QBI Deduction (§199A)
The qualified business income deduction may provide up to a 20% deduction on qualified income, subject to income thresholds, business type, and wage/property limits.
At a glance
- Category
- Business Owner
- May be relevant for
- Pass-through business owners
- Our approach
- Document review → proposal → implementation
- Service area
- Nationwide (office in Westlake Village, CA)
Whether this applies to you depends on your specific facts and circumstances.
Ask a CPA about your situationImportant: This page is for educational purposes only. It describes how this strategy may work under current law. Whether it is appropriate for you, and how to implement it correctly, depends entirely on your specific facts, timing, and documentation. This is not individualized tax advice. Speak with a licensed CPA before acting.
How it may work
QBI Deduction (§199A) — a plain-English overview
The sections below describe how this strategy works under current tax law, what conditions may make it applicable, and what factors affect the outcome.
What §199A provides
The QBI deduction, enacted in the Tax Cuts and Jobs Act, allows individuals, estates, and trusts to deduct up to 20% of qualified business income from a pass-through entity — S-corps, partnerships, LLCs, and sole proprietorships. It is a below-the-line deduction, meaning it reduces taxable income but does not affect adjusted gross income. The deduction expires after 2025 unless extended by Congress.
The two-tier structure
For taxpayers below the threshold amounts (indexed; currently approximately $197,300 single / $394,600 married filing jointly for 2025), the deduction is straightforward: 20% of qualified business income, limited to 20% of taxable income minus net capital gains. For taxpayers above the thresholds, the deduction is limited by the greater of: (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. This wage/property limitation rewards businesses with real employees and significant fixed assets.
Specified service trades or businesses
Certain professions — health, law, consulting, financial services, performing arts, and others — are 'specified service trades or businesses' (SSTBs). For SSTBs, the deduction phases out between the threshold amounts and is completely disallowed above them. Accounting is not an SSTB, which has planning implications. Architecture and engineering are excluded from SSTB status. Whether your business qualifies as an SSTB requires a facts-and-circumstances analysis.
Planning around the wage and property tests
For owners above the threshold, the QBI deduction can be meaningfully affected by payroll levels. Because the wage test uses W-2 wages paid to employees (including the owner-employee through reasonable compensation), an S-corp's payroll policy directly affects how much of the QBI deduction is available. This creates an interaction between reasonable compensation planning and QBI optimization that requires coordination — setting compensation too high reduces distributions but may also affect the deduction.
Document-first
What we'd review before recommending this strategy
We do not guess. We review the documents, propose, and implement. Here is what we'd want to see to evaluate whether this strategy may apply to you.
- Taxable income level — to determine which tier of the deduction applies
- Business type — SSTB analysis for service businesses
- W-2 wages paid by each business entity — key input for the wage/property limitation
- Unadjusted basis of qualified property — depreciable tangible property
- Multiple business aggregation — whether aggregating related entities improves the outcome
- Interaction with reasonable compensation planning for S-corp owners
Who this may fit
Profiles where this strategy comes up most
These are the client situations where we most commonly evaluate this strategy. Whether it applies to you depends on your specific facts.
Common Questions
Questions about QBI Deduction (§199A)
Educational answers to questions we often hear when discussing this strategy with clients.
Does the QBI deduction apply to rental income?
Rental real estate may qualify for the QBI deduction if it rises to the level of a 'trade or business' under §162. The IRS issued a safe harbor (Notice 2019-07) that treats rental real estate as a trade or business if specific record-keeping and activity requirements are met. Whether a rental qualifies depends on the facts of each property and portfolio.
Is the 20% deduction always the maximum?
No. The deduction is limited to the lesser of 20% of QBI or 20% of taxable income minus net capital gains. Large capital gains in a given year can reduce the available deduction. The wage and property limitation applies above the income thresholds.
What happens after 2025?
The QBI deduction is currently scheduled to expire after the 2025 tax year under the existing sunset provisions of TCJA. Congressional action is required to extend it. We track legislative developments and will adjust planning accordingly.
Educational content only
This page describes QBI Deduction (§199A) for general educational purposes under current tax law. It is not individualized tax, legal, or investment advice. Whether this strategy is appropriate for you — and how it should be structured, documented, and reported — depends entirely on your specific facts, timing, and circumstances. Tax law changes frequently. Always consult a licensed CPA before acting on any information here.
We do not guess. We review the documents, propose, and implement.
Ask a CPA
Wondering if QBI Deduction (§199A) applies to you?
Tell us about your situation and we'll follow up within one business day. We review the actual documents and give you a direct answer — no obligation.
- Document-first review — we start with your actual returns and records
- Clear explanation of what may apply and why
- No obligation — honest if there isn't enough value to act on
Explore more
Other Business Owner strategies
S-Corp Election
Profitable business owners
Electing S-corporation status may reduce self-employment tax for owners with consistent profit, when paired with a reasonable salary. Whether it helps depends on profit level, payroll cost, and state treatment.
Reasonable Compensation
S-corp owners
S-corp owners must pay themselves reasonable wages. Setting compensation defensibly is where S-corp planning is won or lost — too low invites scrutiny, too high gives back the benefit.
Accountable Plan
Owners with home-office and mixed-use expenses
An accountable plan can let a business reimburse owners and employees for legitimate business expenses — home office, mileage, and more — in a documented, compliant way.
Ready to find out what applies to your situation?
A discovery call is how we start. We review the documents and tell you honestly what may be worth pursuing.