Over the past few years, Section 199A has given small business owners a much-needed tax break—up to 20% off their qualified business income. Sounds great, right? But here’s the catch: not every business qualifies, and even those that do might not get the full deduction.

That’s where smart S corporation planning comes in.

Where the 199A Deduction Gets Tricky

If your taxable income is too high—or if your business isn’t generating enough wage and asset activity—you could see your 199A deduction shrink or vanish. It’s especially frustrating for service businesses that operate leanly.

That’s why I encourage my S corp clients to start thinking proactively, not reactively.

S Corp Strategies I Use with Clients

1. Adjusting Reasonable Compensation Wisely
Paying yourself too much in W-2 wages? You might be eating into the profit portion of income that qualifies for the deduction. But paying too little can cause IRS scrutiny. It’s a balancing act—and one you need to revisit regularly.

2. Creating Deductible Expenses with Intention
Think ahead: Can you move expenses into the business that are currently paid personally? Home office reimbursements, accountable plans, mileage, tech equipment—you’d be surprised what you’re leaving on the table. The right deductions reduce taxable income without eroding the QBI base too much.

3. Using Retirement Contributions Strategically
A SEP IRA or Solo 401(k) can create deductions that help reduce personal taxable income—bringing you back under the 199A threshold—while still letting you keep most of your qualified income intact.

Plan Early. Don’t Guess Later.

This isn’t something to “figure out at tax time.” The best results happen when you plan before year-end. Sit down, run the numbers, and build a strategy that gives you the deduction without giving up too much in W-2 wages or business efficiency.

If you need help understanding how your business structure affects your eligibility—or how to optimize your mix of salary, profit, and deductions—let’s talk. The 199A deduction might be complicated, but the payoff is real.