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QBI optimization: keeping the 20% deduction as your income grows
The short answer
Pass-through owners can deduct up to 20% of qualified business income — but consultants sit in the danger zone: consulting is a specified service business (SSTB), and the deduction phases out entirely at higher taxable incomes. The levers: manage taxable income (retirement contributions are the big one), get the S-corp salary right, and characterize revenue accurately — implementation and training often are not SSTB even when advice is.
The planning levers
- Know your number: below the thresholds, everyone gets the deduction; the fight is in the phase-out band and above.
- Drive taxable income down with a Solo 401(k), HSA, and timing — sometimes a retirement dollar saves twice by preserving QBI.
- Tune the S-corp salary: wages reduce QBI but also satisfy the W-2 limit above the thresholds — a genuine optimization, not a rule of thumb.
- Characterize revenue honestly but precisely: advisory vs implementation vs training can differ in SSTB status; contracts and invoices should reflect reality.
Consultant couple, $410k taxable income (illustrative)
Frequently asked questions
What is the QBI deduction?
Section 199A lets owners of pass-through businesses deduct up to 20% of qualified business income — profit from your LLC, S-corp, or sole proprietorship — subject to income thresholds and business-type rules.
What is an SSTB and why does it matter?
Specified service trades or businesses — consulting, health, law, accounting, financial services, and similar — lose the deduction entirely once taxable income passes the upper threshold (roughly the low-$500,000s joint, indexed). Non-SSTB businesses keep it, subject to wage/property limits.
Is consulting always an SSTB?
Classic advice-for-fees consulting is. But implementation work, training delivery, staffing, and productized services often are not — how your revenue is characterized can genuinely change the answer, which makes this a facts-and-invoicing question.
How does my S-corp salary interact with QBI?
Your own W-2 wages are not QBI, so a higher salary shrinks the deduction while saving payroll tax — and above the thresholds, W-2 wages paid help you KEEP the deduction. The optimum is one combined calculation.
In the phase-out band?
This is the most math-dense deduction in the code — thirty minutes with your projection tells you which levers are worth pulling this year.
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