Let’s talk about “specified service trades or businesses (“SSTB”). These are the trades, professions, and other ways of making a buck that are disqualified from the tax law’s new qualified business income (“QBI”) deduction (a/k/a “the pass-through deduction,” “the 20% deduction,” “the 199A deduction,” etc.).  We’ve mentioned and written on that extensively, so feel free to check out our previous posts and articles for more information (we’re happy for you to share them, also, and discuss them at parties – tax law is always a crowd pleaser).

First, a quick reminder: the exclusion from eligibility for an SSTB only applies over a certain taxable income level, phasing in over a taxable income range from $315,000 to $415,000 for married filing jointly taxpayers – half that for all others.  What that means is this: if you’re under that low end of the range, even if your income is exclusively earned by way of an SSTB, you will still be eligible for the QBI deduction, subject to all other limitations, of course.However, we’re not going to discuss those taxable income thresholds or any other limitations. Instead, we’re going to focus exclusively on what makes an SSTB an SSTB – and what doesn’t.

We were all wandering in relative darkness for months, with very little guidance on what constituted a specified service trade or business, as opposed to a tax law approved vocation.  A few lines in the new law did little more than reference a list of businesses with several carveouts from that list (engineers and architects were specifically mentioned as eligible) and additions for investing, investment management, trading, or dealing in securities or commodities.  But questions outweighed answers as to these specified, QBI deduction ineligible businesses.  For instance: what EXACTLY is encompassed by those very specific references (health, law, consulting, financial services, and so on)? How do you know if your or an employee’s reputation or skill is the business’ “principal asset”? And why is accounting listed separately from performing arts when they require so many of the same skills?  Sure, maybe I’m the only one wondering about that last question, but the point is this: we all had several months of uncertainty.

But now we have proposed regulations so that uncertainty is…well, it isn’t gone, but it is reduced, at least by a few degrees.  So here are some of the things we’ve learned from these proposed regulations (Treasury Regulations Section 1.199A-5 for those looking to scratch their Google itch):

  1. Services in the field of health include the basics: medical services to patients by physicians, nurses, pharmacists, therapists, and others specifically referenced.  Not included: services “not directly related to a medical services field,” even though they may relate to the recipient’s health.  This cryptic allowance is fleshed out with a few examples of allowable businesses, like health clubs and spas, payment processing, and research/testing/manufacture/sales of medical devices or pharmaceuticals.
  2. Services in law include those provided by lawyers, paralegals, arbitrators, mediators, and the like, but does not include services not requiring that field’s unique skills – so things like printers, delivery services or stenography services are not disqualified.
  3. Services in accounting: it’s pretty much what you would expect, and I’m not emotionally prepared to discuss it.
  4. Services in actuarial science are those performed by actuaries and similar professionals.  Really.  Maybe the regulation writers didn’t understand actuarial science any better than the rest of us.
  5. Services in performing arts mean the creation and actual performance of the art (i.e. the artists themselves), not those engaged in equipment or facility maintenance, broadcast, dissemination, or other ancillary or related businesses.
  6. The field of consulting services is a big one, and these questions are far from settled.  However, it appears that targeted as an SSTB is professional advice/counsel “to assist the client in achieving goals and solving problems.”  If that sounds broad, that’s because it is.  Also specifically mentioned as included are lobbyists and the like.  However, sales, training, and education are excluded, as are consulting services that are embedded in or ancillary to the sale of goods or performance of non-SSTB services.  The all-important and often troublesome “facts and circumstances” phrase is used here to indicate that defining consulting will not always be easy.
  7. Athletics: like performing arts, if you hit, run, or throw, you have an SSTB.  If you support those who do those things, or you broadcast them (etc.), you don’t.
  8. Financial services: include services you would expect, such as financial and transactional advice, wealth management, etc.
  9. Brokerage services: included are brokerage services relative to securities.  A huge win for real estate agents and brokers or insurance agents and brokers is this: they are not in that SSTB bucket, so they are eligible for the QBI deduction.
  10. Investment management appears very closely akin to financial services, in a way, and includes typically understood management services, including buying and selling.  Directly managing real property is not included, however.
  11. Trading services include trading in securities, commodities, or partnership interests.  However, a taxpayer such as a manufacturer or farmer who engages in hedging transactions as part of their trade or business is not considered to be engaged in this SSTB.
  12. Dealing in the immediately above-referenced assets is further defined for SSTB purposes in much the way you might suspect: if you make your living dealing in securities, etc., that is an SSTB.
  13. Finally, here is what might have been the biggest question mark of all: the “reputation or skill” category.  This has been further defined to mean income from endorsement (“I’m a famous but retired athlete, so come on down to Gump Motors for a new car”), use of likeness, name, etc. (your face is on a box of cereal), or appearance in media or at an event.  In other words, if you’re trading on your name or reputation (not necessarily providing anything else tangible), that is an SSTB.  Another way to look at this: if you are doing something that is not an SSTB, but you earn a lot of business by reputation and great word of mouth, that does NOT appear to make your business an SSTB.

That is quite a bit to take in regarding where the lines are drawn for SSTBs, and that isn’t even everything we have now. Rest assured more will be coming.  Keep reading, listening, asking questions, and staying tuned.


Michael A. Carraway, Jr., CPA

Michael A. Carraway, Jr., is a partner with GranthamPoole PLLC and a recognized leader in the field of partnership and corporate taxation, having worked with many clients on entity and transaction structuring matters.  He has also written, taught, and spoken on many topics in the area over the years and has served as a technical subject matter expert in several practices.  Please contact Mike at mcarraway@granthampoole.com, www.linkedin.com/in/michaelcarraway, or 601-499-2400. CPA License # R2705


***The above does not represent tax advice.  Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.

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