Monheit Frisch Group is right by your side to help you stay up to date. Please visit our COVID-19 Resources Page for Legislative and Regulatory updates.

Check us out on FINRA’s BrokerCheck

Navigating the New Qualified Business Income Deduction

Navigating the New Qualified Business Income Deduction

The tax reform legislation that Congress signed into law on December 22, 2017, was the largest change to the tax system in over 3 decades. The new tax code contains many provisions that will affect individual, estate, and corporate taxpayers. One of those changes includes the Qualified Business Income Deduction, a new tax benefit allowing entrepreneurs, self-employed individuals and investors to deduct 20 percent of their business income. It is an important factor to consider when deciding whether the structure of your business will be a pass-through entity or a C Corporation.

In this article, we will explain how the deduction works, examine the fine print and discuss how healthcare practices and physician owners can take advantage.
What is QBI and how does it work?

QBI is income earned from a sole proprietorship, S Corporation, or partnerships. It does not include wages earned as an employee. Simply put, the QBI deduction permits eligible taxpayers to deduct 20 percent of their qualified business income from their taxable income. It is considered a “below-the-line” deduction, meaning it does not reduce your adjusted gross income. The deduction is available for tax years beginning after December 31, 2017, and before January 1, 2026. There is speculation whether a future Congress will uphold individual provisions.

Who Qualifies?

Scenario A – Your business is considered a specified service trade or business and is above the threshold

If you are considered a specified service business and your income is above the thresholds, the standard 20% deduction is gradually reduced over the next $100,000 (married filing jointly) or $50,000 (for all other filing statuses) of taxable income above the threshold. The QBI deduction is 0 if you are married filing jointly with an income at or above $415,000 or $207,500 for all other filing statuses.

*Businesses that involve architecture, engineering, insurance, financing, leasing, or hotel/motels are excluded from the “specified service” definition.

Scenario B – Your business is considered a specified service trade or business and is below the threshold

If you are considered a specified service business and your income is below the threshold, you can still take advantage of the QBI deduction as long as your adjusted gross income falls below $315,000 (married filing jointly), $207,5000 (head of household), or $157,500 (single filers). Engineers and architects are specifically exempted from being categorized as an SSTB.

It is important to note the rules change if your business is not a specified service.

Scenario C – Your business is not considered a specified service trade or business and is above the threshold

In the instance that a taxpayer earns more, the deduction is limited to 50 percent of the W-2 wages paid by the business or 25 percent of the W-2 wages paid by the business plus 2.5 percent of the unadjusted basis of all qualified property, whichever is greater. 

Calculating the QBI deduction depends on whether a business is considered a “specified service.” A Specified Service Trade or Business (SSTB) is any trade or business that involves the performance of services and include the fields of:

  • Health
  • Law
  • Accounting
  • Actuarial science
  • Performing arts
  • Consulting
  • Athletics
  • Financial services
  • Brokerage services
  • Trades or businesses involving investing and investment management
  • Or any trade or business “where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.”

The QBI deduction can get complicated. For example, rental real estate can qualify as a business for QBI if, as a landlord, you have more responsibility than just collecting payment each month.


Taking Advantage of the Pass-Thru Deduction

Healthcare practices and physician owners will benefit from the qualified business income deduction if their taxable income does not exceed $157,500 for a single filer or $315,000 for joint filers.


Unfortunately for physicians, performing services in the field of health are considered a specified service trade or business. For this reason, physicians that engage in other activities, not health-related, may find it beneficial to split their practice into more than one pass-through entity.


Thought it will not affect the current calendar year corporate tax returns, determining whether your business is or isn’t an SSTB will be critical for the 2018 filing season. To discuss your future options regarding the QBI deduction, call us today.

Leave a comment

We have two locations for your convenience:


Want to stay informed? Sign up for our newsletter:


Surprise Regional Chamber of Commerce LogoCPA PFS Logo

Avantax affiliated advisors may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state.

Securities offered through Avantax Investment Services SM, Member FINRA, SIPC. *Investment advisory services offered through Avantax Advisory Services SM ** Insurance services offered through an Avantax affiliated insurance agency

The Avantax family of companies exclusively provide investment products and services through its representatives. Although Avantax Wealth Management SM does not provide tax or legal advice, or supervise tax, accounting or legal services, Avantax representatives may offer these services through their independent outside business. This information is not intended as specific tax or legal advice. Please consult our firm and your legal professional for specific information regarding your individual situation.

Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management SM or its subsidiaries. Avantax Wealth Management SM is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.