How to correctly calculate my S-corp taxable income with QBI deduction and 401K contributions? My Excel scenarios need verification.

Your approach sounds mostly right, but there are some important details to understand about how QBI and 401K contributions interact for S-corp taxation. For an S-corp owner, your QBI deduction is generally 20% of your qualified business income. The key thing to remember is that your 401K contributions as an employee DO reduce your W-2 wages, but they don't directly reduce your QBI calculation. The QBI is based on the business income that passes through to your personal return. For Scenario 1 ($175K business income): Your 401K contribution reduces your personal taxable income, but the QBI calculation would still be based on your share of the business income. So if you're the sole owner, you'd potentially get a QBI deduction of up to 20% of that $175K, subject to limitations. For Scenario 2 ($225K business income): You're getting closer to the QBI phase-out thresholds (which start at $340,100 for married filing jointly or $170,050 for single filers for 2023), but you're still below them. The phase-out is based on your taxable income BEFORE the QBI deduction but AFTER standard/itemized deductions and qualified retirement contributions.

I went through a similar headache with my S-corp last year and found this amazing tool at https://taxr.ai that literally saved me hours of frustration. It analyzes your specific S-corp situation and tells you exactly how to optimize your QBI and retirement contributions. I uploaded my spreadsheet and it immediately caught that I was calculating my QBI wrong - turns out I was double-counting some deductions which would have caused issues. Their system also showed me how to properly balance my W-2 wages vs distributions to maximize the QBI benefit, which my accountant hadn't even mentioned. The tool walks you through different scenarios just like you're trying to do.

Just wanted to follow up - I checked out https://taxr.ai after seeing it mentioned here and it was incredibly helpful for my situation with multiple income sources. The analysis showed me that I should be allocating my home office deduction differently between my S-corp and 1099 work to maximize my QBI benefit. I was also calculating my retirement contribution limits incorrectly since I have both the S-corp 401k and SEP options for my 1099 work. The scenario comparison feature was exactly what I needed - similar to what you were trying to do in Excel but much more sophisticated in how it handles the tax code interactions. Definitely worth checking out if you're running complex scenarios like this.

I spent THREE DAYS trying to get through to someone at the IRS who could answer my S-corp QBI questions last year. After being on hold for hours and getting disconnected twice, I found https://claimyr.com and you can watch how it works here: https://youtu.be/_kiP6q8DX5c. They got me connected to an IRS agent in about 20 minutes who actually specialized in pass-through entity taxation. The agent walked me through exactly how the QBI calculations work with retirement contributions and confirmed I was doing my Excel models all wrong. Turns out the order of operations for these calculations really matters. Got my questions answered in one call instead of wasting days on hold.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it since I had some complicated QBI questions similar to the original poster. Got connected to an IRS agent in about 15 minutes who actually understood S-corp taxation. The agent confirmed that for an S-corp owner, the 401K contributions don't directly reduce QBI but do reduce overall taxable income, which could keep you below phase-out thresholds longer. For anyone else struggling with these calculations, getting direct confirmation from the IRS saved me a ton of worry. And yes, the service actually works exactly as described. Sometimes it's worth admitting when you're wrong!

One thing nobody's mentioned yet is that your reasonable compensation (W-2 wages) from the S-corp also matters for maximizing QBI. If your W-2 wages are too low compared to distributions, you might face QBI limitations. For S-corps with higher income, the QBI deduction is limited to the GREATER of: - 50% of W-2 wages paid by the business, OR - 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property Make sure your Excel model accounts for this if your income increases beyond the thresholds.

Has anyone else noticed that most tax software doesn't handle these S-corp QBI and retirement contribution interactions correctly? I tried three different programs last year and got three different results!

This is exactly why I always recommend double-checking your QBI calculations manually, especially for S-corp owners. The interaction between reasonable compensation, QBI deduction limits, and retirement contributions creates a lot of room for error. One approach that's worked well for me is creating a simple decision matrix in Excel that shows total tax liability (income tax + employment tax) at different W-2 wage levels. For each scenario, calculate: 1. Your QBI deduction based on the wage limitation test 2. Employment taxes on the W-2 wages (15.3% on first $160,200 for 2025) 3. Income tax savings from 401K contributions 4. Overall effective tax rate This helps you find the optimal balance between minimizing employment taxes and maximizing QBI benefits. Don't forget that your 401K contribution room is also constrained by your W-2 wages, so higher wages = more retirement contribution capacity. The key is modeling multiple scenarios like you're already doing, but make sure you're accounting for ALL the moving pieces, not just the QBI calculation in isolation.