Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

SSTB: What is considered a specific trade or business?

SSTB, Section 199A, QBIYou may have already heard that with the new tax laws that went into effect for the 2018 tax year, there is this awesome 20% deduction for pass-through income (a.k.a. K-1 reporters). If you have not, please see our previous blogs on this deduction (here, here and here) for more information.

Did you read them? Awesome! Okay, now for the not so fun part (because all of this is so much fun, right?), As you previously read, there are a lot of hoops that you already need to jump through to qualify for this deduction but, in true IRS fashion, there are more.

In IRS section code §199A, they discuss something called specified service trades or businesses (SSTB). These are service based businesses that have additional rules within the pass-through deduction qualification. Let’s start out with the good news first: if you are within the threshold amounts (taxable income less than $315,000 for married filing joint (MFJ) or $157,500 for single filers), you get the full 20% deduction regardless of what kind of business you own. If you are in the phase out portion of the threshold (taxable income in-between $315,000 and $415,000 for MFJ or $157,500 and $207,500 for single filers), you are limited based on a percentage calculation.

So, what is an SSTB? The regulations provide the following list:

Health

Defined as an SSTB: Medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists and other similar health care professionals performing services in their capacity directly to a patient.

Don’t miss: small business deduction rules

Not considered an SSTB: The operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing or the research, testing and manufacture and/or sales of pharmaceuticals or medical devices.

Law

Defined as an SSTB: The performance of services by individuals such as lawyers, paralegals, legal arbitrators, mediators and similar professionals performing services in their capacity as such.

Not considered an SSTB: The provision of services that do not require skills unique to the field of law. For example, the provision of services in the field of law does not include the provision of services by printers, delivery services or stenography services.

Accounting

Defined as an SSTB: The provision of services by individuals such as accountants, enrolled agents return preparers, financial auditors and similar professionals performing services in their capacity as such.

Not considered an SSTB: In this case, the IRS did not provide a list of services that would not constitute accounting.

Actuarial science

Defined as an SSTB: The provision of services by individuals such as actuaries and similar professionals performing services in their capacity as such.

Not considered an SSTB: In this case, the IRS did not provide a list of services that would not constitute actuarial science.

Performing arts

Defined as an SSTB: The performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors and similar professionals performing services in their capacity as such.

Not considered an SSTB: The provision of services that do not require skills unique to the creation of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts. Similarly, the performance of services in the field of the performing arts does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of performing arts to the public.

Consulting

Defined as an SSTB: The provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems. Consulting includes providing advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency and all attempts to influence legislators and other government officials on behalf of a client by lobbyists and other similar professionals performing services in their capacity as such.

Not considered an SSTB: The performance of services other than advice and counsel, such as sales or economically similar services or the provision of training and educational courses. For purposes of the preceding sentence, the determination of whether a person’s services are sales or economically similar services will be based on all the facts and circumstances of that person’s business. Such facts and circumstances include, for example, the manner in which the taxpayer is compensated for the services provided. Performance of services in the field of consulting does not include the performance of consulting services embedded in, or ancillary to, the sale of goods or performance of services on behalf of a trade or business that is otherwise not an SSTB (such as typical services provided by a building contractor) if there is no separate payment for the consulting services.

Athletics

Defined as an SSTB: The performance of services by individuals who participate in athletic competition such as athletes, coaches and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards and racing.

Still have QBI questions?

Not considered an SSTB: The provision of services that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events. Similarly, the performance of services in the field of athletics does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of athletic events to the public.

Financial services

Defined as an SSTB: The provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in Title 11 or similar cases) and raising financial capital by underwriting, or acting as a client’s agent in the issuance of securities and similar services. This includes services provided by financial advisors, investment bankers, wealth planners, and retirement advisors and other similar professionals performing services in their capacity as such.

Not considered an SSTB: In this case, the IRS did not provide a list of services that would not constitute financial services. They are still in the process of determining if banking constitutes a financial service.

Brokerage services

Defined as an SSTB: The performance of services in the field of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities (as defined in Section 475(c)(2)) for a commission or fee. This includes services provided by stock brokers and other similar professionals but does not include services provided by real estate agents and brokers or insurance agents and brokers.

Investing and investment management

Defined as an SSTB: The performance of services that consist of investing and investment management refers to a trade or business involving the receipt of fees for providing investing, asset management or investment management services, including providing advice with respect to buying and selling investments.

Not considered an SSTB: The performance of services of investing and investment management does not include directly managing real property.

Trading

Defined as an SSTB: The performance of services that consist of trading means a trade or business of trading in securities (as defined in Section 475(c)(2)), commodities (as defined in Section 475(e)(2)) or partnership interests. Whether a person is a trader in securities, commodities or partnership interests is determined by taking into account all relevant facts and circumstances, including the source and type of profit that is associated with engaging in the activity regardless of whether that person trades for the person’s own account, for the account of others or any combination thereof.

Not considered an SSTB: A taxpayer, such as a manufacturer or a farmer, who engages in hedging transactions as part of their trade or business of manufacturing or farming is not considered to be engaged in the trade or business of trading commodities.

Dealing in securities (as defined in Section 475(c)(2)), partnership interests or commodities (as defined in section 475(e)(2))

Defined as an SSTB: The performance of services that consist of dealing in securities (as defined in Section 475(c)(2)) means regularly purchasing securities from and selling securities to customers in the ordinary course of a trade or business or regularly offering to enter into, assume, offset, assign or otherwise terminate positions in securities with customers in the ordinary course of a trade or business.

Not considered an SSTB: A taxpayer that regularly originates loans in the ordinary course of a trade or business of making loans but engages in no more than negligible sales of the loans is not dealing in securities.

Whew…does your brain hurt yet? Mine sure does. If you have questions (It’s okay – I have many) feel free to reach out to your friendly Henry+Horne CPA to assist you in understanding these new regulations.

Meghan Scott, EA