If you operate as a sole proprietor or single-member LLC, earn a good income, and have no payroll and little depreciable property, you may be losing most of the Section 199A 20 percent deduction. Switching to an S corporation can fix that.

Here is the problem: Once your 2026 taxable income exceeds $276,750 (single) or $553,500 (married), the deduction depends on your W-2 wages or your depreciable property. With no payroll and no property, your deduction collapses to the new $400 statutory minimum, no matter how profitable the business is.

Consider a single taxpayer with $400,000 of proprietorship net income and $370,000 of taxable income, not in an out-of-favor specified service field. As a proprietor, the taxpayer receives the Section 199A deduction of $400.

But what if that same taxpayer incorporates, elects S corporation status, and takes a reasonable salary of $100,000? Two things happen.

First, payroll taxes drop. For the proprietorship, self-employment tax plus the additional Medicare tax runs about $35,116. With the S corporation, payroll taxes on the $100,000 salary run roughly $15,800—a savings of about $19,316.

Second, the salary creates W-2 wages, which unlocks the deduction. The calculation produces a $50,000 deduction, worth about $17,500 in the 35 percent bracket.

Together, the switch adds roughly $36,676 of after-tax cash. And because Congress repealed the Section 199A sunset, this is now an every-year result rather than a temporary one.

Two cautions: This strategy does not help if you are in an out-of-favor specified service business—doctors, lawyers, accountants, and similar fields. And the salary must be reasonable based on your facts.