The 199A Qualified Business Income (QBI) deduction is one of the best-kept secrets in small business tax planning. It allows many business owners to deduct up to 20% of their business profits directly from their taxable income. That’s a big deal—it’s like giving yourself a 20% raise without doing any extra work.
But here’s the catch: most business owners don’t know it exists, and even if they do, their CPA often fumbles the details. From overlooking eligibility rules to misunderstanding the income thresholds, this deduction is more often misused than optimized.
Let’s break it down in simple terms: what the QBI deduction is, why it matters, and how to avoid the common mistakes that could cost you thousands.
What Is the QBI Deduction?
The QBI deduction was introduced in 2018 as part of the Tax Cuts and Jobs Act. It’s designed to give small business owners a significant tax break.
Here’s how it works:
If you own a business that’s a sole proprietorship, partnership, S-Corp, or LLC (also called “pass-through entities”), you may be able to deduct up to 20% of the profits your business earns.
This deduction applies to profits after expenses are subtracted—think of it as a bonus deduction just for being a business owner.
It’s separate from your regular business deductions, which means it doesn’t reduce what your business reports as income—it reduces your personal taxable income on your tax return.
The result? Lower taxes, more cash in your pocket.
But There’s a Catch (or Two)
Not every business owner automatically qualifies for the full QBI deduction. The IRS added a few rules to make things... interesting:
Income Thresholds: If your total taxable income (including your spouse’s income if you file jointly) is below $191,950 (single) or $383,900 (married) in 2023, you’re good to go. You get the full 20% deduction on your qualified business income. But if your taxable income goes over these thresholds, things get more complicated. The deduction begins to phase out, and other limits kick in.
Business Type Restrictions: Certain businesses, like doctors, lawyers, consultants, and accountants (called specified service trades or businesses or SSTBs), face tighter restrictions once they cross the income thresholds.
Wages and Assets: For businesses above the income thresholds, the deduction is limited based on:
How much you pay in wages to employees.
How much property or equipment your business owns.
If this sounds like a lot of hoops to jump through, that’s because it is. And here’s where the average CPA often gets it wrong.
How the Average CPA Gets It Wrong
1. Thinking It’s Automatic
Some CPAs assume the QBI deduction is a no-brainer—if you’re a business owner, you’ll get it. But that’s not how it works. Whether you qualify (and how much you get) depends on your total taxable income, your business type, and how your business is structured.
If your CPA isn’t actively managing your taxable income to keep you under the thresholds or maximize your eligibility, you could miss out on the deduction entirely.
2. Misunderstanding the “High-Income Business Owner” Problem
If you’re a consultant, doctor, lawyer, or own a business in another specified service trade or business (SSTB), the IRS limits your ability to claim the QBI deduction once you cross the income thresholds.
But here’s the truth: even if you’re in an SSTB, there are ways to reduce your taxable income and preserve part (or all) of the deduction. Think retirement plan contributions, accelerating deductions, or other smart tax moves.
Many CPAs throw in the towel and tell clients, “You make too much money to qualify.” Strategic advisors, on the other hand, find creative solutions.
3. Missing the W-2 Wages and Assets Limitation
If your taxable income exceeds the thresholds, the QBI deduction is limited by how much your business pays in W-2 wages or owns in qualified property (like equipment or buildings).
For example, if your business doesn’t pay employees (or doesn’t own much equipment), you could lose part of the deduction. A good CPA will help you structure your business to increase these numbers, but the average CPA might not even mention it.
4. Ignoring Simple Tax Planning Opportunities
One of the easiest ways to keep the QBI deduction is to manage your taxable income so it stays under the threshold. But many CPAs miss simple strategies like:
Maximizing contributions to a retirement plan.
Prepaying expenses or making charitable donations.
Deferring income into the next tax year.
These moves aren’t rocket science, but they can save you thousands by keeping your income within the sweet spot for the deduction.
An Example: How the QBI Deduction Works
Let’s break it down with a simple example:
Jane the Consultant:
Jane owns a consulting business that earned $150,000 in 2023.
Her taxable income (after personal deductions) is $140,000.
She qualifies for the full QBI deduction because her taxable income is below the threshold.
Her QBI Deduction Calculation:
20% of her $150,000 business income = $30,000 deduction.
If Jane is in the 24% tax bracket, that’s $7,200 in tax savings.
Now imagine Jane’s income rises to $200,000 next year, pushing her taxable income over the threshold. Without tax planning, she could lose a chunk of her deduction—or all of it.
Visual Concept: Create a side-by-side comparison:
Below the Threshold: $30,000 deduction and $7,200 tax savings.
Above the Threshold: Reduced or eliminated deduction, showing lost savings.
Why You Need to Act Now
Here’s the kicker: the QBI deduction isn’t permanent. It’s scheduled to expire at the end of 2025 unless Congress extends it.
While there’s hope for an extension—especially with the recent election creating momentum for tax reform—there’s no guarantee. That’s why it’s critical to take advantage of the deduction while it’s still available.
Want to Maximize Your Tax Savings?
If your CPA hasn’t mentioned the QBI deduction—or if they’ve left you confused about whether you qualify—it’s time for a second opinion.
At The Scale Collective, we specialize in breaking down complex tax strategies like the QBI deduction into actionable steps that save you money. Don’t settle for average advice when smarter planning can put thousands back in your pocket.
Let’s talk strategy. Reach out today, and we’ll help you make the most of the QBI deduction—and beyond.
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