Is Your Specified Service Trade or Business Eligible for the Qualified Business Income Deduction?

A Specified Service Trade or Business (SSTB) is a trade or business involving the performance of services in a variety of fields. SSTBs include the fields of accounting, actuarial science, athletics, brokerage services, consulting, financial services, health, investing, law, performing arts, securities, and commodities, and trading.

SSTBs have additional rules for determining if they can receive the Qualified Business Income Deduction (QBI.) QBI is defined by the IRS as the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.

Who qualifies for the QBI?

If you are married filing jointly and your taxable income is less than $326,600 or if you are a single filer and your taxable income is less than $163,300, you get to deduct 20% regardless of the type of business you own. However, if your income is greater, the percentage decreases.

Many individuals and business owners operated through sole proprietorships, partnerships, S corporations, trusts, and estates may be eligible for a QBI. Within each service-based field, some professions are considered to be SSTBs and some are not.

SSTBs are possibly eligible for QBI, but it depends on the taxpayer's income level.  It gets confusing!

Following is information about each field of service and within each field, which professions are considered to be SSTBs and which are not:

Accounting

SSTBs: Service professionals including accountants, return preparers, or financial auditors.

Actuarial Science

SSTBs: Services by individuals such as actuaries.

Athletics

SSTBs: Individuals who participate in athletic competition including athletes, coaches, and team managers.

Not SSTBs: Individuals whose skills are not unique to athletic competition including maintenance, equipment operation, facilities, broadcast, audio, or visual services.

Brokerage Services

SSTBs: Includes services by stockbrokers and similar professionals who arrange transactions between a buyer and seller with respect to securities for a commission or fee.

Not SSTBs: Real estate agents or brokers and insurance agents and brokers.

Consulting

SSTBs: Professionals who provide advice and counsel to clients to help achieve goals, solve problems, or influence decisions.

Not SSTBs: Professionals who provide services that do not include advice or counsel, including sales, training, or educational courses. This determination is based on all facets of the business including how the individual is compensated.

Financial Services

SSTBs: Professionals who provide specific financial services including financial advisors, investment bankers, wealth planners, and retirement advisors.

Health

SSTBs: Medical services provided by an individual who performs services directly to a patient. For example, a physician, dentist, nurse, pharmacist, or veterinarian.

Not SSTBs: Health clubs, research, payment processing, testing, manufacturing, or medical sales.

Investing

SSTBs: Services include a trade or business that receives fees for providing investing, asset management, or investment management services, as well as providing advice about buying and selling investments.

Not SSTBs: Services for directly managing real property.

Law

SSTBs: Services provided by individuals with skills unique to the field of law including lawyers, paralegals, legal arbitrators, or mediators.

Not SSTBs: Professionals that do not require skills unique to the field of law, including stenography services.

Performing Arts

SSTBs: Individuals who participate in the creation of performing arts like actors, singers, musicians, entertainers, and directors.

Not SSTBs: Professionals whose skills are not unique to performing arts like maintenance, equipment operation, facilities, broadcast, video, and audio.

Securities and Commodities

SSTBs: Professionals who regularly purchase and sell securities as part of their trade or business.

Not SSTBs: Someone who originates loans but is not involved in the sale of the loans.

Trading

SSTBs: Services can include a trade or business of trading in securities, commodities, or partnership interests. It is determined by all relevant facts such as the source and type of profit associated with the trading activity.

Not SSTBs: A manufacturer or farmer who engages in hedging transactions as part of their business.

Questions?

If you are eligible for a QBI, you will definitely want to take advantage of this tax deduction! If you have questions about your eligibility, please contact me!