Do Financial Advisors Qualify for the QBI Deduction?

The Qualified Business Income (QBI) deduction, also referred to as a Section 199A deduction, allows eligible business owners to deduct up to 20% of their qualified business income on their return. Deductions can prove valuable at tax time, as they reduce your taxable income. But not everyone is eligible to claim them. So while financial advisors do qualify for QBI deductions, there are some rules governing when financial services professionals can claim this tax break.

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QBI Deduction Eligibility

The QBI deduction was first introduced by the 2017 Tax Cuts and Jobs Act (TCJA) to provide tax relief to self-employed individuals and small business owners¹. The IRS defines QBI as income and gains from an eligible business, reduced by deductions. The deduction was originally set to expire at the end of 2025. But it was made permanent with the passage of the One Big Beautiful Bill (OBBB).

Under IRS rules, these business structures are eligible for a QBI deduction:

• Sole proprietorships
• Partnerships
• Limited liability companies (LLCs)
• S corporations

It’s also important to note that some trusts and estates may qualify to deduct QBI, as well.

The IRS allows qualified trades or businesses to claim the deduction, with the following exceptions:

• C corporations
• Trades or businesses that involve performing services as an employee
• Specified service trades or businesses (SSTBs) with taxable income that exceeds the annual threshold

An SSTB is any trade or business that engages in activities related to health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading or dealing in certain assets, or in which the principal asset is the reputation or skill of one or more of its employees or owners.

De minimis rules can also affect whether a business is considered an SSTB. An entity is not an SSTB if:

• Gross receipts are $25 million or less and less than 10% of gross receipts are from the performance of services in a specified field.
• Gross receipts are more than $25 million and less than 5% of gross receipts are from the performance of services in a specified field.

If either is true, the trade or business may generate income that’s eligible for the QBI deduction, regardless of taxable income.

Do Financial Advisors Qualify for QBI Deductions?

Financial advisors can qualify for the QBI deduction and take advantage of this valuable tax benefit. Advisors are typically considered SSTBs, so your ability to claim a QBI deduction hinges on two factors:

• Your business structure
• Your income

If you operate as a pass-through entity, you meet the first test for claiming a QBI deduction. Next, you’ll need to calculate your eligibility based on your income.

The IRS allows the deduction for eligible business owners whose income is below certain thresholds. If your income exceeds the threshold, the amount of the deduction you can claim is reduced, until it eventually phases out to zero.

Below are the QBI income phase-out limits for 2025²:

The phase-out limits are based on total household income from all sources. That includes spousal income and income from investments, as well as qualified business income. These thresholds could make it difficult for higher-earning advisors to claim the full deduction, or any amount at all.

How Can Financial Advisors Claim QBI Deductions?

Taking a deduction for qualified business income is possible, with some planning. Keep in mind, however, that you may want to consult a certified public accountant (CPA) or another tax professional for advice on how to manage your tax liability. Here are some tips that could help you qualify:

• Review your business structure. If you operate as a sole proprietor, S corp., LLC or partnership, you have an eligible business, according to IRS rules. If your business is a C corporation, you may want to weigh the merits of changing structures to decide if it’s worth being able to claim a QBI deduction.
• Review your income. Financial advisors are typically considered SSTBs in the eyes of the IRS. Comparing your estimated income to the phase-out threshold for the current tax year can help you gauge how likely you are to qualify for a full deduction and where you are in the phase-out range.
• Contribute to a tax-advantaged retirement plan. Contributions to a self-employed retirement plan, such as a SEP IRA or an individual 401(k), can increase your deductions and potentially bring your income within the QBI limits. If you have a self-employed retirement account that’s funded with pre-tax dollars, consider how you can max out your annual contribution limits.
• Accelerate deductible expenses. Say you plan to make tax-deductible purchases or investments for your business. You may consider doing so sooner rather than later, if possible. Increasing deductions could help to widen the space between your income and the QBI phase-out limits if you’re close to being ineligible.
• Defer client invoices. Delaying invoices to push income into the next year is another approach you might employ when attempting to qualify for a QBI deduction. For example, say you normally send client invoices during the last week of the year. In this case, you could consider whether switching your schedule to the first week of January may be a better strategy.

If you qualify for the QBI deduction, you’ll use Form 8995-A to calculate and claim the deduction, depending on your taxable income³. The IRS designates this form for tax filers with more complex situations, including SSTBs. Taxpayers with a simpler QBI deduction may use Form 8995 instead.

Bottom Line

The QBI deduction is one of many tax breaks you may be eligible to claim for your advisory business. Whether you’re part of a large team or run a smaller, boutique firm, staying up to date on changing tax trends and working with a trusted CPA can ensure a smooth tax filing.

Tips for Growing Your Advisory Business

• Building a thriving practice is often a juggling act, particularly when it comes to marketing. Between growing an email list, building a social media following and ensuring that your website is optimized for search, there’s a lot to manage. Partnering with an advisor marketing platform like SmartAsset AMP can help you increase your visibility with less stress. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• If you use automated tax software to help prepare your personal and business returns, the program should walk you through the QBI deduction to determine if you’re eligible and what you can claim. Tax planning software can also be valuable when working with clients to help them develop their financial plans. A comprehensive tax planning program is a useful tool for evaluating different planning scenarios and creating a tax-efficient portfolio.

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