The Qualified Business Income deduction lets you deduct 20% of your business income before calculating taxes. 

For a business generating $500,000 in profit, that's a potential $70,000 deduction — worth $26,000 in tax savings.

The challenge is that most business owners earning $400,000+ aren't capturing the full deduction they're entitled to. A wage limitation in the tax code caps your deduction based on W-2 wages, and without proper planning, you're leaving significant money on the table.

If you're earning $400,000-$2,000,000 in profit, QBI optimization can unlock an additional $55,000-$275,000 in deductions annually. The difference comes down to one salary adjustment that happens before December 31st.

The Problem: You're Hitting an Invisible Cap

If you're new to QBI or need a refresher on the basics, start with our guide on what QBI is and who qualifies.

For those familiar with the deduction, here's where optimization matters: above $394,600 in taxable income (married filing jointly), your QBI deduction gets capped based on the W-2 wages your business pays.

If you run an S-Corp, you've likely kept your salary low to minimize payroll taxes. That strategy works for employment tax savings but creates a limitation on your QBI deduction.

What this looks like in practice:

Your business generates $500,000 in profit, which should produce a $70,000 QBI deduction (20% of profit). With only $75,000 in W-2 wages, your actual deduction gets cut to $37,500. That's $12,025 in unnecessary taxes.

The adjustment:

By increasing your salary to $143,000, your QBI deduction increases to $70,000. That's an additional $12,025 in tax savings from one payroll adjustment.

Same business, same profit, different structure.

Three Ways to Unlock More QBI

1. Optimize Your Salary Structure

There's a calculation that determines the optimal salary for maximizing your QBI deduction while minimizing additional payroll tax costs. For most businesses, this works out to roughly 2/7 of net income.

The goal is finding the point where your deduction is maximized without creating excessive additional costs.

2. Aggregate Multiple Businesses

If you own more than one business, treating them separately for QBI purposes may be limiting your deduction.

When you aggregate qualifying businesses, you can combine their wages and property to support a larger deduction across all entities. We've seen this strategy unlock $40,000+ in additional deductions through a single election.

3. Use the Property Basis Alternative

Businesses that own significant equipment or real estate have access to an alternative calculation that considers both wages and property value.

This can be particularly valuable for manufacturing businesses, real estate companies, or businesses that own their operating facilities.

Planning for Service Businesses

Healthcare providers, lawyers, accountants, and financial advisors face additional limitations. Above $394,600 in taxable income (married filing jointly), the QBI deduction begins to phase out and disappears entirely at $494,600.

If you're approaching this thresholds, there are planning opportunities:

• Maximize retirement contributions (reduces taxable income)
• Time major expenses strategically
• Consider income deferral where appropriate

How to Check Your Current Position

Pull your 2024 tax return (or current year projections) and locate Form 8995-A (or Form 8995 if your income falls below the thresholds).

Compare two numbers:

• Line 2: Your total QBI
• Line 15: Your actual deduction

If Line 16 equals roughly 20% of Line 2, you're optimized.

If Line 16 is significantly lower — say $50,000 when it could be $85,000 — there's an opportunity to capture additional deductions before year-end.

The Timeline for Optimization

QBI optimization requires a few hours: analyzing your current position, modeling scenarios, processing payroll adjustments, and documenting the decisions.

The return? Typically $15,000-$50,000 in additional deductions. That's $3,750-$12,500 per hour of work.

Since Congress made QBI permanent in 2025, this optimization carries forward year after year.

The constraint is timing. Salary adjustments must happen before December 31st. You cannot make retroactive changes when you file your return in March.

The Better Bookkeeping Strategy

For clients above the income thresholds, we include QBI optimization as part of year-end planning:

• Calculate your current deduction position
• Model your optimal salary structure
• Evaluate aggregation opportunities for multiple businesses
• Process the necessary payroll adjustments
• Document everything appropriately

The objective is straightforward: Capture every dollar of QBI deduction you're entitled to before the December 31st deadline makes adjustments impossible.

If you're earning $200,000+ and haven't reviewed your QBI optimization this year, schedule a consultation before the window closes. After December 31st, your opportunity to optimize 2025 is gone.