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Methodology · Tax Deductions

Tax deductions methodology

Reviewed by · Last reviewed .

How we compute the IRC §199A QBI deduction on the QBI Deduction Calculator: 20%-of-QBI base, the income-threshold phase-in, the wage-and-property limitation, and the SSTB phase-out.

QBI deduction structure

Below threshold (2025: $232,500 single / $464,200 MFJ):
  Deduction = MIN(
      20% × QBI,
      20% × (taxable income − net capital gains)
  )

Above threshold + non-SSTB:
  Deduction = MIN(
      20% × QBI,
      MAX(
          50% × W-2 wages,
          25% × W-2 wages + 2.5% × UBIA of qualified property
      ),
      20% × (taxable income − net capital gains)
  )

Above threshold + SSTB:
  Deduction phases out linearly from threshold to threshold + $50K
  (single) / threshold + $100K (MFJ); ZERO above the upper bound.

SSTB definition (IRC §199A(d)(2))

SSTBs include health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, trading or dealing in securities, AND any trade where the principal asset is the reputation or skill of one or more employees.

Notable exclusions: engineering and architecture are NOT SSTBs (carved out specifically by Congress).

S-Corp + QBI interaction

S-Corp election creates W-2 wages (the reasonable salary) that satisfy the §199A wage limitation. So for high-income operators above the threshold, S-Corp election can preserve QBI deduction that would otherwise be lost. But the salary itself doesn't qualify for QBI (only the distribution / pass-through portion does). Optimal salary is typically ~50% of business income for service operators above the threshold — but it's a multi-variable optimization (SE tax + QBI + reasonable-salary defensibility) and varies by state.

Sunset provision

Per the Tax Cuts and Jobs Act of 2017, IRC §199A is currently scheduled to expire after 2025 unless Congress extends it. Multi-year tax planning should include scenario modeling at both endpoints. Verify current status with your CPA at filing time.

Sources

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