If you run a business as a sole proprietor, single-member LLC, partnership, S corporation, or an LLC taxed as a partnership or S corp, your business income usually flows to your personal tax return. Because of that, your personal tax bracket matters.
Midyear is a good time to check your numbers. You still have time to adjust income, expenses, and key decisions before year-end.
1) Rates and brackets: plan around your expected tax rate
Start with your marginal tax rate. The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, made permanent the individual rates from the Tax Cuts and Jobs Act of 2017. The rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Tax brackets change each year because of inflation. The 2027 changes are expected to be modest.
If you expect to be in the same or lower bracket in 2027, consider:
- Deferring income into next year, and
- Accelerating deductions into this year.
This can lower your 2026 pass-through income. It can also push some tax into 2027.
If you expect to be in a higher bracket in 2027, consider the opposite approach when it makes sense:
- Accelerate income into 2026, and
- Delay deductions until 2027.
That may move more income into a lower-rate year.
2) QBI deduction: review it now
For many pass-through owners, the Section 199A qualified business income (QBI) deduction is a major benefit. The OBBBA made the deduction permanent. In general, it can be up to 20% of QBI. It also can’t exceed 20% of taxable income.
The OBBBA also added a $400 minimum QBI deduction for eligible taxpayers with at least $1,000 of QBI, starting in tax years after December 31, 2025.
Midyear is a good time to estimate your QBI deduction. You can also check whether any limits may apply.
What is QBI?
QBI is generally the net amount of business income, gain, deductions, and losses from a U.S. trade or business.
QBI limits to watch
W-2 wages and property limits
Above certain income levels, your QBI deduction may be limited. The limit is based on W-2 wages and qualified property.
For 2026, these limits generally start when taxable income (before the QBI deduction) exceeds:
- $201,750 (single)
- $403,500 (married filing jointly)
They are fully phased in once taxable income exceeds:
- $276,750 (single)
- $553,500 (married filing jointly)
SSTB limits (certain service businesses)
For specified service trades or businesses (SSTBs), the QBI deduction can phase out and then disappear above those same income levels. SSTBs often include investment-type services and many professional practices (other than engineering and architecture).
Taxable income limit
Your QBI deduction generally can’t exceed 20% of taxable income (before the QBI deduction), reduced by net capital gains and qualified dividends.
Because of this, some tax moves can reduce the QBI benefit. For example, large first-year depreciation deductions or large deductible retirement plan contributions may lower taxable income enough to limit the deduction. That doesn’t mean those moves are wrong. It does mean you should model the full impact.
Other QBI items
You may also be able to claim a QBI deduction for up to 20% of qualified REIT dividends and qualified income from publicly traded partnerships.
3) Why midyear planning matters
Midyear planning gives you time to adjust. Year-end planning can work too. However, you may have fewer options.
At a minimum, review:
- Projected business income
- Timing of major expenses
- Retirement plan contributions
- Estimated tax payments
- QBI eligibility and limits
Because one move can affect another, work with your tax advisor before you finalize decisions.
4) Another tax break to consider: employer-provided child care
If your business provides child care benefits, you may qualify for the employer-provided child care credit. The OBBBA expanded this credit.
In 2025, the credit was:
- 25% of qualified child care expenses, plus
- 10% of qualified resource and referral expenses,
- Up to $150,000.
Starting in 2026, the credit increases to:
- 40%, up to $500,000 per year, and
- For eligible small businesses: 50%, up to $600,000 per year.
If your small business qualifies, you can claim the maximum $600,000 credit if you spend at least $1.2 million on qualified child care expenses.
Starting in 2026, eligible small businesses can also:
- Pool resources with other small businesses, and
- Use third-party intermediaries to help provide services.
For 2026, an eligible small business generally has average annual gross receipts for the prior five years below $32 million.
Bottom line
Midyear is a smart time to plan. You can reduce surprises and improve outcomes. You can also coordinate bracket planning, QBI, and credits.
If you want, your tax advisor can run a midyear projection and help you choose the best moves for 2026 and 2027.