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Unlocking Level One with the QBI Deduction 4:42 Nia: Okay, so we’ve got the structure—the Parent and the Children. Now I want to talk about those "unlockable levels" you mentioned earlier. Specifically, this permanent 20% QBI deduction. It sounds like a massive discount on your taxes just for being a business owner.
2:23 Miles: It really is. It’s essentially the government saying, "If you have qualified business income from a pass-through entity, we’re only going to tax 80% of it." And thanks to the One Big Beautiful Bill Act, this is now a permanent feature of the tax code as of 2026. For a business owner in a high tax bracket—say 32%—that 20% deduction is like finding a giant pile of cash every year.
5:21 Nia: So, if I have $500,000 in profit, the IRS acts like I only made $400,000?
0:35 Miles: Exactly. That $100,000 deduction saves you something like $32,000 in actual federal income tax. But here is where the multi-entity strategy gets really interesting: "stacking." If you have multiple operating entities that are truly separate—meaning they have their own functions, their own employees, and their own books—each one can potentially generate its own QBI deduction.
5:48 Nia: Wait, so instead of one big deduction, I’m getting multiple? Is there a limit to how much you can deduct?
5:55 Miles: There are definitely guardrails. Once your taxable income hits a certain threshold—for 2026, that’s around $600,000 for married couples—the IRS starts looking at things like how much you’re paying in W-2 wages and the cost of the property the business owns. This is why the "Fortress" structure is so important. By having your employees in the right entities, you can optimize those wage-to-income ratios to make sure you’re maximizing that 20% deduction across the board.
6:23 Nia: It sounds like a puzzle where all the pieces have to fit perfectly. What happens if someone is in a "service" business? I know the IRS is a bit pickier with consultants and doctors.
6:32 Miles: You’ve hit on the "Specified Service Trade or Business" trap. If you’re in fields like law, health, or consulting, that 20% deduction can start to phase out once you hit those high income levels. But again, the Rutland holding company structure gives you options. You could separate the "service" part of the business from the "product" or "asset" part. Maybe your consulting firm is one entity, but the proprietary software or the training materials it uses are held in a separate "IP" subsidiary. That IP entity might not be considered a "service" business, allowing it to keep the full deduction even if the consulting side is phased out.
7:06 Nia: That’s a power move! You’re basically splitting your income into different "buckets" so the IRS treats them differently. But we should probably talk about the "Self-Employment Tax" too, because that’s the silent killer for most LLC owners, right?
7:19 Miles: Oh, it’s brutal. If you’re a standard LLC owner, you’re paying 15.3% in self-employment tax on almost every dollar you make. But when you layer in an S-Corp election for your operating entities, you can change the game. You pay yourself a "reasonable salary"—which is the only part hit by that 15.3% tax—and then the rest of the profit comes to you as a distribution, which is totally exempt from self-employment tax.
7:44 Nia: So, if I make $400,000, and I pay myself a $150,000 salary, I’m only paying that 15.3% on the $150k?
7:54 Miles: Right. The other $250,000 is free and clear of that specific tax. We’re talking about saving $30,000 or $40,000 a year just by changing the "tax wrapper" on your business. But you have to be careful—the salary has to be "reasonable." You can't just pay yourself $10 a year to avoid taxes. The IRS expects you to pay what someone else would get paid to do your job. That’s why we say structure is a strategy, not a loophole. You have to play by the rules to keep the shield intact.
8:21 Nia: It really feels like you’re designing a custom engine for your wealth. It’s not just about "paying less"; it’s about choosing the most efficient path for the money to flow.
0:35 Miles: Exactly. And when you combine the QBI deduction with S-Corp planning, you’re hitting the tax bill from two different angles. You’re reducing the income that’s subject to tax, and you’re reducing the rate of tax on the income that remains. It’s a double win that most people completely miss because they’re too focused on just finding "more deductions" for things like office supplies.