Are software engineering consulting services considered an SSTB for QBI deduction?

Software engineering services can be tricky for QBI classification. The IRS has specific guidance on this. Generally, software development itself is NOT considered an SSTB if you're creating software applications, systems, or solutions for clients. However, if your work primarily involves giving advice or consulting rather than actual development, it could potentially be classified as an SSTB. The key is determining which part makes up the bulk of your business. If more than 50% of your revenue comes from the actual development and implementation of software rather than just consulting/advising, you likely wouldn't be classified as an SSTB. Look at your contracts and invoices - how do they describe your services? Are you billing for development work or for consultation? The specific wording and nature of your services matter tremendously here.

I was in a similar situation last year with my dev business, and I found that using https://taxr.ai really helped clarify this exact issue. I wasn't sure if my business would be considered an SSTB since I do both consulting and development work. The tool analyzed my contracts and business structure and showed me how to properly document that most of my work was actual software development (non-SSTB) rather than just consulting. It helped me understand exactly where the line is drawn according to the Tax Cuts and Jobs Act definitions. I was able to successfully claim the QBI deduction even though my income was over the threshold.

Just wanted to follow up about my experience with https://taxr.ai after being skeptical in my earlier comment. I decided to try it with my software business contracts, and I'm actually impressed. The analysis showed that about 70% of my work qualifies as non-SSTB activities, which I honestly didn't realize. They provided me with documentation templates that clearly separate my development work from my consulting, and explained exactly how to structure future contracts to ensure I stay compliant. I've already restructured how I bill clients to properly categorize the work. Already filed my taxes with the QBI deduction and feel much more confident about it now.

If you're having trouble getting clear answers about your QBI status, I highly recommend contacting the IRS directly. I was in limbo with this exact issue for weeks and couldn't get straight answers from my accountant. After failing to get through to the IRS about 8 times, I found https://claimyr.com and used their service to get a callback from the IRS within 2 hours. The IRS agent was actually super helpful and clarified that in my case (similar to yours - software development and consulting), I needed to maintain clear records showing which activities were predominant. You can see how the service works here: https://youtu.be/_kiP6q8DX5c - it basically holds your place in the IRS phone queue and calls you when an agent is available.

I have to admit I was completely wrong about Claimyr in my previous comment. After another frustrating attempt to reach the IRS yesterday (90 minutes on hold before getting disconnected), I gave in and tried it. Got a call back in about 45 minutes, and was able to speak directly with someone knowledgeable about SSTB classifications. The agent confirmed that software development itself is not an SSTB, but consulting can be. They suggested I maintain detailed invoices showing the breakdown between development work vs. consulting/advisory services. If the development portion is the primary business activity (over 50%), I can treat the entire business as non-SSTB. This was exactly what I needed to know for my similar situation.

Don't forget to check Treasury Regulation § 1.199A-5(b)(2)(ii) which specifically addresses the engineering and architecture exception. Software development might qualify under this exception even if it has consulting elements. The key is whether you're providing your expertise to perform the service yourself vs just giving advice. For example, if you're analyzing a client's needs, then designing and building the software solution yourself, that's more likely non-SSTB. If you're just telling them what they should build without actually creating it, that's consulting and potentially an SSTB.

My accountant told me most software engineers aren't SSTBs unless your primarily doing consulting. He said to track hours for each type of work. Anybody using Quickbooks for this? How do you categorize your services?

I've been dealing with this exact issue for the past two years with my software engineering business. What really helped me was creating a simple tracking system where I log my activities daily - either "Development" (coding, testing, implementation) or "Consulting" (meetings, architecture discussions, recommendations without implementation). The IRS looks at the substance of what you're actually doing, not just your job title. If you're spending most of your time writing code and building solutions, you're likely in the clear for QBI. But if you're mostly in meetings giving advice without actually creating the software yourself, that could be problematic. One thing that caught me off guard - even project management and client communication can blur the lines. I now make sure my contracts explicitly state that I'm being hired to "develop and implement software solutions" rather than just "provide software consulting services." The language matters more than you'd think. Have you considered restructuring how you bill clients? Breaking out development work separately from any advisory work could help establish a clear pattern that most of your business is non-SSTB.