The Section 199A deduction continues to be one of the most meaningful tax benefits available to owners of pass-through businesses. But the amount you receive is not automatic. It can shift based on taxable income, capital gains, wages, and year-end actions you take in your business. With the final weeks of 2025 approaching, now is the moment to review your numbers and decide whether strategic adjustments could strengthen your deduction.
The Section 199A deduction offers up to 20 percent off qualified business income, but taxable income levels and year-end decisions determine how much you receive. Strategic planning around gains, charitable giving, and business purchases before December 31 can help maximize the deduction.
Why This Deduction Deserves Attention
Section 199A gives owners of eligible pass-through businesses a deduction of up to 20 percent of qualified business income. It’s valuable, but it is also sensitive to several factors that shift at year-end, including:
• taxable income
• capital gains
• wages paid
• qualified property
• business type and classification
Once your taxable income crosses certain thresholds, limits and phaseouts can begin to apply, especially for service-based businesses or those without substantial wages or property.
Because the calculation interacts with other year-end decisions, the final weeks of the year offer an opportunity to position yourself for the best outcome.
1. Review Capital Gains and Losses Together
Realizing gains earlier in the year increases taxable income, which can push your 199A deduction downward. Before December 31, review your taxable investment activity and look for opportunities to offset gains with realized losses.
Why it helps:
• Lowering taxable income can move you back into full-deduction territory
• reducing capital gains may expand the portion of income eligible for the 20 percent calculation
This step is especially helpful if your business is a specified service trade and you are hovering near the income thresholds.
2. Look at Charitable Giving Through a Tax Planning Lens
If you are itemizing deductions this year, charitable contributions can help lower your taxable income in a way that indirectly strengthens your 199A deduction. For some taxpayers, this can mean the difference between receiving the full benefit or falling into a reduced range.
Strategies to consider:
• timing larger gifts before the end of the year
• donating appreciated stock to avoid capital gains and claim a charitable deduction
• using a donor-advised fund to consolidate multiple years of giving
This approach works best when your taxable income is slightly above the key limits, and you want to bring it back down.
3. Consider Needed Business Purchases Before Year-End
If you were already planning to upgrade equipment or technology in the near future, placing qualifying property in service before December 31 can deliver two benefits at once:
• immediate expensing (via bonus depreciation or Section 179, where eligible)
• reduced taxable income, which may unlock or expand your 199A deduction
For some owners, this also increases the amount of qualified property included in the 199A calculation, further supporting the deduction. The key requirement is that the asset must be placed in service, not merely ordered or paid for.
What to Evaluate This Week
To make sure your 199A deduction is optimized, use this simple checklist:
☑ Project your year-end taxable income
☑ Review realized capital gains and potential losses
☑ Identify charitable gifts you intend to make
☑ Consider advancing planned equipment or technology purchases
☑ Confirm wages and qualified property amounts for your business
☑ Document all actions taken before December 31
These adjustments do not work in isolation. The best approach depends on how your business income, personal income, and investment activity interact.
Need help modeling your 2025 numbers. Brothers Tax can project your 199A deduction and map out the best year-end moves. Contact us at taxbrothers.tax/contact.