what is an SSTB for form 8995?
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A Specified Service Trade or Business (SSTB) is a key concept under Section 199A of the Internal Revenue Code, which governs the Qualified Business Income (QBI) deduction. The classification of a business as an SSTB directly affects a taxpayer’s eligibility for the QBI deduction, especially for higher-income taxpayers. The definition and treatment of SSTBs are detailed in the Code, Treasury Regulations, and IRS forms and instructions.
1. Definition of SSTB
Section 199A(d)(2) defines an SSTB as any trade or business involving the performance of services in certain specified fields, or where the principal asset is the reputation or skill of one or more employees or owners. The Treasury Regulations at §1.199A-5 provide further detail and examples.
2. Fields Considered SSTBs
The following fields are specifically listed as SSTBs:
- Health: Includes services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and similar healthcare professionals. It does not include services not directly related to medical care, such as operating health clubs or manufacturing medical devices.
- Law: Includes services by lawyers, paralegals, legal arbitrators, mediators, and similar professionals. It excludes services not requiring legal skills, such as printing or delivery services.
- Accounting: Includes accountants, enrolled agents, return preparers, financial auditors, and similar professionals.
- Actuarial Science: Includes actuaries and similar professionals.
- Performing Arts: Includes actors, singers, musicians, entertainers, directors, and similar professionals. It does not include those who maintain equipment or broadcast performances.
- Consulting: Includes providing professional advice and counsel to clients, including advocacy and lobbying. It excludes sales, training, or consulting services embedded in non-SSTB activities if not separately paid for.
- Athletics: Includes athletes, coaches, and team managers. It does not include those who maintain facilities or broadcast events.
- Financial Services: Includes wealth management, financial advice, retirement planning, valuations, mergers, acquisitions, and similar services. It does not include taking deposits or making loans, but does include arranging lending transactions.
- Brokerage Services: Includes arranging transactions between buyers and sellers of securities for a commission or fee. It does not include real estate or insurance brokers.
- Investing and Investment Management: Includes asset management and investment advice for a fee, but not direct management of real property.
- Trading or Dealing in Securities, Partnership Interests, or Commodities: Includes regular trading or dealing as defined in the regulations.
- Any trade or business where the principal asset is the reputation or skill of one or more employees or owners: This includes businesses that receive income from:
- Endorsing products or services,
- Licensing the use of an individual’s image, likeness, name, signature, voice, trademark, or similar symbols,
- Receiving fees for appearances at events or in media formats.
3. De Minimis Rule
A business is not considered an SSTB if:- Its gross receipts are $25 million or less and less than 10% of gross receipts are from SSTB activities, or- Its gross receipts are more than $25 million and less than 5% of gross receipts are from SSTB activities.
This rule allows businesses with only a small portion of SSTB-type income to avoid being classified as an SSTB, provided they maintain separate books and records for different activities.
4. Special Rules
- If a business provides property or services to an SSTB and there is 50% or more common ownership, the portion of the business providing those services or property is treated as a separate SSTB with respect to the related parties.
- The trade or business of performing services as an employee is never a qualified trade or business for QBI purposes.
5. Impact on QBI Deduction
- If a business is an SSTB, the QBI deduction is subject to income-based limitations. For taxpayers with taxable income above certain thresholds, the deduction is phased out and may be eliminated entirely.
- For 2025, the phase-out thresholds are $197,300 for single filers and $394,600 for joint filers, with the deduction fully phased out at $247,300 and $494,600, respectively.
- Taxpayers below the threshold can claim the QBI deduction for SSTB income; those within the phase-in range can claim a partial deduction; those above the range cannot claim the deduction for SSTB income.
6. Documentation and Reporting
- Taxpayers must maintain clear records to substantiate the nature of their business activities and income sources.
- Proper classification and reporting are required on Form 8995 or 8995-A, and supporting schedules must be attached if aggregation or de minimis rules are used.
7. Summary Table of SSTB Fields
In summary, an SSTB for Form 8995 is a trade or business in one of the specified service fields or where the principal asset is the reputation or skill of its owners or employees, subject to the de minimis rule and special aggregation rules. Proper classification is essential for determining eligibility for the QBI deduction.
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