Veterans Day 2026: Starting a Business After Military or Federal Service? Coordinate Your Tax Structure, Retirement Savings, and QBI Deduction

Why Early Financial Decisions Matter for Veteran and Former Federal Business Owners

Every year on November 11, Veterans Day honors everyone who has served in the U.S. Armed Forces. For many veterans, service continues long after separation, through the businesses they build, the jobs they create, and the communities they strengthen. Veterans Day is also a timely reminder for anyone planning that next chapter: with year-end only weeks away, now is the moment to get your business finances in order.

The tax and savings choices you make in your first year of business can shape your income, taxes, and retirement for decades. For veterans and former federal employees, those choices also have to fit alongside a military retirement, a FERS pension, VA disability compensation, or an existing Thrift Savings Plan (TSP) balance.

Many new owners treat each decision on its own: pick an entity, open a retirement account, and claim deductions at tax time. The problem is that these decisions are connected. Your business structure determines how you pay yourself. How you pay yourself affects how much you can contribute to retirement. And both of those influence the size of your Qualified Business Income (QBI) deduction.

This guide walks through each piece and shows why evaluating them together usually produces a better result than answering three separate tax questions.

Choosing the Right Business Tax Structure

Your entity choice sets the rules for how profit is taxed, how you pay yourself, and which retirement and deduction options are open to you. An LLC is a legal structure, not a tax classification: by default it is taxed as a sole proprietorship or partnership, but it can elect S corporation or C corporation treatment.

For many veteran-owned and former-federal-employee businesses, the practical question is whether and when to elect S corporation status. An S corp election can lower self-employment taxes once profits are high enough to justify the added payroll, bookkeeping, and filing costs. But the salary you set also changes your retirement contribution limits and your QBI deduction, which is why the entity decision should not be made in isolation.

Also consider how your entity interacts with income you already receive. Military retired pay and FERS annuities are not business income, but they add to your taxable income. VA disability compensation is tax-free and does not. That can move you closer to the income levels where QBI limits begin to apply.

Building a Retirement Savings Plan for Your New Business

As a business owner, you become your own retirement plan sponsor. The plan you pick determines how much of your business income you can shelter from tax each year, and the limits depend on how your entity pays you.

Figures are from IRS Notice 2025-67 (summary, Schwab).

What veterans and former federal employees should know

Your TSP and your new plan share one deferral limit. The $24,500 employee deferral limit covers 401(k) and TSP contributions combined. If you left service partway through the year and contributed to the TSP, that amount reduces what you can defer into a Solo 401(k) for the same year. Employer (profit-sharing) contributions are tracked separately for each plan.

Your existing TSP balance is an asset, not a constraint. You can usually leave it in the TSP, roll it into an IRA, or, if your Solo 401(k) accepts rollovers, consolidate it there. Each option has different investment choices, fees, and withdrawal rules.

Pension income changes the math. A military retirement or FERS annuity provides steady taxable income. That can make pre-tax contributions more valuable today, or make Roth contributions more attractive if you expect to stay in a similar bracket in retirement.

Pay structure drives contribution room. In a sole proprietorship, contributions are based on net self-employment earnings. In an S corporation, employer contributions are based only on your W-2 salary, not distributions. A lower salary can save payroll tax but shrink how much you can save.

Understanding the QBI Deduction (Section 199A)

The Qualified Business Income (QBI) deduction lets eligible owners of sole proprietorships, partnerships, S corporations, and most LLCs deduct up to 20% of their qualified business income. The One Big Beautiful Bill Act, signed July 4, 2025, made the deduction permanent, so it is now a long-term planning tool rather than a temporary break.

For 2026, the rules depend on your taxable income:

Thresholds as reported by Beancount; confirm against IRS guidance for your tax year. Starting in 2026, owners with at least $1,000 of QBI from an active business also qualify for a minimum $400 deduction.

How QBI connects to your other decisions

• Entity choice: C corporation income does not qualify. S corp owner salaries and partnership guaranteed payments are excluded from QBI.
• Owner salary: In an S corp, every dollar of salary is a dollar that is not QBI. Too little salary invites IRS scrutiny; too much shrinks the deduction. Above the threshold, though, wages may be needed to support the deduction.
• Retirement contributions: Deductible contributions for self-employed owners reduce QBI. They also lower taxable income, which can keep you below the threshold where limits begin.
• Service businesses: Consulting, health, law, accounting, and financial services are "specified service" businesses. Many veterans and former federal employees launch consulting firms, so this limit is especially relevant if income is expected to grow.

Why a Coordinated Strategy Beats Separate Tax Decisions

Each lever, entity, salary, retirement plan, and QBI, moves the others, so optimizing one in isolation can cost you elsewhere. A common example is electing S corporation status to cut self-employment tax, only to find the lower QBI deduction and reduced retirement contributions offset much of the savings.

Illustrative example: a retired service member launches a consulting firm

Consider a married military retiree with a $60,000 pension whose one-person consulting LLC earns $150,000 in net profit in 2026. They want to maximize a Solo 401(k). Here is a simplified comparison of two approaches.

The S corp saves roughly $7,400 in payroll taxes. But it reduces the QBI deduction by about $11,300, which costs around $2,500 in income tax at a 22% bracket. It also lowers retirement savings by about $5,400 and adds compliance costs. In this case the net benefit is small, and the right answer depends on profit growth, state taxes, health insurance, and how much the owner wants to save.

This example is simplified for illustration. It ignores state taxes and health insurance and uses rounded figures. Your numbers will differ.

The takeaway

The best structure is the one that produces the best combined outcome across payroll tax, income tax, retirement savings, and administrative cost, not the one that wins on a single measure. Running these scenarios side by side, ideally with a tax professional, is what turns separate tax questions into a strategy.

Year-End Planning Checklist and Key Deadlines

The most valuable planning happens before December 31, because several decisions cannot be fixed once the year closes. Veterans Day, about seven weeks before December 31, is a natural checkpoint to work through this list.

• Project full-year profit and taxable income, including pension, annuity, and spouse income, to see where you land relative to the QBI thresholds.
• Model entity options for next year. An S corporation election (Form 2553) for a calendar-year business is generally due by March 15 of the year it takes effect.
• Run S corp payroll before December 31. Reasonable salary and any 401(k) deferrals for S corp owners must be paid through payroll during the year.
• Open or confirm your retirement plan. Establishing a Solo 401(k) by year-end keeps the most options open; a SEP IRA can be opened and funded up to your filing deadline, including extensions.
• Check TSP contributions made earlier in the year so total deferrals stay within the $24,500 shared limit.
• Time purchases and deductions. Equipment purchases and prepaid expenses can lower taxable income, but they also reduce QBI.
• Make your fourth-quarter estimated tax payment, typically due January 15.
• Organize records of business income, wages, and property so your tax preparer can calculate QBI accurately.

Deadlines can shift with weekends, holidays, and legislation, so confirm each date with the IRS or your tax advisor.

Frequently Asked Questions

Can I contribute to both the TSP and a Solo 401(k) in the same year? Yes, but your employee deferrals to both plans count toward one combined limit ($24,500 in 2026, plus catch-up if eligible). Employer profit-sharing contributions to your Solo 401(k) are counted separately.

Does military retired pay or a FERS annuity qualify for the QBI deduction? No. Pension and annuity income is not business income. It does, however, raise your taxable income, which can affect whether QBI limits apply.

Is VA disability compensation counted toward the QBI thresholds? No. VA disability compensation is tax-free and is not included in taxable income.

When does an S corporation make sense? Often when profits are well above a reasonable salary for your role, and the payroll tax savings outweigh the added costs, lower QBI deduction, and any reduced retirement contributions. Model it before electing.

Is consulting a specified service business for QBI purposes? Generally yes. Below the income threshold it still qualifies for the full deduction, but the deduction phases out at higher incomes.

Build Your Business on a Coordinated Plan

This Veterans Day, we thank every veteran for their service. Starting a business after military or federal service is a chance to build something new on your own terms, and to carry the discipline and leadership of service into a new mission. The tax structure you choose, the retirement plan you open, and the way you pay yourself work together to determine how much you keep and how much you save. Treat them as one strategy, review them before year-end deadlines, and work with a tax professional who understands military and federal benefits to make informed choices for the years ahead.

Ready to plan your next mission? Schedule a consultation before year-end to review your business structure, retirement plan, and QBI eligibility together. We'll help you model your options, coordinate them with your military or federal benefits, and build a tax strategy that supports your business for years to come.

This article is for educational purposes only and is not tax, legal, or investment advice. Tax rules change and depend on your situation; consult a qualified professional before acting.

Sources

• Section 199A QBI Deduction in 2026 (Beancount)
• 2026 Retirement Contribution Limits (ustax.tools)
• 2026 Contribution Limits (Schwab Workplace)
• IRS Announces 2026 401(k) Limits (401(k) Specialist)