The answer is yes, but the path to maximizing this deduction requires careful planning, strict compliance with IRS rules, and a long-term strategy. This guide walks through the deduction methods, depreciation strategies, and compliance requirements you need to know in 2025.&nbsp;

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Can an LLC Write Off a Car Purchase? The 2025 Guide

Electing S corporation tax status can unlock meaningful savings and signal a new stage of professionalism in your business. It also introduces stricter compliance requirements, payroll responsibilities, and a key challenge: determining a “reasonable salary.”

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Single-Member LLC Taxed as S Corp: Pros, Cons & How To

Selecting the optimal entity has numerous benefits and can make a positive impact immediately. For example, small business owners can cut their tax burden in half in their first year of operation, potentially turning a loss into a profit, with proper entity selection.

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Form 2553: Guide to S Corp Election & Requirements

The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, is one of the most valuable tax breaks available to small business owners and self-employed individuals. Introduced under the Tax Cuts and Jobs Act of 2017, it allows eligible taxpayers to deduct up to 20% of their QBI component, reducing taxable income and potentially saving thousands each tax year.<a href="https://1800accountant.com/blog/how-much-can-a-small-business-make-before-paying-taxes">But calculating QBI is not always simple</a>. Rules vary depending on income level, entity type, and whether you’re in a specified service trade or business. Mistakes can lead to missed savings—or worse, penalties and IRS scrutiny.This guide breaks down how to calculate your deduction, explains key thresholds, and shares strategies to <a href="https://1800accountant.com/blog/missed-deductions-freelancers" target="_self">maximize this deduction</a> while maintaining compliance.<h2>Key Highlights</h2><ul><li>Eligible businesses can deduct up to 20% of qualified business income, but exclusions apply.</li><li>Income thresholds determine whether your calculation is straightforward or subject to complex limits.</li><li>Higher earners face <a href="https://1800accountant.com/blog/1099-vs-w2">W-2, Wage and Tax Statement</a> wage and property tests, plus stricter rules for service businesses.</li><li>Strategic planning—like entity choice, payroll setup, and aggregation—can increase your deduction.</li><li>Professional bookkeeping and tax advisory help ensure accurate calculations and audit protection.</li></ul><h2>Understanding the Fundamentals of the QBI Calculation</h2><h3>Defining Qualified Business Income (QBI)</h3>QBI is generally the net income from a qualified trade or business, including gains, deductions, and losses. However, some items do not count, such as:<ul><li>Wages earned as an employee</li><li>Reasonable compensation paid to S corp owners</li><li>Guaranteed payments to partners</li><li>Certain investment income (capital gains, dividends, interest not related to business operations)</li></ul>Accurate bookkeeping is an essential part of claiming the full deduction amount. If income and expenses aren’t properly categorized, your QBI base will be inaccurate, which can lead to several issues. <a href="https://1800accountant.com/services/bookkeeping" target="_self">1-800Accountant’s full-service bookkeeping solution</a> ensures your records are clean and audit-ready throughout the year.&nbsp;<h3>The Overall Deduction Limitation</h3>Even with accurate QBI, the <a href="https://www.irs.gov/newsroom/qualified-business-income-deduction" target="_blank">deduction cannot exceed 20%</a> of your taxable income (minus net capital gains). For taxpayers with large capital gains, this limitation can reduce the overall deduction.<h2>How to Navigate Income Thresholds</h2>Income thresholds determine whether your calculation is simple or requires additional steps. For 2025, the thresholds are:<ul><li>Single filers: $197,300</li><li>Married filing jointly: $394,600</li></ul><h3>Calculation for taxpayers below the threshold</h3>If your income is under the limit, the calculation is simple:QBI deduction = QBI × 20%No further restrictions apply.<h3>Calculation for taxpayers above the threshold</h3>For those exceeding the threshold, two sets of limitations apply:<ol><li><a href="https://www.irs.gov/pub/irs-drop/rp-19-11.pdf" target="_blank">W-2 wage and qualified property limits</a></li><li>Specified Service Trade or Business (SSTB) restrictions</li></ol>Expert tax planning becomes crucial at this stage in your QBI calculation. Services, like 1-800Accountant's year-round <a href="https://1800accountant.com/services/business-tax-advisory" target="_self">business tax advisory</a>, ensure you meet IRS requirements while maximizing savings.<h2>A Deep Dive into the W-2 Wage and Qualified Property Limitation</h2>For higher earners, the QBI deduction is limited to the greater of the results of the following tests.&nbsp;<h3>Test 1: 50% of W-2 Wages</h3>Test 1 includes wages paid by the business to employees, including the owner’s reasonable salary in an S corp.<h3>Test 2: 25% of W-2 wages plus 2.5% of unadjusted basis immediately after acquisition (UBIA) of qualified property</h3>Qualified property includes depreciable assets like equipment and real estate. The unadjusted basis immediately after acquisition (UBIA) is used for test 2.<h3>The Critical Role of Payroll and Asset Management</h3><a href="https://1800accountant.com/blog/what-are-payroll-deductions">Accurate payroll reporting is vital</a>, especially if wages are the limiting factor in your QBI deduction. <a href="https://1800accountant.com/services/small-business-taxes" target="_self">1-800Accountant’s payroll service</a> ensures W-2 wages are properly managed and reported, preserving your eligibility.Similarly, asset tracking systems and bookkeeping are needed to generate correct UBIA calculations.<h2>The Specified Service Trade or Business (SSTB) Challenge</h2>SSTBs face the most stringent limitations, which are designed to restrict the deduction for certain professional services.<h3>Identifying an SSTB</h3>These fields face SSTB restrictions:&nbsp;<ul><li>Health</li><li>Law</li><li>Accounting</li><li>Consulting</li><li>Financial services</li></ul>The "reputation or skill" clause is an important concept that often requires professional interpretation. This clause applies to businesses where the principal asset is the reputation or skill of one or more of its employees or owners.<h3>How the SSTB limitation works</h3>Above the income threshold, SSTB owners see their deduction phase-out and elimination at higher levels.Professional tax advisory can help SSTB owners manage income strategically, potentially preserving some deduction eligibility.<h2>Advanced Planning: Moving from Calculation to Strategy</h2><h3>Optimizing Your Business Structure for QBI</h3>Entity choice has a direct impact on many aspects of your business, including the QBI deduction. For example, electing S corporation status allows owners working in the business to pay themselves a reasonable salary, which then contributes to W-2 wages.1-800Accountant's <a href="https://1800accountant.com/services/entity-formation" target="_self">entity formation service</a> ensures your structure is set up for maximum efficiency from the start.<h3>Strategic Aggregation for Multiple Businesses</h3>Taxpayers with multiple businesses may be able to aggregate them for a more favorable outcome. The rules are strict, requiring professional analysis. An experienced accounting team can determine if aggregation is beneficial for your operations.<h2>The Future of QBI and Why Staying Informed Matters</h2><a href="https://1800accountant.com/blog/topics/bookkeeping">Originally set to expire after 2025</a>, the QBI deduction has been made permanent by the passage of the recent <a href="https://1800accountant.com/blog/big-beautiful-bill-for-small-business-taxes" target="_self">One Big Beautiful Bill legislation</a>.&nbsp;Many tax laws and rules impacting your business change periodically, making partnering with a knowledgeable CPA essential, as it ensures you can maximize and never miss opportunities as the rules evolve.<h2>Maintain Accurate, Audit-Ready Books to Maximize Savings with Professional Support</h2>QBI rules are intricate and complex, and can impact your business positively if you get them right, and negatively if mistakes are made. The IRS often reviews large tax deductions, which emphasizes the need for accurate bookkeeping. Poor recordkeeping practices can put your business at risk.It's beneficial to work with a CPA or accounting team that understands the nuances of your specific region and industry, and can apply QBI rules effectively. The goal is not just to file a return, but to build a year-round strategy that minimizes your business tax liability.And with <a href="https://1800accountant.com/services/audit-defense" target="_self">audit defense</a>, you gain peace of mind and ensure an expert is ready to guide your business if questions arise.<h2>Unlock Your QBI Deduction Potential with 1-800Accountant</h2><a href="https://1800accountant.com/blog/qbi-deduction">The QBI deduction is a powerful opportunity</a>, but only if calculated correctly. From payroll to bookkeeping, entity selection to tax strategy, every detail matters.Adjusting depreciation, timing income and expenses, managing owner compensation, and other proven strategies can influence the final total QBI deduction calculation. This is where the tax professionals at 1-800Accountant, America's leading virtual accounting firm, can make a difference. A key advantage of working with us is the year-round support from your designated accountant or team, who understands your business's unique needs and challenges..<a href="https://1800accountant.com/services/small-business-taxes">Schedule a free 30-minute business consultation</a> to see how our dedicated team can ensure you claim the maximum deduction while building a smarter long-term tax plan.<h2>Qualified Business Income Deduction FAQs</h2><h3>Who is eligible for the QBI deduction?</h3>Most <a href="https://fitsmallbusiness.com/what-is-20-percent-pass-through-deduction/" target="_blank">pass-through entities</a>, also called pass-through businesses, including sole proprietorships, partnerships, and S corps, may qualify for the QBI deduction. C corporations do not.<h3>What happens if you calculate QBI deduction incorrectly?</h3>QBI calculation errors can result in underclaimed savings—or IRS federal tax penalties if the net amount is overstated.<h3>Can you claim this deduction retroactively after filing?</h3>Amended returns may allow for retroactive QBI deduction claims if you were eligible but didn’t initially claim this deduction.<h3>How can you identify if you’re classified as part of SSTB?</h3>Fields like law, health, consulting, and financial services are considered SSTBs. If you're unsure of your business's SSTB status, seek professional guidance.<h3>On which forms do you report QBI?</h3><a href="https://1800accountant.com/blog/common-business-tax-forms">You would typically report QBI</a> via <a href="https://www.irs.gov/pub/irs-pdf/i8995a.pdf" target="_blank">IRS Form 8995, Qualified Business Income Deduction Simplified Computation</a>, or IRS Form 8995-A, Qualified Business Income Deduction, and attach it to your IRS Form 1040, U.S. Individual Income Tax Return.What are common errors to avoid?Misclassifying income, failing to track UBIA, and overlooking wage reporting are common mistakes you should avoid.<h3>Should married people file together or separately to maximize savings?</h3>In many cases, joint filing maximizes savings by doubling thresholds.<h3>Would hiring employees instead of independent contractors increase savings?</h3>Yes, employees generate W-2 wages that can help raise your deduction under the wage income limitation tests.

Introduced under the Tax Cuts and Jobs Act of 2017, it allows eligible taxpayers to deduct up to 20% of their QBI component, reducing taxable income and potentially saving thousands each tax year. But calculating QBI is not always simple. Rules vary depending on income level, entity type, and whether you’re in a specified service trade or business.&nbsp;

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How to Calculate QBI: Claim Your 20% Deduction

Understanding how to take money out of your LLC without triggering unexpected tax liabilities can be complex. This excellent guide demystifies LLC distributions taxes, explaining their taxation based on your LLC's classification and providing actionable insights for tax-smart planning throughout the year.

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How Are LLC Distributions Taxed? 2025 Guide

This guide breaks down what assets, liabilities, and equity really mean for your business, how they shape your balance sheet, and how to use them as a decision-making tool for long-term success.

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Assets, Liabilities & Equity: A Complete Guide

Getting this wrong can lead to missed tax savings, or worse, penalties and increased IRS scrutiny. However, when handled correctly the S corp structure offers a fantastic way to deduct your health and dental insurance premiums. It’s one of the most powerful benefits available to shareholder-employees.

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S Corp Owner Health Insurance: What to Do (and Deduct)

When you think of depreciating a tangible asset, you likely picture allocating its cost over its estimated useful life, which can be several years. But what if you could skip that long deprecation schedule in favor of something more immediate? That's where Section 179 of the US tax code makes a substantial difference.

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Section 179 Deduction: How it Works in 2025

Understanding the nuances of OpEx is the difference between scrambling to cover bills each month and confidently steering the business toward long-term growth. When managed effectively, operating expenses aren’t just “costs” to control—they can be used as a strategic tool. OpEx can reveal how efficiently you’re operating, where you can invest for greater returns, and where savings can boost your bottom line.

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How to Manage Operating Expenses for Sustainable Growth

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