In July 2025, the One Big Beautiful Bill Act permanently extended the Section 199A Qualified Business Income (QBI) deduction, a 20% write-off for owners of pass-through businesses that had been scheduled to disappear at the end of 2025. For business owners in Houston, the Woodlands, and Denver who have been putting off an entity review, this is the moment to revisit it. Permanence changes the long-term math behind choosing an LLC, an S-corporation, or a C-corporation in a way a temporary tax break never could.
What the One Big Beautiful Bill Act Changed
The QBI deduction allows owners of sole proprietorships, partnerships, LLCs, and S-corporations to deduct up to 20% of their qualified business income before it hits their individual tax return, subject to income limits. The new law also added a $400 minimum deduction (indexed for inflation) for owners with at least $1,000 of qualified business income who materially participate in the business, and it restored 100% bonus depreciation for qualifying equipment and property purchased after January 19, 2025. Both changes were made permanent rather than set to expire again, which is what makes this year different from prior tax-planning cycles.
How Permanence Changes the LLC vs. S-Corp Decision
The Case for Staying (or Becoming) a Pass-Through Entity
Because the QBI deduction only applies to non-corporate owners, LLCs taxed as sole proprietorships or partnerships, and S-corporations, all continue to have an advantage C-corporations don’t get. An S-corp election can still reduce self-employment tax exposure by splitting income between a reasonable salary and distributions, and now that split can be planned around a deduction that isn’t going anywhere. For many owners who were on the fence about electing S-corp status, a permanent deduction plus permanent 100% bonus depreciation tips the analysis toward locking in a structure rather than waiting to see what Congress does next.
When a C-Corporation Still Makes Sense
C-corporations don’t get the QBI deduction, but the law also expanded the Qualified Small Business Stock exclusion under Section 1202 for stock acquired on or after July 4, 2025, raising the exclusion cap and adding a tiered exclusion for stock held three to five years. For a business planning to raise outside capital or aiming for an eventual sale of the company itself, rather than its assets, that expanded exclusion can outweigh giving up the pass-through deduction. This is a case where the right answer depends heavily on the owner’s exit plans, not just this year’s tax bill.
Texas and Colorado: Two Different Playing Fields
Entity choice doesn’t happen in a vacuum, and Houston-area and Denver-area owners are working with different state rules layered on top of the same federal changes. Texas has no state income tax, but LLCs and corporations doing business here are still subject to the Texas Franchise Tax, with filing requirements that depend on revenue. Colorado has a flat state income tax that applies to pass-through income reported on an owner’s individual return, along with its own annual report and registered agent requirements for LLCs and corporations. An owner expanding from Houston or the Woodlands into Denver, or vice versa, needs an entity structure that holds up cleanly in both states, not just the one where the business started.
Watch the Income Thresholds, Especially for Service Businesses
The QBI deduction phases out for higher earners, and the phase-out is steeper for specified service trades or businesses, a category that includes consulting, accounting, financial services, and other professional practices. For the 2025 tax year, the full deduction was available below $364,200 of taxable income for married couples filing jointly ($182,100 for single filers), with wage and asset limitations phasing in above that and, for service businesses, the deduction disappearing entirely above the upper threshold. These figures adjust for inflation each year, so an entity or compensation structure that made sense last year is worth checking against this year’s numbers, particularly for owners who are getting close to the higher bracket.
Petry Tax & Advisory works with individuals and business owners across Houston, the Woodlands, and Denver to review entity structure in light of changes like these and to build a tax plan around it rather than react to it after the fact. If it’s been a while since your LLC or S-corp election was reviewed, we invite you to schedule a consultation with our team.
lucy.petry@petrylawfirm.com
