The 20% QBI Deduction: Why Most Marketing and PR Agencies Still Get It

By Craig S. Cody, CPA, Certified Tax Coach.

If you own a marketing or PR agency and somebody told you that you make too much to claim the 20% qualified business income deduction, they were probably describing their own situation, not yours. The phase-out that wipes out the deduction applies to a closed list of thirteen fields. Advertising, marketing and public relations aren't on it. Above the income threshold, agencies face a different test based on W-2 wages, and because agencies run on payroll, that test usually has room to spare.

I've been a CPA for more than 23 years, and my firm works with more than 70 marketing and advertising agency owners every month. Here's the part that should bother you: many owners don't even know they've been wrongly phased out. Nobody sat them down and told them they earn too much now. The return came back without the deduction, and it kept coming back that way.

That's what happens when the person doing your taxes is a preparer putting numbers in boxes instead of a strategist. Boxes get filled. Nothing gets questioned.

Let's check it.

What Is the 20% QBI Deduction?

It's section 199A of the tax code. If your agency is an S corp, a partnership, or an LLC, the profit passes through to your personal return. Before you calculate your tax, you get to deduct 20% of that business income.

It isn't a credit, and it isn't a write-off you have to spend money to get. You already earned the money. The deduction just means a fifth of it never gets taxed.

On $400,000 of agency profit, that's $80,000 of income you simply don't pay tax on.

Why Do High Earners Lose It?

Because there's an income threshold, and above it the rules change.

For tax years beginning in 2026, the threshold is $403,500 of taxable income on a joint return and $201,750 on a single return, per Rev. Proc. 2025-32.

Read that carefully, because this is where most owners misdiagnose themselves. It's taxable income on your personal return. It isn't your agency's revenue, and it isn't your agency's profit. Plenty of owners running a $3 million agency are under the threshold once their deductions land, and plenty of owners running a $900,000 agency are over it because of a spouse's income.

Above that line, one group of businesses starts losing the deduction. By $553,500 on a joint return, they've lost all of it.

That group has a name: a specified service trade or business.

Is a Marketing or PR Agency a Specified Service Business?

No, and this is the whole point.

The regulation lists thirteen fields: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, investing, investment management, trading, and dealing in securities.

Advertising isn't there. Marketing isn't there. Public relations isn't there. Creative and production aren't there.

There's more. The regulation specifically pulls sales, and economically similar services, out of the consulting category. Media buying, creative production, campaign management and account service are delivery work. They aren't consulting on somebody else's business.

There's also a narrow catch-all for a business whose principal asset is the reputation or skill of its owner. That's endorsement and appearance-fee territory. It isn't an agency with a staff and a client roster.

So your attorney really did lose the deduction. Your accountant really did. You're on a different list, which is to say you're on no list at all.

Who Is This Not For?

Three groups should stop reading here, and I'd rather say so than let you act on something that doesn't fit.

If your taxable income is under the threshold, none of this applies to you. You already get the full 20%. There's nothing to plan around, and nobody can take it from you.

If a meaningful share of your revenue is genuinely billed as consulting, the analysis changes. Some shops really are consultancies that also execute. If that's you, you may be in that group after all, and you need a real conversation rather than an article.

If you're a solo operator with no payroll, the second limit below is going to bite you, and the good news in this piece mostly isn't yours.

Go read your own engagement letters and invoices before you decide which group you're in. Whatever those documents say is what gets read back to you later. I'm not suggesting you rename anything. I'm suggesting you check that the words on your paperwork match the work your humans actually do.

What Happens Above the Threshold If You're Not on the List?

You don't get phased out. You get a different test.

Your deduction is capped at the greater of two numbers:

• 50% of the W-2 wages your business paid, or
• 25% of those W-2 wages plus 2.5% of what you paid for your qualified property

Now look at what an agency actually is. Your single largest expense is people. An agency is a building full of humans doing the work, and payroll is the whole cost structure. Our clients' people costs routinely run at or under 55% of agency gross income, which is Drew McLellan's and AMI's benchmark rather than mine, and even at that ceiling the wage base is enormous relative to profit.

Here's what that means in practice. Say your agency throws off $500,000 of qualified business income and your payroll runs $1.2 million. Your deduction would be $100,000. Half your wages is $600,000. The cap isn't close to binding.

Now say you're the only person on payroll at a $150,000 salary. Half of that is $75,000, and your $100,000 deduction just got cut to $75,000.

Same tax code. Completely different answer. The difference is payroll.

How Does Your Own Salary Change the Number?

This is the part almost nobody connects, and it's the reason this belongs in a planning conversation instead of in software.

Your own S corp W-2 counts toward that wage number.

So the salary you pay yourself pulls in two directions at once:

• It lowers the pass-through profit that the 20% gets calculated on
• It raises the wage cap that limits the deduction

If you've got a real team on payroll, the cap already has plenty of slack, so a bigger owner salary is mostly just shrinking your own deduction. If you're thin on payroll, the two forces fight each other and there's an actual number to solve for.

Most of the advice you'll find online treats your reasonable salary as a payroll tax question and stops there. It's also a 199A question, and the two answers aren't always the same one.

Is the QBI Deduction Going Away?

No. It was scheduled to expire at the end of 2025, and that expiration was repealed outright. There's no sunset provision left in the statute. It's permanent.

Two things follow from that.

First, if you or your accountant pulled income forward into 2025 to beat a deadline, the deadline never arrived. That's worth a conversation with whoever made the call.

Second, be careful what you read. The IRS newsroom page on this deduction still says it applies to tax years ending on or before December 31, 2025, and says nothing about permanence. An IRS URL isn't automatically current. You'll also see a 23% rate quoted all over search results, which came from a version of the bill that didn't become law. The statute says 20%.

Frequently Asked Questions

Does my agency's revenue determine whether I'm phased out?

No. The threshold is measured on your taxable income on your personal return, not on agency revenue or agency profit.

What are the 2026 QBI thresholds?

$403,500 on a joint return and $201,750 on other returns, with the phase-in range topping out at $553,500 and $276,750. Married filing separately is $201,775. These are inflation-adjusted every year.

Is a marketing agency a specified service trade or business?

Generally no. Advertising, marketing and public relations appear on none of the thirteen enumerated fields, and the regulation excludes sales and economically similar services from the consulting category.

Does my S corp salary affect my QBI deduction?

Yes, in two ways. It reduces the qualified business income the 20% is calculated on, and it increases the W-2 wages that set your cap above the threshold.

What if my agency does some consulting?

Then it depends on how much and how it's documented. Read your engagement letters and invoices first, then get a real analysis rather than a rule of thumb.

Is the QBI deduction permanent?

Yes. The scheduled expiration after 2025 was repealed and there's no termination provision left in section 199A.

Two Things to Check This Week

Before you accept that you make too much to qualify, check two things.

Whether you're actually on that list of thirteen. And whether your payroll is big enough that the wage cap was never going to touch you.

For most of the agency owners I see, the answer is no and then yes, in that order. That's a real deduction sitting on the table, and the only thing standing between an owner and it is usually that nobody looked. A preparer won't look. That isn't the job they think they have.

If you want the longer version of how agency owners keep more of what they make, I wrote a book for agency owners. You can request a free copy at the link below.

Request your free copy

Nobody's looking out for your money but you. Let's go look together.

Related reading: Five Tax Levers for Agency Owners at $1M of AGI and The Tax Break Hiding Inside Your Agency's Software.

Craig S. Cody is a CPA, Certified Tax Coach, and retired NYPD Lieutenant. His firm works with more than 70 marketing and advertising agency owners every month, helping them keep more of what they make through proactive tax planning.

This article is general education, not advice for your specific situation. Confirm your own facts with your advisor before acting.