Should my QBI deduction have been phased out based on my income?

Thanks for the explanation. So if part of my business income comes from selling actual products (like software) rather than just services, would that part be treated differently for QBI purposes? And does the QBI deduction get calculated on your total qualified business income before or after expenses?

The QBI deduction is generally calculated on your net business income after expenses. So it's based on the profit shown on your Schedule C, not your gross receipts. As for the product vs. service split, yes, that can make a difference. If you can reasonably separate your business activities between consulting services (likely an SSTB) and product sales (potentially not an SSTB), the income from product sales might not be subject to the same phase-out limitations. This could explain why your deduction is higher than expected. The IRS does allow for this type of reasonable allocation if you maintain separate books and records for the different activities.

Did you have to talk to anyone or was it all automated? I always worry about uploading my financial docs to websites. How secure is it?

How accurate was it? I've used tax software that claimed to analyze everything correctly but still made obvious errors. Was it worth the time investment compared to just asking a CPA?

It's completely automated - you upload your documents and the system analyzes them using AI. No need to schedule calls with anyone, which I liked. As for security, they use bank-level encryption and don't store your docs permanently - they're deleted after analysis. I was initially hesitant too, but their security page explained their protocols in detail. The accuracy was impressive for my situation. It correctly identified the split between my service and product income and showed exactly how the QBI calculation worked for each portion. I actually took the report to my CPA who confirmed it was correct. Saved me a consultation fee and gave me documentation to keep with my tax records. Much faster than waiting for a CPA appointment during busy season.

Wait, how does that even work? I thought the IRS phone system was just permanently broken. Does this actually get you through to a real person or just another automated system?

Sounds too good to be true. I've literally spent 5+ hours on hold with the IRS before giving up. If this actually works, why isn't everyone using it? The IRS would just be overwhelmed and the system would break down.

It connects you to an actual human IRS agent, not another automated system. Claimyr basically calls the IRS, navigates through all the prompts, waits on hold for you, and then calls you when an actual agent picks up. It's like having someone else do the waiting for you. The reason everyone doesn't use it is probably because many people don't know it exists. The IRS gets about 100 million calls annually, but they only answer a fraction of them. This service doesn't create more capacity at the IRS - it just helps you be one of the calls that actually gets through instead of hanging up after hours of waiting. Also, I think some people are skeptical it works until they try it.

Did your accountant charge a lot for handling the QBI calculations specifically? I'm wondering if I should get a second opinion from a professional before I file.

For my specific QBI analysis, my accountant charged about $250, which was well worth it considering she found an additional $3,800 in deductions that my tax software missed. She had me break out my revenue streams more specifically and properly document the split between service and product income. Many accountants offer a free initial consultation, so you could at least get a sense of whether your situation might benefit from professional review. Given your income level and the complexity with mixed business types, I'd definitely recommend at least talking to someone who specializes in small business taxation. The QBI rules are notoriously tricky, especially in the phase-out ranges.

Oh that's really good to know. Where do you find the most up-to-date QBI threshold information? The IRS website is so confusing to navigate.

This is incredibly helpful! I've been struggling to find reliable sources for the current year thresholds. I didn't realize the revenue procedures were updated annually - I was just using whatever came up first in Google searches. Bookmarking those IRS landing pages is a great tip. Thanks for taking the time to explain where to find the official numbers!

This is exactly the kind of detailed explanation I was looking for! The distinction between SSTB and non-SSTB income makes so much sense now. I had no idea that software product sales could be treated differently from consulting services for QBI purposes. Do you happen to know what kind of documentation the IRS would want to see to support this income split? I keep separate invoices for consulting vs. software sales, but I'm wondering if I need more formal separation like different business bank accounts or something more elaborate. Also, is there a specific percentage threshold where the IRS might question whether the software sales are truly a separate business activity versus just incidental to the consulting work?

Great question about documentation! From what I understand, separate invoices are a good start, but the IRS generally looks for more substantial evidence of separate business activities. This could include things like different marketing efforts for each revenue stream, separate accounting records (even if in the same books), different client bases, or distinct business processes. You don't necessarily need separate bank accounts, but it helps if you can show that the software sales involve different skills, time commitments, or business relationships than your consulting work. The IRS wants to see that these aren't just incidental sales but legitimate separate business activities. As for percentage thresholds, there's no specific rule, but the IRS has indicated in guidance that the allocation should be "reasonable" based on the facts and circumstances. If software sales represent a meaningful portion of your income and you can document the separate nature of the activities, you should be fine. I've seen cases where even 20-30% product income was successfully defended as non-SSTB. The key is being able to demonstrate that you're actively engaged in software development/sales as a distinct business activity, not just occasionally selling tools that are byproducts of your consulting work.

Your approach with the spreadsheet tracking is really smart! I'm dealing with a similar mixed income situation and hadn't thought about documenting the time allocation between different activities. That contemporaneous record-keeping you mentioned could definitely be crucial if there are ever questions about the reasonableness of the income split. I'm curious - do you track hours spent on each activity or just revenue? I'm thinking about starting a simple time log to show how much effort goes into software development versus consulting work. It seems like having that kind of detail could really strengthen the argument that these are genuinely separate business activities rather than just different ways of billing the same work. Thanks for sharing your experience - it's reassuring to know others have navigated this successfully with good documentation!

I track both revenue and hours, actually! For revenue it's straightforward since I invoice separately for consulting versus software sales. For time tracking, I use a simple app to log hours spent on software development, marketing my products, customer support for software sales, etc. versus time spent on direct consulting work. What I've found helpful is that the time logs show the software side really is a distinct business activity - I spend dedicated time on product development, updating documentation, handling software-specific customer inquiries, etc. It's not just consulting work packaged differently. The IRS guidance mentions looking at factors like "separate books and records" and "different business activities," so having both the financial split AND the time allocation documented seems like it covers those bases well. Plus it helps me understand my own business better - I was surprised to see how much time actually goes into the software side versus pure consulting hours.