Summary of What This Blog Covers
- Defines the QBI deduction and who qualifies.
- Explains how business structure impacts eligibility.
- Shares strategies to maximize the deduction.
- Highlights the value of CPA guidance for long-term tax savings.
Let’s start with something most entrepreneurs don’t hear often enough:
If you’ve been building a business (showing up, taking risks, navigating the messiness of growth), you’ve already done something remarkable. You’ve created something where nothing existed before. And that matters.
But here’s the hard part. You can do all of that right and still feel like something’s missing when tax season rolls around. You’ve generated revenue, worked weekends, built a team, and yet, you look at your tax bill and think:
Am I keeping as much as I should be?
If that question has ever crossed your mind, you’re not alone. We work with founders, freelancers, consultants, and small business owners across industries, and they all share a common goal:
To do better with what they’ve earned.
At Insogna, one of the leading Austin accounting firms serving growth-focused entrepreneurs, we believe one of the most powerful tools to achieve that goal is the Qualified Business Income deduction, often referred to as the QBI deduction.
Let’s explore what it is, why it matters, and how to make sure you’re not missing out because this one strategy could make a significant difference in your bottom line.
What Exactly Is the QBI Deduction?
The Qualified Business Income (QBI) deduction is a special tax break introduced under the Tax Cuts and Jobs Act of 2017. It allows eligible business owners to deduct up to 20% of their qualified business income on their personal tax return.
Yes, 20 percent. It’s substantial.
But here’s the part many business owners don’t realize:
It’s not automatic. And it’s not always obvious whether you qualify or how much you can deduct.
The QBI deduction is designed specifically for pass-through entities, meaning businesses where the profits pass directly through to the owner’s individual return. These include:
- Sole proprietors
- S-Corporation shareholders
- Partners in a partnership
- Members of an LLC taxed as any of the above
If this is you, you may be entitled to a significant deduction that lowers your taxable income. But eligibility, phase-outs, wage rules, and income thresholds can make the QBI deduction feel more like a maze than a reward.
This is where a knowledgeable and proactive CPA in Austin, Texas can provide clarity and direction. At Insogna, we believe every tax strategy should be rooted in understanding and that means breaking complex concepts down to simple, actionable steps.
Why the QBI Deduction Exists and Why It Matters
When Congress passed the Tax Cuts and Jobs Act, it lowered the corporate tax rate for C-Corporations to a flat 21 percent. But small business owners who operate as pass-through entities didn’t receive the same rate cut.
Enter the QBI deduction. It was designed to level the playing field for business owners who aren’t corporations.
In practice, it allows qualifying entrepreneurs to reduce their taxable income by up to 20%, without changing their expenses or earning less. That’s powerful. But it’s only useful if you:
- Know you qualify
- Understand how to calculate it
- Structure your business to preserve it
- Plan early enough to make adjustments
We’ve met with business owners earning six or even seven figures who never claimed QBI simply because their accountant didn’t bring it up. Or they assumed software like TurboTax would handle it. Or they didn’t realize their business type disqualified them once they passed an income threshold.
This is why working with a certified public accountant near you who prioritizes strategy not just filing matters more than ever.
So, Who Qualifies?
This is the first big question. The good news is that many small business owners do qualify, especially if their income is under certain limits.
For 2025, full eligibility generally applies if your taxable income is below:
- $200,000 for single filers
- $400,000 for married filing jointly
If you fall below these thresholds and operate a qualifying business, you can likely deduct 20% of your net business income.
If your income is above these amounts, your eligibility starts to phase out particularly if you’re in a Specified Service Trade or Business (SSTB). This includes fields like:
- Law
- Healthcare
- Accounting
- Consulting
- Financial services
- Performing arts
Above the income thresholds, certain limits apply and your deduction may be reduced or eliminated based on factors like:
- W-2 wages paid
- The type of business
- Ownership structure
- Capital investments in the business
It’s not impossible to qualify above the threshold, but it does require careful planning with a licensed CPA or tax consultant near you who understands how to optimize for this deduction.
Breaking It Down: A Simple QBI Example
Let’s say you run a marketing consultancy as a sole proprietor and made $100,000 in net profit this year.
If you qualify for the QBI deduction, you could deduct $20,000 from your taxable income. That’s $20,000 you won’t pay federal tax on.
Now imagine you do that every year for the next five years. That’s $100,000 in income you’ve sheltered without adding to your overhead, taking on debt, or cutting corners.
But here’s the risk: if your income crosses the phase-out thresholds and you don’t plan ahead—if you haven’t structured your business properly, or you’re not paying yourself through payroll, or you’re filing under the wrong entity, you could lose the deduction entirely.
That’s where planning becomes not just helpful, but essential.
The Role of Entity Structure in QBI
How your business is structured plays a major role in whether you qualify for the QBI deduction and how much you can claim.
Here’s a simplified breakdown:
- Sole proprietors and single-member LLCs typically qualify easily if their income is under the phase-out limit.
- Partnerships and multi-member LLCs may face more complexity if they issue guaranteed payments or distribute income unevenly.
- S-Corps must pay owners a reasonable salary, which is excluded from QBI. Only the remaining distributions qualify.
- C-Corps are not eligible for the QBI deduction at all, since they are not pass-through entities.
In some cases, switching from an LLC to an S-Corp can be a smart move not just for self-employment tax savings, but also to create a structure that allows for QBI optimization.
We help clients at Insogna evaluate their business structure annually. We ask: What’s working? What needs to evolve? Where are the opportunities for tax efficiency that you haven’t yet explored?
Because your entity should support your financial goals not limit them.
Strategies to Maximize Your QBI Deduction
Once you’ve confirmed your eligibility, the next step is figuring out how to maximize your benefit. Here are a few of the planning strategies we use with our clients.
1. Lower Your Taxable Income Strategically
If you’re near the income threshold, consider:
- Retirement contributions to a solo 401(k) or SEP IRA
- Pre-paying deductible expenses before year-end
- Delaying invoicing or revenue recognition if cash flow allows
- Filing jointly (if married) to increase the income limit
These moves don’t reduce your actual income, they reduce the taxable income used to calculate the QBI deduction.
This kind of strategic guidance is why clients turn to a small business CPA in Austin, especially those who want to stay below the threshold and keep their deduction intact.
2. Pay Yourself Correctly Through an S-Corp
If your business is taxed as an S-Corp, you must pay yourself a reasonable salary before taking additional profits as distributions.
Only the distribution portion qualifies for QBI, so getting this balance right is key.
Pay too little and the IRS may audit your return. Pay too much and you limit the QBI deduction.
Our team at Insogna helps you calculate a compliant, strategic salary and makes sure your payroll setup, bookkeeping, and quarterly tax filings all align with that plan.
3. Revisit Guaranteed Payments in Partnerships
If you’re in a partnership and issuing guaranteed payments to partners, those payments do not count as QBI.
Shifting compensation into distributable profits where appropriate and legally compliant can increase the amount eligible for deduction.
A taxation accountant or Austin, TX accountant can help restructure your partnership agreement to maximize your QBI deduction without disrupting the fairness or function of your business.
Real Estate Investors: You Might Be Eligible Too
We often meet real estate investors who assume QBI doesn’t apply to them. But under the right conditions, rental income can qualify.
The IRS requires that rental activities rise to the level of a “trade or business.” That means:
- Regular, consistent involvement
- Profit motive
- Active participation in management
Even if you own properties in multiple states, your income may qualify especially if structured under a business entity and documented properly.
If you have rental income, don’t assume you’re disqualified. Ask your tax preparer near you or Austin accounting service if your activity meets the threshold. You might be missing out on a meaningful deduction.
What About Tax Software?
We get this question often: “Can’t I just use TurboTax?”
Tax software can be helpful. But it can’t ask clarifying questions. It can’t restructure your business. And it won’t flag strategy opportunities specific to your situation.
The QBI deduction is too nuanced, and the income thresholds too precise, for you to rely solely on automation.
We’ve seen software miss deductions, incorrectly exclude income, and fail to preserve the deduction for high-earning service businesses all because the human conversation never happened.
Why This Isn’t Just About Taxes
At its heart, the QBI deduction is about empowerment. It’s about taking back control of your financial story. You’ve built something real. Something hard-won. Something meaningful.
You deserve to keep more of what you earn. You deserve a tax structure that supports your growth. And you deserve a CPA who sees your business not just as a balance sheet, but as the vision you’re bringing to life.
That’s why we do what we do.
At Insogna, we don’t just offer tax preparation services near you. We walk with you through entity decisions, cash flow planning, S-Corp payroll, real estate investments, retirement strategies, and quarterly check-ins.
Your goals become our strategy. Your questions become our roadmap.
Let’s Maximize Your QBI Deduction Together
You’ve already done the hardest part: building something worth protecting.
Now let’s make sure your tax plan reflects that. Whether you’re just learning about the QBI deduction or wondering why you’re not getting the full benefit, we’re here to help you get answers and results.
Schedule your QBI strategy session with Insogna today.
Because your business deserves more than a return.
It deserves a partner.