OBBBA Tax Changes 2025: How High-Income Self-Employed Households Can Avoid the 45% Tax Trap
High-Income Self-Employed Households, Take Note
High-earning self-employed professionals—especially couples earning $500,000 to $600,000 per year—face significant new tax dynamics under the One Big Beautiful Bill Act (OBBBA) of 2025. These rules disproportionately affect income in this range through a combination of:
A phaseout of the expanded SALT deduction cap
And the loss of the 20% Qualified Business Income (QBI) deduction for many solo business owners
This post breaks down the new rules and shares proactive strategies—particularly for self-employed individuals with no employees—to manage income and reduce your effective tax rate under OBBBA.
The $40K SALT Deduction Is Back—but Phases Out Quickly Above $500K
Under OBBBA, the State and Local Tax (SALT) deduction cap increases to $40,000 for most filers in 2025. But there’s a catch:
For married couples filing jointly, the cap begins to phase down once MAGI exceeds $500,000
It drops by 30 cents for every $1 over that threshold
By $600,000, you're back to the $10,000 SALT cap
For single filers, many analysts—including Kitces.com—believe the phaseout will begin around $250,000 of MAGI, following the traditional pattern of halved income thresholds. However, final IRS guidance is still pending, so the exact income levels may change.
The QBI Deduction Disappears for Many Self-Employed Professionals
The 20% Qualified Business Income (QBI) deduction was made permanent—but still phases out for Specified Service Trades or Businesses (SSTBs) above income thresholds:
Phaseout starts at $394,600 MFJ (2025)
Fully phased out by $494,600 MFJ
Even non-SSTBs may lose the QBI deduction at this level due to the wage/property limitation, especially if you don’t have employees.
Real-world impact: A solo consultant making $550K may lose the entire 20% deduction, increasing their federal tax bill by up to $37,000 (Kitces).
4 Powerful Tax Strategies for High-Income Self-Employed Households
Important: We are not talking about SEP IRAs here. While SEP plans are easy to set up, they can reduce your QBI deduction under Section 199A and don’t allow employee deferrals. For high-income solopreneurs looking to manage taxable income, Solo 401(k)s and Defined Benefit Plans offer far more flexibility and control.
1. Max Out Your Solo 401(k)
Contribute as both employee and employer:
Up to ~$70,000 (or more with catch-up)
Deducts from AGI, reducing both taxable income and MAGI
Helps preserve the SALT deduction and QBI eligibility
Pro tip: Every dollar you contribute may avoid the SALT phaseout and preserve the QBI deduction. That’s a double win.
2. Open a Defined Benefit (DB) Plan
For higher income savers (especially 50+), a personal DB plan can allow:
Six-figure annual contributions
Full above-the-line deduction
Rapid retirement accumulation
Example: A 55-year-old self-employed consultant might contribute $150K+ annually and save over $60K in taxes (SmartAsset).
3. Manage Income Timing
Defer revenue into 2026 if you’re near $500K
Accelerate deductible business expenses into 2025
Avoid big income events (like Roth conversions) in a high-income year
Goal: Keep 2025 income under $500K to protect your SALT and QBI deductions.
4. Bunch Charitable Contributions
Bunch multiple years’ giving into 2025
Use a Donor-Advised Fund (DAF) for flexibility
Get the full deduction in a single year when you need it most
Heads up: Starting in 2026, OBBBA introduces a small 0.5% AGI floor on charitable deductions, so 2025 may be the better year to give.
Final Thoughts
If your household income falls in the $500,000–$600,000 range, don’t assume your top tax rate is just 35%. With SALT cap phaseouts and QBI losses, your effective federal rate could top 45%.
But there’s good news: As a self-employed professional with no employees, you have the most control over your income. With the right combination of retirement planning, income timing, and deduction strategies, you can reduce your tax bill significantly.
Need Help Navigating the OBBBA Tax Landscape?
We work closely with high-income self-employed households to optimize their tax situation.
📅 Schedule a complimentary consultation