This is Part 4 of a four-part series on Section 199A, the qualified business income deduction, or "QBI." Catch up on Part 1, Part 2, and Part 3 first.
Is the business having a good year? Great. Here is what decides whether you keep the 20% deduction on it. Two things determine this: how much you made, and what kind of business you are in.
Marcus and Priya both sit at about $620,000 in taxable income this year.
Marcus runs a commercial cleaning company. His deduction comes to $100,000. Priya runs a consulting firm. Her payroll is bigger than his. Her deduction is zero. Yes, zero.
Under a certain income, every business owner gets the 20% — consultants included. If the business goes over that income, the rules look closer. For most businesses, they look at payroll — that's the wage limitation I covered in Part 2. For one group, services, they look at what you sell.
These are businesses where what you are really selling is the skill and the reputation of the people inside them. The tax code calls them a specified service trade or business, or SSTB.
Consulting. Law. Accounting. Medicine. Financial services. If that's your business, the SSTB rules can change how the QBI deduction works. For 2026, the deduction begins phasing out once taxable income exceeds $403,500 for married couples filing jointly, or $201,750 for single filers. For SSTB income, it is fully phased out above $553,500 for married filing jointly and $276,750 for single filers.
Priya is past it. Her payroll never gets looked at, because at her income it no longer matters. That is the hard part of the SSTB QBI deduction rules — for a service business over the line, no amount of payroll brings the deduction back.
One thing about that number, because it trips people up: it's your taxable income, not your revenue. And it is not the figure printed at the bottom of your return either. That one already has this deduction taken out of it. (This is tricky stuff, folks.)
So the number that decides this is not printed anywhere. Somebody has to figure it out — and it's best if it's a good CPA.
Now, here is where strategy helps. Three things move that number:
One or two of them, handled between now and December, could pull Priya back into the stretch where the deduction shrinks instead of disappears. She does not have to reach a full 20% to beat zero.
Priya does not know any of this yet. She will find out in February, when her paperwork lands on someone's desk and the year is already closed. If you're in a service business and near that line, the time to run the numbers is now — while there's still a year left to shape.
An SSTB is a business whose principal asset is the reputation or skill of its owners or employees. It includes fields like consulting, law, accounting, medicine, and financial services. Above the income threshold, SSTB owners face extra limits on the QBI deduction that other businesses do not.
Below the income threshold, a consultant gets the full 20% like anyone else. Above it, the SSTB rule phases the deduction out entirely — so a high-income consulting or professional-services owner can end up with a deduction of zero, regardless of how much payroll the business runs.
For 2026, the phase-out begins once taxable income exceeds $403,500 for married couples filing jointly ($201,750 for single filers). For SSTB income it is fully phased out above $553,500 for married filing jointly and $276,750 for single filers. Because these thresholds are adjusted annually, confirm the current-year figures with your tax advisor.
Taxable income — not revenue, and not the bottom-line number on your return (which already reflects the deduction). The figure that actually governs the SSTB limit isn't printed on the return, so it has to be calculated separately.
Sometimes. Three levers can lower the taxable income that drives the limit: owner compensation, retirement plan contributions and their timing, and when income is recognized. Handled before year-end, they can pull an owner back into the phase-out range where a partial deduction survives — you don't need a full 20% to beat zero.
No. Non-service businesses like Marcus's cleaning company aren't subject to the SSTB phase-out. Above the income threshold they're limited by the W-2 wage-and-property test instead, which is why a comparable-income, non-service owner can keep a large deduction while an SSTB owner loses it.
This is Part 4, the final part. Start at the beginning of the series:
These are composites and I have rounded the numbers to keep them readable. Your situation depends on things I cannot possibly know without a conversation with you, so take this as a reason to ask your own tax advisor a question — not as advice about your return.
Disclaimer: This article is for general educational purposes only and does not constitute tax, legal, or accounting advice. The SSTB rules, income thresholds, and QBI deduction depend on your specific facts and circumstances and change from year to year. Please consult a qualified tax professional before relying on anything discussed here.
