A specified service trade or business (SSTB) is a term used in connection with the Qualified Business Income (QBI) deduction under Section 199A of the Internal Revenue Code (IRC).
Under Section 199A(d)(2), a specified service trade or business means any trade or business described in Section 1202(e)(3)(A) or which involves the performance of investment management services.1
A specified service trade or business includes any business that involves performing services in the fields of health, law, accounting, consulting, athletics, financial services, investing and investment management, or any other business where the principal asset is the reputation or skill of its employees or owners.2
The principal asset is the reputation or skill of the company’s employees or owners if the trade or business generates income from endorsing products or services or using the individual’s identity, image, likeness, or voice.3
Why Does it Matter if a Business is an SSTB?
Generally, if a business is an SSTB, it is not a qualified trade or business eligible for the 20% QBI deduction. However, an individual taxpayer can still claim the 20% QBI deduction if the taxpayer’s taxable income before the QBI deduction is below the relevant thresholds for the tax year.
Example of a Law Firm as an SSTB
Law Firm ABC LLP, a Delaware limited liability partnership (LLP), operates a law practice with offices in Delaware and New York. The firm has eight equity partners, all lawyers, and employs 35 employees. The law firm is an SSTB for purposes of Section 199A because it is engaged in the practice of law.
Additional Information
More information about SSTB’s and the Section 199A QBI deduction can be found on the IRS website and Form 8995 instructions.