The short version: a Solo 401(k) beats a SEP-IRA for most Christian business owners until net earnings pass roughly $360,000. The 20% qualified business income deduction survived the 2025 tax law and is now permanent. And if your buy-sell agreement is funded with company-owned life insurance, a 2024 Supreme Court decision may have quietly broken it.
Owning a business changes the stewardship question. An employee stewards a paycheck. You steward a paycheck, other people’s paychecks, a balance sheet, and a set of decisions nobody else will make if you don’t.
Solo 401(k) versus SEP-IRA: run the math at your income
Most owners default to a SEP-IRA because it takes ten minutes to open. That convenience costs real money at moderate income levels.
A SEP has no employee deferral. Everything comes from the employer side, capped at 25% of compensation — which works out to about 20% of net self-employment income, a figure you can verify in the rate table in IRS Publication 560, where a 25% plan rate maps to a self-employed rate of exactly 0.200000.
A Solo 401(k) lets you do both. You defer $24,500 as an employee in 2026, then add the same employer contribution on top.
At $60,000 of net self-employment earnings — roughly $55,400 after subtracting half your self-employment tax — the difference is stark:
- SEP-IRA: about $11,100
- Solo 401(k): $24,500 + about $11,100 = roughly $35,600
Both cap out at the same $72,000 total for 2026, and they converge only as net earnings approach $360,000. Below that, the Solo 401(k) wins, often by a wide margin, because the $24,500 deferral is a flat dollar amount limited only by your earned income rather than a percentage of it.
Two details worth knowing. Catch-up contributions sit outside the $72,000 ceiling, so an owner 50 or older can reach $80,000, and one who turns 60 through 63 this year can reach $83,250. And a Solo 401(k) triggers a Form 5500-EZ filing once plan assets hit $250,000 at year end — a nuisance, not a reason to avoid the plan.
If you have employees, this comparison changes completely, because a SEP requires the same contribution percentage for everyone eligible. That is a feature if you want to be generous and a budget problem if you don’t. Owners with high income and no employees sometimes add a defined benefit plan on top; the 2026 annual benefit limit is $290,000.
Self-employment tax is the bill that surprises people
You owe 15.3% on net earnings — 12.4% for Social Security on the first $184,500 in 2026, plus 2.9% for Medicare with no ceiling. Multiply net profit by 92.35% first. Above $200,000 single or $250,000 married filing jointly, another 0.9% Medicare surtax applies.
You deduct half the self-employment tax on Schedule 1, but that deduction only reduces your income tax. It does not reduce the self-employment tax itself.
One warning: the IRS’s own self-employment tax page still showed the 2024 wage base of $168,600 when I checked in July 2026. Take the wage base from the Social Security Administration.
The QBI deduction survived, and the IRS website is wrong about it
The 20% deduction on qualified business income is intact and permanent. The 2025 law rewrote section 199A’s termination subsection out of existence, so no sunset remains. The 23% rate that circulated in the House bill never became law.
For 2026, the phase-in thresholds are $403,500 for joint filers, topping out at $553,500, and $201,750 for single filers, topping out at $276,750. That phase-in range widened by half — from $50,000 and $100,000 to $75,000 and $150,000 — which gives owners of specified service businesses meaningfully more room. There is also a new minimum deduction of $400 for anyone with at least $1,000 of qualified business income from an active business in which they materially participate.
Below the threshold, you get the full 20% regardless of what kind of business you run. Above the top of the range, a specified service business — law, accounting, consulting, health, financial services — gets nothing, and other businesses are capped by a wages-and-property formula.
Here is the trap. The IRS’s QBI newsroom page, reviewed in May 2026, still carried the pre-2025 sunset language saying the deduction applies to years “ending on or before December 31, 2025.” That is simply wrong for 2026. Cite the statute or Revenue Procedure 2025-32 instead, and do not let a tax preparer talk you out of the deduction on the strength of a stale web page.
Reasonable compensation: there is no safe harbor, whatever you have been told
If you run an S corporation, you have to pay yourself reasonable wages before taking distributions. Every owner has heard the “60/40 rule” or the “50/50 rule.”
Neither exists. There is no statutory percentage, no IRS safe harbor, and no revenue ruling establishing one. The IRS page on S corporation compensation contains no percentage anywhere in it. Those rules of thumb have exactly zero authority, and relying on one is how owners end up with reclassified distributions and payroll tax penalties.
The actual framework is more useful than any ratio. The IRS says the key is “determining what the shareholder-employee did for the S corporation by looking to the source of the S corporation’s gross receipts.” Receipts traceable to your own personal services must be wages. Receipts traceable to other employees, or to capital and equipment, can properly be distributions. A one-person consultancy has almost no room; a company with twelve employees and heavy equipment has a great deal.
The case law the IRS itself cites is worth knowing your advisor knows: Joly, Veterinary Surgical Consultants, Joseph M. Grey, and David E. Watson, PC v. United States, 668 F.3d 1008 in the Eighth Circuit in 2012.
Connelly probably broke your buy-sell agreement
This is the item most owners have not heard about, and it is the most expensive.
In Connelly v. United States, 602 U.S. 257, decided unanimously in June 2024, the Supreme Court held that a corporation’s contractual obligation to redeem a deceased owner’s shares “is not necessarily a liability that reduces a corporation’s value for purposes of the federal estate tax.”
The facts are the lesson. Crown C Supply, owned by two brothers, held $3.5 million of life insurance on each of them to fund a redemption. When Michael died, his estate valued his 77.18% stake at $3 million. The IRS counted the insurance proceeds as a company asset, making the business worth $6.86 million — and taxed his shares accordingly. The Court agreed.
So if your agreement is structured as a redemption funded with company-owned life insurance, the death benefit inflates the company’s value at your death, and your stock gets taxed above the price your family actually receives. That reverses what planners assumed for decades.
The fixes are known: a cross-purchase structure where owners hold policies on each other, an insurance LLC or partnership, or personally owned policies. All require redrafting. With the federal estate tax exemption at $15 million per person in 2026, many owners will not owe estate tax at all — but a growing company can cross that line faster than the founder expects, and the agreement you signed in 2015 was written for a different rule. Get it reviewed. Our guide to estate planning for Christians covers the surrounding structure.
The part the tax code cannot help you with
Scripture is direct about the pressures specific to running a business, and they are not the pressures of a paycheck.
“The Lord detests dishonest scales, but accurate weights find favor with him” (Proverbs 11:1). That is a business proverb before it is a personal one. Scales were the instrument of trade, and the shopkeeper who shaved a little off each measure was stealing in a way nobody could quite prove. Every business has its version — the invoice padded slightly, the estimate that omits what the client won’t notice, the warranty claim slow-walked. It is deniable and it is theft.
On payroll, the command is startlingly specific: “Do not hold back the wages of a hired worker overnight” (Leviticus 19:13). Not “pay eventually.” Overnight. Employers hold power over the household budgets of people who cannot absorb a late payment, and Scripture treats delay as a form of oppression rather than a cash-flow strategy.
Then there is the temptation of attribution. Deuteronomy 8:17-18 anticipates the successful owner who says “My power and the strength of my hands have produced this wealth for me,” and answers it: remember the Lord your God, “for it is he who gives you the ability to produce wealth.” The passage does not deny that you worked hard. It denies that your effort is the whole explanation. Founders are unusually prone to this because the story of the company really is, in part, the story of their sacrifice.
Practically, that argues for two habits. Give first, from the business’s profit as well as your personal income — the 2026 tax year is the first since 2021 in which a non-itemizing household can deduct up to $1,000 of cash giving, or $2,000 filing jointly, and churches qualify. And pay yourself a real salary rather than living off distributions, so that your household budget is legible and your generosity is planned rather than residual. Our guides to tithing and giving and biblical stewardship go deeper on both.
Related reading
- Financial Planning for Empty Nesters and Pre-Retirees
- Christian Financial Planning for Mid-Career Professionals
- Christian Financial Planning for Ministry Workers and Pastors
- Church Finances
- Christian Retirement Planning: Securing Your Future God’s Way
- Christian Financial Planning: A Guide for Every Season of Life
- Financial Advice for Christian College Students
- Christian Financial Planning for Newlyweds
- Saving and Investing When Starting a Family
- Christian Personal Finance: A Biblical Guide to Managing Money
