $5,000 if married filing separately), and certain deductions phase out under the highest tax bracket. ([irs.gov](https://www.irs.gov/pub/irs-prior/p926--2026.pdf?utm_source=openai))
## Actionable Tips for Entities and Business Owners
- Review **entity structure**: For new businesses, S-corporation status could help if you're in a service business with high profits; look at self-employment taxes vs W-2 wages for owner employees.
- Keep profits within thresholds to avoid losing QBID or entering higher marginal rates, or engage in tax planning like deferral, depreciation, or retirement contributions.
- Document QBID eligibility carefully: determine what part of income is active vs passive. Seek professional guidance on separations.
- For retirement savings: employer plans (SEP, SIMPLE, 401(k)) still offer tax advantages; coordinate these with entity profits for maximum efficiency.
## Example
Julia operates a small consulting business as an S-corporation. In 2026, her pass-through income is projected at **$200,000**, and she meets all active service requirements. She may claim QBID on a portion of that income. With the standard deduction at **$32,200** (if filing jointly), she calculates whether separate business expenses plus QBID vs itemizing deductions would result in a lower taxable income.
## Bottom Line
Under the OBBB, many earlier temporary provisions are now permanent. Entities and sole proprietors should reassess structure, maximize active business income, leverage higher standard deductions, and utilize QBID where available. Good planning and accurate projections will ensure you aren't limping through phase-outs or leaving deductions on the table.