Qualified Business Income (QBI): A Tax Planning Tool for Professional Service Firms

The qualified business income (QBI) deduction lets owners of law firms, engineering practices, consulting shops, and similar pass-through businesses deduct up to 20% of their business profit. For a professional service firm, that can mean real money staying in the business each year. How much of it you keep can hinge on planning ahead rather than reacting at filing time, since the rules treat some professions differently from others. That is why QBI planning for professional service firms works best as a year-round exercise rather than a filing-season afterthought.

What Is the Qualified Business Income Deduction?

The qualified business income deduction lets eligible owners of pass-through businesses deduct up to 20% of their qualified business income from their taxable income. Also called the Section 199A deduction, it was created by the Tax Cuts and Jobs Act (TCJA) in 2017 and was scheduled to expire after 2025. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, removed that expiration date and made the deduction permanent. According to the IRS guidance on the QBI deduction, owners of sole proprietorships, partnerships, S corporations, and some trusts and estates may qualify, and the deduction is available even if you take the standard deduction. Income earned as an employee or through a C corporation does not count.

How the QBI Deduction Works for Pass-Through Owners

The deduction equals the lesser of 20% of your qualified business income or 20% of your taxable income above net capital gains. On $200,000 of qualified business income, for example, that points to a deduction of up to $40,000 before other limits apply. For 2026, owners with taxable income below $201,750 (single) or $403,500 (married filing jointly) can generally claim the full 20% with few restrictions.

Above those levels, limits tied to the W-2 wages a business pays and the value of its qualified property begin to apply, and the math gets more involved. The 2025 law also added a $400 minimum deduction for owners with at least $1,000 or qualified business income who materially participate in the business, a benefit aimed at smaller firms and those sitting inside the phase-out range.

Both that figure and the income thresholds adjust for inflation in future years. The 2025 law reshaped several other pass-through provisions at the same time, and the OBBBA’s broader tax changes reach well beyond the QBI rules.

How Qualified Business Income Applies to Professional Service Firms

For many professional service firms, the specified service trade or business (SSTB) rules decide how much of the deduction survives. Section 199A treats businesses in fields such as law, accounting, consulting, health, and financial services as SSTBs. Owners of these firms keep the full deduction only while their taxable income stays below the thresholds.

Once income climbs past the phase-out range, which reaches $276,750 for single filers and $553,500 for joint filers in 2026, the SSTB deduction disappears entirely. Engineering and architecture firms sit in a better position. Congress specifically excluded them from the SSTB category, so their owners can claim the deduction at any income level, as long as they meet the other requirements. Knowing which side of that line your firm falls on shapes almost every planning decision that follows.

Using Section 199A as a Tax Planning Tool to Save Money

Section 199A rewards owners who manage their taxable income with intention. Contributing to a retirement plan, timing income and expenses across tax years, and reviewing how partner compensation is structured can all help keep income within the range where the deduction applies. Owners with more than one business may benefit from aggregating them under the QBI rules, which can make it easier to meet the wage and property tests.

Entity choice matters too, since the wages an S corporation pays can influence the deduction for higher earners. These strategies work best when mapped out early, with an eye on how each decision ripples across the full return rather than being handled in isolation once the year has closed.

Plan Your QBI Deduction Strategy with Insero Advisors

For a professional service firm, an overlooked QBI deduction is real money that could have funded your next hire or a larger partner distribution. At Insero Advisors, we work alongside owners of law firms, engineering and architecture practices, consulting groups, and financial services firms to build QBI strategies that fit how their businesses operate. Our tax planning support for professional service organizations includes entity structuring, qualified business income optimization, and proactive planning we revisit throughout the year, not just at the deadline. We bring ideas to the table, outline the benefits and risks clearly, and keep you involved in every decision.

Let’s build a plan that keeps more of what you earn. Schedule a consultation with our team today.

Resources:

• www.law.cornell.edu/uscode/text/26/199A
• taxfoundation.org/taxedu/glossary/tax-cuts-and-jobs-act/
• taxfoundation.org/research/all/federal/big-beautiful-bill-senate-gop-tax-plan/
• www.irs.gov/newsroom/qualified-business-income-deduction