How High-Income Professionals Can Benefit from the Pass-through Deduction

Article Highlights:

  • High-Income Professionals 
  • Specified Service Trade or Business 
  • Sec. 199A Deduction 
  • Defined Contribution Retirement Plans 
  • Defined Benefit Retirement Plans 
  • Tax Savings 
If you are a high-income professional who is excluded from the new pass-through deduction because you are in a specified service trade or business (SSTB), you may be able to use retirement plan contributions as a work-around so that you can benefit from that new 20% deduction.

An SSTB generally includes the following trades or businesses:
  • Health (services by physicians, nurses, dentists, veterinarians, and other similar health care providers, although this does not apply to spas and health clubs); 
  • Law; 
  • Accounting; 
  • Actuarial science; 
  • Performing arts (but this does not apply to the services of others in the industry, such as promoters and broadcasters); 
  • Consulting; 
  • Athletics; and 
  • Financial services. 
The new deduction includes limits based upon an individual’s taxable income. For individuals in SSTBs, these limitations do not kick in as long the taxpayer’s taxable income is below the phase-out threshold. For SSTBs, the deduction phases out if your taxable income is between $315,000 and $415,000 for married couples filing jointly and between $157,500 and $207,500 for other filing statuses. Thus, once your taxable income is more than the $415,000 or $207,500 level, there is no 199A deduction based on income from the SSTB.

One way to reduce taxable income is by contributing to deductible retirement plans. But IRAs won’t cut it because they can only shelter $5,500 ($6,500 for those age 50 or older), plus their deductibility is phased out for higher-income taxpayers.

Better choices include defined contribution plans such as a self-employed retirement plan or a simplified employee plan (SEP), which allows a deductible contribution of 25% of your business’s net profit, but capped at $55,000 (2018). These may help for some, but you may need to contribute a lot more to get below the deduction phase-out threshold.

Another alternative is a defined benefit plan, which provides for a fixed benefit at retirement. The contribution amounts are calculated to meet that benefit goal based on the participant’s age and the annual retirement benefit desired. The maximum annual benefit for an individual beginning retirement at age 65 is $220,000. Thus, depending upon the selected benefit and the individual’s age, the annual deductible contribution could be six figures and would provide a substantial reduction in taxable income that could help you qualify for the 20% pass-through deduction. However, defined benefit plans cost a substantial amount to establish and maintain, which needs to be considered.

There are also other tax benefits. For instance, any reduction in taxable income also reduces your income tax liability, and those using this strategy are in the 32% or higher tax bracket, so any reduction in taxable income will generally save 32% of the amount contributed to the retirement plan, in addition to whatever benefit is gained from the 20% pass-through deduction.

As you can see, this is a complicated strategy, and there is a lot to be considered, but the benefits can be substantial. Please call for an appointment to determine in greater detail the types of retirement plans available to you and how this strategy will impact your tax liability.



Share this article...

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

We care about the protection of your data.

Junglebooks Affiliate Program

Why Partner with Us?

With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Industry-Leading Expertise

Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Attractive Commissions

We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.

Comprehensive Support

We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.

Trusted Reputation

Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.

Frequently Asked Questions

This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:


  • Individual Returns
  • Payroll Tax Issues
  • Business Returns
  • Sales Tax Returns
  • Rental Income Returns
  • Business Consultation
  • Expatriate Returns
  • Fiduciary & Estate Returns
  • Corporation Returns
  • Bookkeeping
  • Partnership Returns
  • LLC Returns

Our firm offers a full range of planning services including, but not limited to:


  • Individual Tax Planning
  • Business Tax Planning
  • Business Organization
  • Rental Properties
  • Foreclosures and Repossessions
  • Retirement
  • Investments
  • Sales and Exchanges
  • Pension Plans
  • Education Planning
  • Finance & Refinance Planning
  • Home Purchase and Sale Planning
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.