One point that I don't hear a lot of people talking about is that S corporations and many partnerships will not do as well as sole proprietors under the new law. The difference is most dramatic for those smaller businesses whose owners stay the $315,000 taxable income limit. The new law excludes reasonable compensation and certain payments (including guaranteed payments) made to partners for services rendered. As an example, let's assume that a doctor operates as an S corporation and earns $300,000. If we assume that the IRS will accept that $150,000 as "reasonable compensation," the doctor's qualified business income is the remainder of $150,000. SO the doctor's deduction is no more than $30,000 (other limits apply based on TI). If we assume the same doctor operates through a single member LLC (treated as a sole proprietor for tax purposes), the doctor's deduction is no more then $60,000 (other limits apply based on TI). That seems like a strong argument in favor of sole proprietor, and certainly one that would outweigh any potential self-employment tax savings.
I've done a lot of analysis of this issue... and if you're saving FICA with an S corporation, the S corporation trumps the Sec. 199A.
More info here... but Sec. 199A doesn't invalidate S corp... they are complementary:
https://evergreensmallbusiness.com/s-corporation-shareholder-salaries-sec-199a-deduction/
You clearly have spent time on this, but I think you missed the point I was trying to make. If you are under 315,000, W-2 wages don’t matter, but the S Corporation still has to pay reasonable salary, which reduces QBI. If reasonable compensation is 150,000 then the amount that you are saving in self employment tax with an S corporation is likely to be much less than the benefit of and additional $150,000 of QBI you would have as a sole proprietor. I don’t see that discussed at your link.
Really, one needs to do the math and look at the Sec. 199A deduction one gets at different business income and taxable income levels and different marginal tax rates. And then also at the S corporation tax savings one gets.
In the post I referenced, I was focusing on when and whether an existing S corp benefits by raising W-2 wages. Which wasn't exactly on point. Sorry.
But I did start by noting the simple rule you mention saying this, "For most S corporation shareholders, W-2 wages don’t impact the Sec. 199A deduction."
I.e., W-2 wages don't limit Section 199A deduction. I.e., you don't need the wages an S corporation produces. (I thought this was your point. And I agree with that.)
However the math in the example you referenced overstates the benefits of the sole proprietorship... and it understates (possibly) the benefits of the S corporation.
On the face of it, bumping the Sec. 199A deduction from $30K to $60K creates an extra $8400 of tax savings at a marginal rate of 28%. But that probably way overstates the benefit.
For example, if the physician earns $300K in business but family has $100K in deductions so a taxable income of $200K, the Sec 199A deduction doesn't grow from $30K to $60K, it grows from $30K to $40K. ($40K is 20% of the $200K of taxable income.)
Note: I'm thinking of deductions like a 401(k), self-employed health insurance, an HSA, $10K of state and local taxes, mortgage interest, and some charity... Easy to get to $100K this way.
So now the sole proprietorship doesn't add $8400 of savings, it adds 2/3rds of $8400 or roughly $5600. This is roughly the amount of medicare tax the S corporation in your example saves. So this factor alone probably makes the two options similar.
But then there's the salary thing too...
Maybe the physician needs to pay $150K. But maybe not. E.g., maybe physician can pay $80K base wages (which get hit with 15.3% FICA)... but then also $20K of health insurance, $8K of HSA, maybe $27K of employer pension matching (none of which get hit with FICA).. and that compensation package which adds up to $135K is maybe enough. (Maybe it's not... but maybe it is...) And in this case the payroll tax savings compared to earlier example really grow.
Rough calculations suggest that physician S corp with $150K of wages only saves about $5K in medicare taxes.
But rough calculations of the example physician S corp I've described bump that $5K to about $13K.
And now the S corp, even though wages are a not limiter, probably makes sense. S corp option adds $7K to $8K of tax savings.
I think the bottomline here is, we need to work through all the calculations to determine what's best... and one really wants to understand not just Sec. 199A but related chunks of tax law like Subchapter S.