Up to 20% of your profit tax-free: the QBI deduction for your LLC

Imagine you're self-employed in the USA. You have an LLC that's taxed as a sole proprietorship or partnership, a so-called "pass-through" entity, because the profits aren't taxed at the company level but land directly with you as an individual.

Then the IRS tells you: "Hey, if you work hard and stay under a certain income threshold, you can simply deduct 20% of your profit before you pay income tax." A gift. Honestly.

Example:

Ms. Müller, originally from Cologne, runs an online consulting business in Austin, Texas. Her profit in 2025 is $100,000.

Thanks to the QBI deduction, she can deduct $20,000 of that. So she only pays income tax on $80,000.

This isn't an allowance. It directly reduces your taxable income. So: A real advantage. Real money.

Only certain business types qualify:

✅ Sole proprietorships
✅ Partnerships (e.g. LPs)
✅ LLCs (if treated as "disregarded" or as a partnership)
✅ S Corporations (with restrictions)

Not eligible:

❌ C Corporations (the classic US corporation)
❌ Income from employment
❌ Investments (stocks, interest, rents, with exceptions!)

So if you're a newcomer from Europe setting up a company in the USA, the LLC as a "disregarded entity" is often the best choice, precisely because of the QBI deduction.

Oh yes. Welcome to America: nothing here is simple.

The QBI deduction is capped, restricted and full of pitfalls, especially for high-earning entrepreneurs. Two points matter most:

1. Income thresholds

If you earn too much, the QBI deduction is reduced or disappears entirely.

2025 thresholds (approximate):

• $197,300 (Single)

• $394,600 (Married Filing Jointly)

If your income is above that, you have to show that your business is not a "Specified Service Trade or Business" (SSTB), meaning not one of the "bad" professions like tax advisor, doctor, lawyer or investment advisor.

The irony: the very people who understand it best (tax advisors like us) often can't use it. Welcome to tax paradise.

2. SSTB: what is it?

The IRS has a list of professions it addresses like this: "You're too clever, you don't need tax gifts."

They include:

• Tax advisors (sadly!)

• Doctors

• Lawyers

• Consultants (careful!)

• Artists

• Investment managers

• Athletes

• and other "celebrity" personalities

Not affected, for example:

• IT companies

• Online retail

• Manufacturing businesses

• Skilled trade services

Example:

Mr. Huber moves from Zurich to Florida and sells online courses as a cryptocurrency coach. The IRS could classify him as a "consultant": then the QBI deduction gets tight if his income is too high.

By contrast:

Ms. Schmid, also from Zurich, sells handmade ceramics on Etsy. Her online shop is clearly a retail business. Provided she stays under the income threshold, she can benefit fully from the QBI deduction.

Let's run a quick example.

Mr. Schneider from Vienna forms an LLC in Texas and offers software development.

• Profit 2025: $120,000

• Filing status: Single

• QBI deduction: $24,000

• Taxable income: $96,000

Without the deduction he would have paid, say, around $22,000 in tax (depending on the state). With the deduction, it's only about $17,000. Savings of $5,000, just for understanding one section of the tax code!

Many founders set up what's called an S Corp in the US to save on payroll taxes. QBI applies here too, but with rules:

• You have to pay yourself a salary.

• Only the profit above your salary counts as QBI.

• The salary itself? No deduction.

Example:

Ms. Meier from Frankfurt has an S Corp with $150,000 in profit. She pays herself a salary of $70,000. Only the remaining $80,000 is QBI, and from that she can deduct $16,000.

That's still very attractive, but you need to make sure your salary is "reasonable." Otherwise you'll run into trouble with the IRS. And we want to avoid that.

Because the income thresholds are strict, it can pay to spread out profits or time your investments.

Example:

If you expect $200,000 in profit in 2025 but only $100,000 in 2026, you could:

• Bring business expenses forward

• Push back invoicing

• Split bonuses

• or pay part-time staff in January instead of December

The goal: stay below the magic threshold of $197,300 if you're single!

1. The right business structure (LLC or S Corp, not a C Corp!)

2. Profits from a genuine business activity, not pure investing or passive income

3. A correctly prepared tax return (Form 1040 plus "Form 8995" or "8995-A")

Our advice: find an experienced tax advisor. Yes, even if they get nothing out of the deduction themselves (see SSTB, the sad truth).

Right away. As soon as you form your LLC or S Corp in the US, you should optimize your structure for the QBI deduction. It's one of the biggest tax advantages available to you as a newcomer.

And the best part: you can form your US company before you immigrate, bank account included. That way you build your structure right from day one, save taxes from the start and come across like a pro when the first IRS letter arrives.

If you're moving from Europe to the USA, the QBI deduction can save you serious tax, as long as you do it right.

Remember:

• LLC over a home-country company.

• QBI over frustration.

• Planning over back taxes.

And if you ever call the IRS and a robot asks what you want, just say: "QBI, baby." Maybe it'll laugh. Maybe not. But you'll save money either way.

Planning your move to the USA? At Mount Bonnell Advisors, we specialize in European entrepreneurs, investors and founders who want to take off in the US with structure, humor and a smart tax strategy.

Book an initial consultation with our team right here on the website. If you like, we can also help you form your LLC, register for taxes or set up the right structure for the QBI deduction.

Because let's be honest: you came to America to be free and successful, not to hand everything over to the government.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.