Client Case Studies
Utilizing a defined benefit plan to become eligible for the QBI deduction
The Qualified Business Income (QBI) deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income.
The Scenario
A 52-year-old independent consultant (SSTB) earns $650,000 in annual net profit. Because their taxable income is well above the 2026 phase-out threshold, their QBI deduction is $0.
The Strategy:
By implementing a defined benefit plan, the consultant can significantly reduce their taxable income to fall below the phase-out range.
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Massive Contributions: Unlike a SEP IRA or 401(k) with lower limits, a defined benefit plan allows for larger contributions. At age 52, the consultant might contribute $250,000 or more annually.
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Taxable Income Reduction: The $250,000 contribution is a direct business expense, reducing taxable income from $650,000 to $400,000.
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Unlocking QBI: This reduction brings them back into the “phase-in” range (or below the threshold entirely), allowing them to claim a substantial QBI deduction they previously lost.
The Results
| Metric | Before DB Plan | After DB Plan |
| Net Business Income | $650,000 | $650,000 |
| DB Plan Contribution | $0 | ($250,000) |
| Taxable Income | $650,000 | $400,000 |
| QBI Deduction | $0 (Phased out) | ~$80,000 (Unlocked) |
| Total Tax Savings | Base tax on $650k | ~$120k+ (DB deduction + QBI deduction) |
Key Takeaway
The Defined Benefit plan provides the potential for a double tax benefit:
First, it allows for a significant and immediate tax deduction for the contribution itself.
In addition, it “unlocks” the QBI deduction by lowering taxable income into a qualifying range.