Does the QBI deduction apply to C corporations?

No. C corporations are not pass-through entities and do not benefit from § 199A. C corps pay the 21% flat corporate tax under TCJA. The QBI deduction was designed specifically to provide parity for pass-through entities, but the actual relief is generally less generous than the C corp rate cut.

Is the QBI deduction permanent?

No. As enacted, Section 199A applies only to tax years beginning before January 1, 2026. The deduction sunsets unless extended. Tax planning for pass-through entities should account for the potential expiration.

How does the SSTB rule affect law firms and accountants?

Significantly. Law firms, accounting firms, consulting firms, medical practices, and similar service businesses are SSTBs. Owners above the phaseout threshold ($383,900 MFJ for 2025) typically cannot take any QBI deduction. Owners below the threshold can take the full deduction. The threshold is a hard cliff above the phaseout range.

Can an S corp owner-employee's W-2 wages help with the 199A calculation?

Yes. The W-2 wages paid by the S corp (including to the owner-employee) count toward the W-2 limit on the QBI deduction. This creates a planning tension: more W-2 wages reduce QBI but support a larger W-2-based limit. Each S corp should model the tradeoff.

Compliance & tax

Section 199A QBI deduction

20% federal income tax deduction for qualified business income from pass-through entities (S corps, partnerships, sole props). Subject to limits and SSTB phaseouts.

Definition

The Section 199A QBI deduction, enacted as part of the 2017 Tax Cuts and Jobs Act, provides a 20% federal income tax deduction for qualified business income from pass-through entities — S corporations, partnerships, LLCs taxed as partnerships, and sole proprietorships. The deduction is subject to multiple limitations: income-based phaseouts, the W-2 wages limit, the unadjusted basis of qualified property limit, and the specified service trade or business (SSTB) restriction. Currently set to expire after 2025 unless extended.

Same concept, different references

US (IRC)	Section 199A — Pass-through QBI deduction
US (IRC)	Section 199A(d) — Specified service trade or business definition
Effective	Tax years beginning 2018 through 2025 (subject to extension)
Form	Form 8995 or 8995-A — QBI deduction calculation

Who can claim the deduction

Pass-through business owners can deduct up to 20% of their qualified business income from federal taxable income. The deduction has tiered eligibility:

Below the phaseout threshold ($383,900 married filing joint for 2025, $191,950 single): generally simple deduction of 20% of QBI
Within the phaseout range: subject to additional limits (W-2 wages, qualified property)
Above the phaseout: subject to full limits; SSTB owners may be entirely excluded
QBI: net amount of qualified items of income, gain, deduction, loss from qualified trades or businesses

The SSTB restriction

Specified Service Trades or Businesses (SSTBs) are subject to the harshest QBI limits. SSTBs include:

Health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services
Investment management and trading
Any trade or business where the principal asset is the reputation or skill of one or more employees or owners
Above the phaseout: SSTB QBI is completely excluded from the deduction
Within the phaseout: SSTB QBI deduction is gradually phased out

W-2 wages and qualified property limits

Above the phaseout threshold, the QBI deduction is the lesser of:

20% of qualified business income, OR
The greater of: (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property
Effect: businesses without significant W-2 wages or capital investment get a smaller deduction
S corp implication: shareholders who take W-2 wages contribute to the W-2 limit, which can help support a larger QBI deduction for the corporation

In Octelligence

199A planning needs accurate records.

Octelligence supports the corporate records that feed 199A calculations: shareholder W-2 wages, qualified property, distribution history, and tax pools. Clean records make 199A preparation faster and audit-ready.

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Section 351, F reorganization, 338(h)(10), S corp election, AAA, 199A, 1244, BIG tax. Recorded against the corporation, surfaced when relevant.

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Section 199A QBI deduction

Who can claim the deduction

The SSTB restriction

W-2 wages and qualified property limits

Related terms