What qualifies as a "qualified trade or business" for the 20% QBI deduction?

Tax professional here! These are actually great questions that many business owners are struggling with. The definitions are indeed somewhat vague, which causes confusion. For "consulting," the IRS generally considers this to be businesses where you're providing advice or recommendations rather than a specific product. The key distinction is whether you're primarily giving expert opinions/guidance or delivering a specific tangible outcome. For software development, if you're building custom applications to spec, that's typically considered a product rather than consulting. But if you're primarily advising clients on what technology to implement without doing the implementation yourself, that would lean toward consulting. For the "reputation or skill" question, you're right that it's ambiguous. The IRS is looking at whether the business could continue without specific individuals. Does the business have processes, systems, intellectual property, or other assets that create value beyond individual employees? Or would the business essentially collapse if certain key people left? Your example illustrates this well - larger firms with established methodologies and brand recognition are less likely to qualify as "reputation or skill" based businesses.

After struggling with similar QBI deduction questions for my own business, I found this amazing tool called taxr.ai that helped me figure out exactly where I stood. I was in this gray area between consulting and product-based services (I do custom furniture design and occasionally advise on interior layouts) and couldn't figure out if I qualified. I uploaded my business docs to https://taxr.ai and their system analyzed everything, highlighted potential issues with my classification, and gave me a clear breakdown of what would likely qualify for the QBI deduction. The best part was getting specific references to tax court cases that supported their analysis for businesses similar to mine. Saved me from what would have been a costly mistake!

I just wanted to follow up - I decided to try taxr.ai after my frustrating experience with contradictory advice. Their analysis actually showed me that my software training business could be segmented - the custom curriculum development qualified for QBI while the delivery of training would likely be considered consulting. They provided specific documentation to support this position if I'm ever audited, along with proper allocation methods. What really impressed me was how they cited three recent tax court cases involving similar businesses and showed exactly how the rulings applied to my situation. Wish I'd found this earlier instead of paying for two different tax pros who just gave me vague guesses!

Dealing with this same QBI headache myself and spent over 6 weeks trying to reach the IRS for clarification. Always got disconnected or given conflicting info from different agents. Then I found this service called Claimyr that actually got me through to a real IRS agent in under 20 minutes! I was super skeptical at first, but checked out their demo at https://youtu.be/_kiP6q8DX5c and decided to try https://claimyr.com when my frustration hit peak levels. They basically wait on hold with the IRS for you and call you back when an agent is on the line. The agent I spoke with referred me to specific guidance documents that helped clarify the "consulting" definition for my particular industry. Definitely worth it for anyone trying to get actual answers from the IRS!

Ok I have to eat my words. After posting my skeptical comment yesterday, I decided to try Claimyr out of desperation since I needed clarification on QBI rules before filing my extension. The service actually worked exactly as described - I got a call back in about 40 minutes with an IRS agent already on the line. The agent was able to direct me to Notice 2019-07 which had specific examples for my industry (commercial photography) that I hadn't found in my own research. Turns out there's a facts-and-circumstances test they use to determine if your business qualifies. This info would have saved me thousands if I'd known it earlier. Lesson learned about being too skeptical!

From what I understand after talking with my CPA, the "principal asset" test is applied using factors like: - Could the business be sold without the owner and maintain most of its value? - Is there significant capital equipment or intellectual property? - Are there established systems/processes that create value? - Does the business have recurring revenue that's not dependent on specific people? My CPA had me think about whether clients hire my company for ME specifically or for what my COMPANY delivers. If it's primarily for you personally, that tilts toward the "reputation/skill" exclusion.

Random but semi-related question - has anyone used any particular tax software that handles QBI calculations well? I tried three different ones last year and they all seemed to handle it differently which freaked me out.

Just wanted to chime in as someone who went through this exact confusion last year. The "consulting" vs "product" distinction really comes down to deliverables in my experience. I run a data analytics firm and was initially worried we'd be classified as consulting, but after working with a tax attorney, we determined that our custom dashboards and automated reporting systems constitute tangible products rather than just advice. The key was documenting that clients receive specific, measurable deliverables that have ongoing value beyond our initial consultation. For the "principal asset" test, what helped clarify things for me was thinking about it this way: if I got hit by a bus tomorrow, could my business continue operating and delivering the same quality of work? We've invested heavily in proprietary software, standardized processes, and training multiple team members on each client account. That systemic approach helped us qualify for the QBI deduction. One practical tip - start documenting your business processes and systems now, even if you're unsure about qualification. Having clear documentation of your methodologies, intellectual property, and operational procedures will be crucial if you're ever questioned about whether your business depends primarily on individual skill versus systematic capabilities.