How does W2 income affect QBI deduction for 1099 contractors?

The QBI deduction gets affected by your total taxable income, not just your 1099 earnings. So yes, both your W2 and 1099 income combined will determine if you hit the phase-out thresholds. For 2025, if you're single and your total taxable income exceeds $182,100, your QBI deduction starts phasing out. If you're married filing jointly, that threshold is $364,200. Based on your example of $95k W2 + $210k 1099, totaling $305k, you would likely be in the phase-out range if single, but might be okay if married filing jointly. As for your 401k question, the contribution limit applies across all employer plans for the year. For 2025, the employee contribution limit is $23,000 (plus catch-up if you're 50+). So if you contributed $1,200 to your W2 employer's 401k, you can only contribute $21,800 more as an employee contribution to your solo 401k. However, as a self-employed person, you also get to make employer contributions to your solo 401k (up to 25% of your net self-employment income), which is separate from your employee contribution limit.

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I was skeptical about taxr.ai when I first heard about it, but I decided to give it a try with my mixed W2/1099 situation. Wow, what a difference! It immediately identified that I could reduce my taxable income enough to stay below the QBI phase-out threshold by maximizing my solo 401k contributions. It also showed me exactly how much I could contribute to my solo 401k as both employer and employee, even with my existing W2 401k contributions. The tool literally saved me thousands in taxes by optimizing my QBI deduction that I would have partially lost due to the phase-out. What really impressed me was how it explained everything in plain English rather than tax jargon. Definitely worth checking out if you're dealing with this W2/1099 transition.

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Don't forget about the 199A specified service trade or business (SSTB) rules too! Depending on what type of 1099 work you're doing, if it falls under SSTB categories (health, law, accounting, performing arts, consulting, etc.), there are additional restrictions on the QBI deduction. Also, make sure you're accounting for self-employment taxes on that 1099 income. You'll be paying both the employer and employee portions of Social Security and Medicare taxes, which is an additional 15.3% on your net earnings (though you do get to deduct half of that on your 1040).

Regarding the 401k question - the $23,000 employee contribution limit for 2025 is shared across all your 401k accounts. But don't forget that the employer contribution portion of a Solo 401k is separate and follows different rules! As a self-employed person, you can contribute up to 25% of your net self-employment earnings as an "employer" contribution, up to a combined total limit of $69,000 for 2025 (or $76,500 if you're over 50). This can get really advantageous for high-earning 1099 contractors because you can potentially put away MUCH more for retirement than you could as just a W2 employee.

This is such a timely question! I just went through this exact transition last year and learned some hard lessons about tax planning. One thing I wish I had done earlier was run quarterly estimated tax payments once I started the 1099 work - don't wait until year-end like I did! A few practical tips from my experience: 1. Set up a separate business checking account for your 1099 income and expenses - makes tracking so much easier 2. Track ALL business expenses meticulously (home office, equipment, software subscriptions, etc.) - these can significantly reduce your net SE income 3. Consider making your Solo 401k contributions early in the year rather than waiting until tax time - gives you more flexibility with cash flow Also, since you're dealing with SSTB income as a software consultant, you might want to explore whether any of your work could potentially be classified differently. Sometimes the line between "consulting" and other types of services isn't crystal clear, and it could make a big difference for your QBI eligibility. Good luck with the transition! The tax complexity is definitely a shock at first, but the flexibility and earning potential usually make it worthwhile.