Is directing or producing a commercial considered a specified service trade or business (SSTB) for tax purposes?
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Yes, directing or producing a commercial is generally considered a specified service trade or business (SSTB) for purposes of section 199A.
1. Legal Analysis:
Section 199A(d)(2) defines an SSTB as any trade or business involving the performance of services in the fields of, among others, performing arts, consulting, and any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. Treasury Regulation §1.199A-5(b) provides further detail, stating that the field of performing arts includes services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such.
The regulation’s examples clarify that a film production company that plans and coordinates film production, and shares in the profits of the films it produces, is engaged in the performance of services in the field of performing arts and is therefore an SSTB. This applies regardless of whether the owner is passive or active in the business.
A commercial, as a form of audiovisual content created for broadcast or digital distribution, is a type of performing arts production. The act of directing or producing a commercial involves creative input and artistic direction, which falls squarely within the regulatory definition of performing arts for SSTB purposes.
2. Key Points:
- The field of performing arts under §1.199A-5(b) includes directors and similar professionals involved in the creation of performing arts content.
- The regulation does not distinguish between types of audiovisual content; commercials, like films or television shows, are included if they involve creative direction and production.
- Income from such activities is considered SSTB income, and thus, if the taxpayer’s taxable income exceeds the applicable threshold and phase-in range, the QBI deduction may be limited or disallowed for that income.
Caveat: If the activity is limited to technical or administrative services (e.g., equipment rental, logistics, or non-creative support), and not the creative direction or production, it may not be considered an SSTB. However, the core activities of directing or producing a commercial are generally SSTB activities.
Conclusion: Directing or producing a commercial is considered a specified service trade or business (SSTB) in the field of performing arts for section 199A purposes.
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