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Is my business an SSTB?

SOLVEDby TurboTax898Updated 5 hours ago

SSTB (specified service trade or business) is a classification given to certain service businesses. If your business provides a service rather than a product, the business likely classifies as a SSTB.  This is important because being an SSTB reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels.

The SSTB label is irrelevant if your 2023 total taxable income (which includes non-business as well as business income) is $182,100 (or $364,200 if you're filing jointly) or less. At these lower income levels, owners of SSTB as well as non-SSTB businesses can qualify for the same QBI deduction.

The QBI deduction phases out for SSTBs. You'll still qualify for a partial deduction based on the applicable percentage if your taxable income before the QBI deduction is:

  • More than $182,100 but less than $232,101 if single, head of household, married filing separately or qualifying surviving spouse, or
  • More than $364,200 but less than $464,201 if married filing jointly

Select your business for more details on what's considered an SSTB:

Many single-owner and self-employed businesses aren't SSTBs, such as:

  • Rideshare services
  • Sales
  • Engineering
  • Real estate and property management (more info)
  • Contracting
  • Landscaping
  • Childcare and eldercare
  • Grooming (like hair, skin, nails, or pets)
  • Notary services
  • Restaurants and food trucks
  • Architecture

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 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, and psychologists
  • Nurses and physician assistants
  • Physical, massage and speech therapists
  • Pharmacists
  • Nutritionists
  • Veterinarians
  • Chiropractors
  • Acupuncturists

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, or vitamin and supplement store
  • 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.

Consulting involves providing professional advice and counsel to clients. If this isn't the main thrust of your business, you're not really a consultant (and in turn, not an SSTB).

Example: Kimi has been breeding and showing dogs for 30 years. She freely gives advice to others because she loves helping other dog owners. She isn't considered a consultant because providing advice is not the primary focus of her business and also because she doesn't charge for her expertise.

However, if Kimi changed her career to a dog behavior expert and started charging for her advice, she'd be considered a consultant and hence an SSTB.

In addition to lawyers and attorneys, services provided by paralegals, mediators, and legal arbitrators are considered SSTBs.

However, services performed in the legal arena that are not unique to the field of law (for example, stenography or document delivery) aren't 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 aren't 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.

Any trade or business that primarily earns its income from is an SSTB, including:

  • 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

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