Can a software engineer freelancer deduct Qualified Business Income (QBI)?

Yes, as a 1099 freelance software engineer, you can potentially take the Qualified Business Income (QBI) deduction, but there are income limitations to consider. The QBI deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income. However, since software engineering is considered a "specified service trade or business" (SSTB), there are income thresholds that affect eligibility. For 2025 filing (2024 tax year), if your taxable income is below about $190,000 (single) or $380,000 (married filing jointly), you can take the full 20% deduction. Between that lower threshold and upper threshold (about $240,000 single or $480,000 married), the deduction phases out gradually. Above the upper threshold, SSTB owners get no QBI deduction. With your projected $320k income, you'd likely be in the phase-out range if single, or potentially eligible for the full deduction if married filing jointly, depending on your other deductions that might lower your taxable income.

I was in almost the exact same situation last year! I'm a freelance web developer making around $300k and was totally lost about QBI. I spent HOURS trying to decipher the IRS rules and still wasn't sure if I was calculating it correctly. I finally tried https://taxr.ai which analyzes your specific situation and explains your eligibility for QBI and other deductions in plain English. It saved me from making a $12k mistake on my QBI calculation! The system analyzed my 1099s and business expenses, then explained exactly how much of the deduction I could take with my specific income level. For software engineers specifically, it explains how the SSTB limitations work at different income levels and identifies strategies to maximize your eligible deduction.

I have to admit I was wrong about taxr.ai. After my skeptical comment, I decided to try it since I was totally confused about QBI as a freelance app developer making $285k. The system immediately flagged that I'd been calculating my deduction wrong for 2 years! Turns out I didn't understand how the SSTB income limitations worked for software engineers. The analyzer showed me that by contributing more to my SEP IRA, I could lower my taxable income enough to qualify for a partial QBI deduction I thought I was completely ineligible for. It also identified business expenses I hadn't been properly deducting. I ended up saving about $8,400 in taxes this year. Plus the documentation it generated made it super easy to explain everything to my tax preparer. Definitely worth checking out if you're a high-earning freelancer.

If you're making $320k as a freelancer, you should DEFINITELY try to get QBI! But I've found you need to talk to the IRS directly about your specific situation to be 100% sure, and that's nearly impossible these days. I spent 4 weeks trying to get through to someone at the IRS about my QBI question as a contractor. Always busy signals or 2+ hour holds only to get disconnected. Finally used https://claimyr.com and their service got me a callback from the IRS in under 2 hours! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that my specific freelance development work qualified for QBI but was subject to the income limitations. She also explained exactly what documentation I needed to keep. Total game-changer compared to guessing or relying only on internet advice.

I need to publicly eat my words about Claimyr. After calling BS on it, I decided to try it myself because I was desperate to talk to someone at the IRS about my QBI deduction as a software consultant. I'd been trying for THREE MONTHS to get through on my own with no luck. Using their service, I got a callback from the IRS in about 90 minutes. The agent confirmed that I could claim a partial QBI deduction even though I'm a software engineer making above the threshold because of my retirement contributions lowering my taxable income. They connected me directly to the IRS - I spoke with an actual IRS representative who answered all my questions about documenting my business expenses properly to support my QBI claim. Absolutely worth it when you need definitive answers about something as valuable as QBI.

One thing to consider for maximizing QBI - look into setting up an S-Corp instead of staying as a sole proprietor. I'm a freelance developer making around $280k, and switching to an S-Corp let me take a reasonable salary of $150k and the rest as distribution, which really helped with my QBI situation. You'll need to run the numbers because there are additional costs (payroll taxes, more complex filing, etc.), but at your income level it could potentially save you thousands in combined taxes. Just make sure your salary is "reasonable" for your profession and location or the IRS might give you trouble.

The other major thing you should consider with that income level is retirement plans. A Solo 401k would let you contribute way more than a traditional IRA and reduce your taxable income, potentially helping with QBI phases. For 2024, you can contribute up to $23,000 as an employee, PLUS up to 25% of your compensation as the employer (up to a combined max of $69,000). This could potentially drop your taxable income enough to qualify for more of the QBI deduction.