If you own one business, calculating your Qualified Business Income (QBI) deduction can already get complicated.
Own two or three businesses?
Now you have another question: Does the IRS calculate the QBI deduction separately for each business, or can you combine them?
The answer can potentially make a significant difference in your tax bill.
Section 199A of the tax code allows many owners of sole proprietorships, partnerships and S corporations to deduct up to 20% of qualified business income. Beginning in 2026, the deduction is permanent, making QBI planning an ongoing consideration for business owners rather than a temporary tax strategy.
For owners of multiple businesses, one of the most important planning opportunities is determining whether the businesses can - and should - be aggregated for purposes of the Section 199A deduction.
What Is the QBI Deduction?
The Qualified Business Income deduction, commonly called the QBI deduction or Section 199A deduction, was originally created by the Tax Cuts and Jobs Act.
In very general terms, it can allow eligible owners of pass-through businesses to deduct as much as 20% of their qualified business income without actually spending another dollar.
Potentially eligible businesses include:
- sole proprietorships;
- partnerships;
- LLCs taxed as qualifying pass-through entities; and
- S corporations.
The deduction does not simply equal 20% of whatever your business earned. Your taxable income, type of business, W-2 wages, qualified property, business losses and other factors can affect the calculation.
And if you own multiple businesses, those factors can interact.
What Changed for the QBI Deduction in 2026?
The 2025 tax legislation made several important changes that apply beginning in 2026.
First, the Section 199A deduction was made permanent. It had previously been scheduled to expire after 2025.
Second, the income phase-in ranges were expanded.
For 2026, the applicable taxable-income threshold is $201,750 for single and head-of-household filers and $403,500 for married couples filing jointly.
The phase-in range extends to $276,750 for single/head-of-household filers and $553,500 for married couples filing jointly.
There is also a new minimum deduction. An eligible taxpayer with at least $1,000 of QBI from an active trade or business in which the taxpayer materially participates may qualify for a minimum $400 QBI deduction, subject to the applicable rules.
For many business owners below the income thresholds, the calculation remains relatively straightforward. It's when income increases - and especially when multiple businesses are involved—that planning becomes much more important.
How Is QBI Calculated If I Have More Than One Business?
If your taxable income is below the applicable threshold, you generally aren't dealing with the W-2 wage and qualified-property limitations that affect higher-income taxpayers.
But you still need to account for the QBI from your different businesses.
For example, suppose a married couple owns two businesses. One spouse operates a sole proprietorship producing $100,000 of QBI, while the other owns an S corporation producing $150,000 of QBI after reasonable compensation.
Before considering the overall taxable-income limitation and other adjustments, 20% of those amounts would be:
- $20,000 from the sole proprietorship; and
- $30,000 from the S corporation.
That produces $50,000 attributable to the two businesses before considering the remaining Section 199A limitations and any other qualifying items.
But the calculation can change substantially once taxable income exceeds the applicable thresholds.
Higher-Income Business Owners Face Additional QBI Limitations
Once taxable income moves through and above the Section 199A phase-in range, W-2 wages paid by the business and qualifying business property can become critical.
For business owners above the phase-in range, the deduction for a qualifying business can be limited based on calculations involving:
- 50% of the W-2 wages paid by the business; or
- 25% of W-2 wages plus 2.5% of the unadjusted basis of certain qualified property.
This can create a strange result for someone who owns multiple profitable businesses.
One business might generate significant QBI but have few employees and very little qualifying property. Another business might have substantial payroll or qualifying property.
If the businesses are calculated separately, the first business could lose some or even all of its potential QBI deduction while the second business has more wages than it needs to support its own deduction.
That's where QBI aggregation becomes worth investigating.
Can I Combine Multiple Businesses for the QBI Deduction?
Possibly.
Section 199A regulations allow qualifying businesses to be aggregated so that certain QBI, W-2 wage and qualified-property amounts are considered together for purposes of calculating the deduction.
This isn't simply a matter of deciding that you own several businesses and would prefer to combine them. The businesses have to satisfy specific requirements.
Among other requirements, there generally must be at least 50% common ownership for the required portion of the tax year, the businesses must use the same taxable year, and a business being aggregated cannot be an ineligible specified service trade or business for this purpose.
The businesses also generally need to satisfy at least two of three operational relationships:
- They provide the same products or services, or products or services that are customarily offered together.
- They share facilities or significant centralized business functions such as personnel, accounting, purchasing, legal services, human resources or information technology.
- They operate in coordination with or reliance upon one another.
In other words, aggregation is intended for businesses with a genuine relationship—not unrelated companies combined solely because doing so produces a larger tax deduction.
Why Would I Want to Aggregate My Businesses?
Aggregation can be particularly valuable when one profitable business doesn't have enough W-2 wages or qualified property to support its potential Section 199A deduction, while another related business does.
Consider the general concept.
You own Business A, which generates substantial qualified business income and pays employees.
You also own Business B, which generates qualified business income but has no employees and little or no qualified property.
If you're above the applicable income range and calculate the businesses separately, Business B's QBI deduction could be severely limited or eliminated.
If the businesses legitimately qualify for aggregation, however, the combined wage and property amounts may support a larger overall deduction.
And the difference isn't necessarily small.
Aggregation Can Make a Huge Difference
Consider a higher-income married taxpayer with three qualifying businesses:
- a rental business with QBI, some wages and substantial qualified property;
- an S corporation with QBI and substantial W-2 wages; and
- a Schedule C business with substantial QBI but no wages or qualified property.
In one example, the three businesses together produce $470,657 of QBI.
When calculated separately, the businesses produce a total Section 199A deduction of only $37,340. The Schedule C business produces no QBI deduction because it has neither W-2 wages nor qualified property to support the deduction at that taxpayer's income level.
When the same businesses qualify to be aggregated, however, their combined QBI, wages and property produce a deduction of approximately $94,131.
That's a difference of more than $56,000 in the deduction—not because the businesses earned more money, but because qualifying aggregation changed how the Section 199A limitations applied.
This is why business structure and tax planning matter.
What Happens If One of My Businesses Loses Money?
Owning several businesses doesn't allow you to ignore the one that's losing money when calculating QBI.
If one trade or business generates negative QBI, that loss generally must offset positive QBI from your profitable businesses.
The negative QBI is allocated among the profitable businesses based on their relative amounts of positive QBI.
If your combined QBI for the year is negative, you generally receive no Section 199A deduction for that year, and the negative QBI is carried forward for purposes of calculating the deduction in a future year.
This is another reason business owners shouldn't look at the QBI deduction one company at a time without considering everything else they own.
Can I Aggregate a Profitable Business With a Business That Lost Money?
A loss doesn't simply disappear because businesses are aggregated.
Whether businesses are aggregated or calculated separately, negative QBI affects the overall calculation under the Section 199A loss rules.
That means the question shouldn't be, "Can I move this loss somewhere so it doesn't hurt my deduction?"
The better question is:
What is the correct treatment of all of my businesses, and is there a legitimate aggregation strategy that produces the best result allowed under the tax code?
Can I Change My Mind About QBI Aggregation Every Year?
Aggregation isn't something you should elect casually just because it produces a better number this year.
Once you aggregate qualifying businesses, you generally must continue reporting the aggregation consistently in subsequent tax years while the businesses continue to qualify.
An annual disclosure identifying the aggregated businesses is also generally required with the tax return.
New businesses can potentially be added when they satisfy the requirements, and an aggregation may need to change if the businesses no longer qualify.
That makes aggregation a long-term tax-planning decision, not simply a calculation made while preparing this year's return.
What About S Corporations and the QBI Deduction?
S corporation owners have an additional issue to consider.
W-2 wages can help support the Section 199A deduction for higher-income taxpayers. But an S corporation shareholder who performs services for the corporation is also generally required to receive reasonable compensation.
That compensation isn't QBI.
So simply increasing or decreasing an S corporation owner's salary to manipulate the QBI deduction isn't a sound strategy. Reasonable compensation, payroll taxes, QBI and the wage limitation need to be considered together.
This is a good example of why optimizing one tax deduction without looking at the rest of the return can produce the wrong answer.
Should I Aggregate My Businesses for Section 199A?
There isn't one answer that applies to every owner of multiple businesses.
If you're below the applicable taxable-income threshold, aggregation may provide little or no immediate advantage because the wage and property limitations generally aren't restricting your deduction.
For higher-income taxpayers, however, aggregation can become extremely important—particularly when one business has substantial QBI but insufficient wages or property while another related business has significant payroll or qualifying assets.
The analysis becomes even more important if you own some combination of:
- multiple LLCs;
- S corporations;
- sole proprietorships;
- related operating companies;
- rental real estate activities; or
- businesses that share employees, facilities or administrative functions.
Section 199A Is Now a Long-Term Tax-Planning Opportunity
For years, business owners knew the QBI deduction was scheduled to disappear after 2025. That made some long-term planning decisions difficult.
That's no longer the case.
With Section 199A now permanent, business owners have more reason to consider how business structure, payroll, property purchases, related businesses and aggregation can affect the deduction year after year.
If you own more than one business, don't assume your QBI deduction is simply 20% of the income shown on each K-1 or Schedule C.
The interaction among your businesses may be just as important as the income generated by each one.
Ken-Mar Tax works with small-business owners, S corporation shareholders and entrepreneurs who need more than tax-return preparation. We can look at how your businesses work together and help identify tax-planning opportunities before the year is already over.
