Is my business an SSTB?
The SSTB (specified service trade or business) designation reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels.
Because the official definition of an SSTB can be vague and open to interpretation, expanded definitions and examples are given below.
Keep in mind: The SSTB label is irrelevant if your total taxable income (which includes non-business as well as business income) is less than $157,500 (or $315,000 if you're filing jointly). At these lower income levels, owners of SSTB as well as non-SSTB businesses can qualify for the same QBI deduction: 20% of either taxable income (minus capital gains and dividends) or qualified business income, whichever is less.
Businesses that are not SSTBs
Many single-owner and self-employed businesses are definitely not SSTBs, which means they can still qualify for a partial deduction if the taxpayer's total income exceeds $207,500 or $415,000 if filing jointly. (At these higher income levels, SSTBs are no longer eligible for the deduction.) Common non-SSTBs include:
- Rideshare services
- Real estate and property management (more info)
- Childcare and eldercare
- Grooming (hair, skin, nails, pets, etc.)
- Notary services
- Restaurants and food trucks
Select a service business for more details on what constitutes an SSTB in that field:
Brokers or agents who facilitate transactions between buyer and seller for a commission or fee are considered SSTBs, with the exception of those working in the real estate or insurance fields.
Stockbrokers and securities dealers are also SSTBs, as are investing, investment management, and asset management services. Property management is excluded if the business directly manages real property.
Trading in securities, commodities, or partnership interests is considered an SSTB if there is a profit motive, irrespective of whether the trader services their own account or that of others. However, someone who routinely engages in hedging transactions as part of running their non-trading business (for example, a farmer) wouldn't be considered a commodities trader.
Businesses that provide accounting and/or financial services* are considered SSTBs, including:
- Accounting and bookkeeping services
- Merger, acquisition, valuation, or disposition advisory
- Tax return planning and preparation
- Financial auditing
- Financial and retirement planning or advice
- Wealth planning, wealth management
- Investment banking
- Fiduciary management
- Capital raising and underwriting
*Services involving payment processing, billing analysis, or banking are excluded.
Healthcare professionals who provide services directly to their patients are SSTBs, including:
- Doctors, surgeons, dentists, psychologists, etc.
- Nurses and physician assistants
- Physical, massage, and speech therapists
Services that improve health or relate to healthcare but are not directly related to providing medical services aren't SSTBs, for example:
- Owning or operating a health club, spa, yoga studio, vitamin and supplement store, etc.
- Owning or operating a nursing or group home
- Personal training
- Medical transcription or payment processing
- Research, testing, and manufacture of pharmaceuticals or medical devices
A trade or business primarily engaged in consulting services is an SSTB. However, the word "consultant" tends to be overused. A common example is when a company hires a group of software developers on a short-term basis and dubs them software "consultants." Likewise, many self-employed experts consider or call themselves consultants, even though they spend most of their time engaged in other activities.
According to the official definition, providing services in the field of consulting involves providing professional advice and counsel to clients. If this is not the main thrust of your business, you're not really a consultant (and in turn, not an SSTB).
For example, let's say you've been breeding and showing dogs for 30+ years and have earned a reputation as someone who can answer any canine-related question. You freely provide answers and advice because you love helping other dog owners. You wouldn't be considered a consultant because providing advice is not the primary focus of your business and also because you don't charge for your expertise.
On the other hand, if you advertised yourself as a breeder and dog behavior expert and charged for your advice, you would definitely be considered a consultant and hence an SSTB.
If you provide consultation in connection with the sale or delivery of goods, you're not a consultant either. An example would be a building contractor who provides opinions and advice to a homeowner as new problems are uncovered during the course of a major renovation project.
In addition to lawyers and attorneys, services provided by paralegals, mediators, and legal arbitrators would be considered SSTBs.
However, services performed in the legal arena that are not unique to the field of law (for example, stenography or document delivery) would not be considered SSTBs.
Services performed in the field of athletic competition are considered SSTBs. This includes athletes, coaches, sports officials, team managers, and team owners.
Services related to athletics that use transferable knowledge and skills, such as equipment upkeep and repair, turf maintenance, snow grooming, and broadcasting are not considered SSTBs. For example, a greenskeeper has the knowledge and skill to nurture and maintain any lawn, not just sports-specific ones.
Services performed by those who participate in the creation of performing arts, for example actors, singers, musicians, entertainers, playwrights, directors, and so forth are considered SSTBs.
Services related to the performing arts that use transferable knowledge and skills, such as those provided by disk jockeys, stagehands, costume designers, and makeup artists are not considered SSTBs. For example, the skills and knowledge acquired by a stagehand can transfer over to home construction and handyman work.
Actuaries and similar professions that engage in analyzing or assessing the financial costs of risk or uncertainty of events are considered SSTBs.
This excludes services provided by analysts, economists, mathematicians, and statisticians unless they are performing actuarial analysis or assessments.
The full description from the IRS reads:
Any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners [is considered an SSTB].
This translates to any trade or business that primarily earns its income from:
- Product or service endorsements
- Using someone's name, image, likeness, voice, signature, trademark, or any other symbol associated with that person's identity
- Personal appearances, whether at an event or on television, radio, or other mass-media
Common examples include:
- A retired professional athlete who endorses pharmaceuticals and other health-related products
- A well-known game show host who also serves as a spokesperson for a life insurance company
- A "celebrity chef" who has their own line of cookware sold in popular stores
- A former U.S. president who does speaking engagements and book deals