Key Background to Understand the Questions:
- On January 1, 2019, I was working full-time for a "Company A" and was paid on a W-2 basis. By May 31, 2019, I was no longer employed by Company A. During my 5 months of employment at Company A, I earned in excess of $157,500 of taxable W-2 income. Assume my 2019 W-2 income from Company A is 170,000 before any deductions.
- On August 1, 2019, I formed "Company B," an LLC, which provides a variety of business services to its clients, including those potentially deemed to be “consulting” within the scope of Specified Service Trades or Businesses (SSBT). I am the sole-owner of Company B, as well as the only person who will perform work on behalf of Company B. Neither Company B nor any of its client companies have any relation whatsoever to Company A.
- For 2019, you can assume I am single/unmarried for the entire tax year and that all of my income is derived from Company A and Company B.
- For the topics below, assume that my industry experience/expertise prior to starting Company B was in bicycle manufacturing.
Questions on the QBI Deduction for Company B:
- Since my W-2 income from Company A (which is in excess of $157,500) is entirely unrelated to Company B, would my W-2 income from Company A still be included in determining whether my earnings from Company B qualify for the 20% pass-through deduction?
- Assuming my income level means I need to consider if Company B or any of its activities would make it an SSBT for tax treatment, what activities would be deemed to be “Consulting?” Below are some example revenue generating activities of Company B that I would like clarification on whether the activity would be deemed a SSBT under the definition of Consulting:
- Creating a PowerPoint presentation for a client’s ice cream business. The activity only requires someone to be proficient in PowerPoint. I have no expertise in ice cream businesses: only in bicycle manufacturing.
- Conducting general market research for a Client. For example, a Client wants Company B to create a list of all the ice cream shops in New York and send it to them in an email. Essentially, anyone with access to google and email could create this list.
- Conducting general market research for a Client, but in this case it is somewhat related to my background. For example, a Client wants Company B to create a list of all the bicycle shops shops in New York and send it to them in an email. Again, anyone with access to google and email could create this list; however, my background is in bicycle manufacturing (not retails sales but still somewhat related).
- Discussing/Answering questions on the phone about the manufacturing process of bicycle wheels. This activity requires my bicycle manufacturing expertise.
- Based on the example activities above, is it possible for Company B to recognize certain activities as a SSBT for tax treatment and certain activities as non-SSBT? Can you explain how this calculation would work?
