What this tool does
If you own a profitable service business — consulting, law, medicine, accounting, financial services — there’s a valuable deduction that may be quietly shrinking as your income grows, and most people affected never notice until it’s gone: the Qualified Business Income (QBI) deduction.
Unlike a bill that jumps, a shrinking deduction is invisible: nothing changes on your bank statement. This tool makes it visible — enter your business income and structure, and the tool estimates how much QBI deduction the phase-out is costing you. It also shows how the deductions that lower your taxable income change your estimated QBI deduction. Because the phase-out is measured against your full-year taxable income, the tool keeps the estimate current as the year develops.
How the QBI phase-out works
The QBI deduction (Section 199A) lets many pass-through business owners deduct up to 20% of their qualified business income — potentially a $40,000 deduction on $200,000 of income. The deduction was made permanent in 2025.
For most owners under the income thresholds, it's simple: you get the full 20%. Above the thresholds, it gets complicated — and for one category of business, the deduction can disappear entirely.
The tax code singles out a Specified Service Trade or Business (SSTB) — businesses where the principal asset is the skill or reputation of the people involved: health, law, accounting, consulting, financial services, performing arts, athletics, and investing. For an SSTB, the QBI deduction begins phasing out once taxable income crosses a threshold and is fully eliminated above the top of the range. For 2026, the SSTB phase-out begins around $201,750 (single) or $403,500 (married filing jointly) and is gone above roughly $276,750 (single) or $553,500 (married filing jointly) — figures that adjust for inflation annually. Confirm current numbers with the IRS.
Why the phase-out is worth modeling
Inside the phase-out range, every extra dollar of taxable income doesn’t just get taxed — it also shrinks your deduction, raising your effective marginal rate above what your bracket suggests. The reverse holds too: inside the range, every dollar removed from taxable income is worth more than a dollar in the model, because the deduction grows as taxable income falls.
So a pre-tax contribution in this range does three things at once — it funds your retirement, reduces your tax directly, and increases the QBI deduction the model computes. This tool estimates each effect from your own numbers. Whether a particular contribution is available to you depends on your plan, your earned income and the annual limits; confirm your eligibility with a qualified professional.
What actually lowers your taxable income
The phase-out is measured against your taxable income, so anything that reduces taxable income counts — pre-tax retirement contributions (a SEP-IRA, Solo 401(k), or for higher earners a defined-benefit / cash-balance plan), HSA contributions, and, unlike the ACA cliff, itemized deductions such as charitable giving. Mortgage interest and state and local taxes count too, though they’re usually fixed rather than something you adjust.
There’s a wrinkle that decides which deduction is worth the most, and it’s easy to miss: some deductions reduce your qualified business income itself, not just your taxable income — employer retirement contributions, the self-employed health insurance deduction, and business expenses all shrink the base the 20% is calculated on. Per dollar, they add less to the deduction than a “clean” deduction that leaves the base untouched — an employee deferral, or charitable giving. The tool weighs each option against your own numbers rather than assuming they are interchangeable.
How it works, step by step
- 1Enter your situation — business income, your reasonable salary (if you run an S-corp), SSTB status, filing status, and other taxable income.
- 2See what the phase-out costs — the QBI deduction the phase-out is estimated to remove at your current income.
- 3See what moves your position — the deductions that reduce taxable income, and the estimated effect of each on your QBI deduction and your tax.
- 4Adjust and explore — change a deduction and watch your QBI deduction and tax update.
- 5Track your position through the year — the phase-out is measured against your full-year taxable income, so come back as it changes to see where you land and which scenarios remain available.
The calculation handles how your contribution and your taxable income drive the deduction — as taxable income falls, the deduction the model computes rises. That interaction is easy to get wrong by hand: the deduction is computed off your pre-QBI taxable income, so which contribution has the largest modeled effect depends on your full tax picture, not just your business income. And since your taxable income isn’t settled until year-end, the tool keeps the estimate current as your income changes — so if a strong year pushes you into the phase-out range, you find out while the year is still open, not at filing.
An important distinction
This sharp phase-out is specific to SSTBs. If your business is not a specified service business — engineering, architecture, manufacturing — different rules apply above the threshold (based on wages paid and property held), and the “disappears entirely” outcome generally doesn’t apply. So the first question is always whether you’re an SSTB.
For SSTBs, salary and contributions behave differently. If you run an S-corp you might expect the salary/distribution split to change the deduction — but for an SSTB above the top of the range the deduction is eliminated whatever that split is, so what moves the modeled deduction is taxable income, which contributions reduce. The tool models the estimated effect of the compensation and contribution inputs you enter; it does not determine what your salary should be, whether a contribution is available to you, or whether a given salary is reasonable compensation. Those questions turn on your plan terms, your earned income, the annual limits and facts the model does not see. (For non-SSTBs, salary matters for a different reason — wages paid enter the limitation. The two cases are easy to get backwards.)