Would directing or producing a commercial fall under the definition of a specified service trade or business?
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To determine whether directing or producing a commercial falls under the definition of a specified service trade or business (SSTB) for purposes of section 199A, it is necessary to analyze the statutory and regulatory definitions and examples.
1. Statutory and Regulatory Framework
Section 199A(d)(2) defines an SSTB as any trade or business described in section 1202(e)(3)(A) (excluding engineering and architecture), or which involves the performance of services in investing, investment management, trading, or dealing in securities, partnership interests, or commodities.
Treasury Regulation §1.199A-5(b)(1)(v) and (vi) specifically list the "performing arts" and "consulting" as fields that are SSTBs. The regulation further clarifies in §1.199A-5(b)(2)(vi) that the "field of performing arts" means the performance of 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.
Key Regulatory Example
- Example 5 to §1.199A-5(b)(3): A singer and songwriter who writes and records a song and receives royalties is engaged in the performance of services in the field of performing arts, and the royalties are not eligible for the section 199A deduction.
- Example 6 to §1.199A-5(b)(3): A partner in a film production company that plans and coordinates film production and shares in the profits of the films is engaged in the performance of services in the field of performing arts, and the distributive share of income is not eligible for the section 199A deduction, even if the partner is passive.
2. Application to Directing or Producing a Commercial
- Directing a Commercial: The act of directing is explicitly included in the definition of services in the field of performing arts under §1.199A-5(b)(2)(vi). The regulation states that directors are among the professionals whose services are considered to be in the field of performing arts.
- Producing a Commercial: Producing is not specifically listed, but the regulatory example involving a film production company (Example 6) makes clear that planning and coordinating film production is considered a service in the field of performing arts. The regulation does not distinguish between types of audiovisual content (e.g., feature films, commercials, television shows), so producing a commercial would also fall within the field of performing arts if it involves similar creative and production activities.
3. Conclusion
Directing or producing a commercial is considered a specified service trade or business under section 199A, as it falls within the field of performing arts. This means that, for purposes of the qualified business income deduction, income from such activities is subject to the SSTB limitations and potential phase-outs based on the taxpayer’s taxable income.
If the taxpayer’s taxable income exceeds the applicable threshold and phase-in range, no qualified business income, W-2 wages, or unadjusted basis of qualified property from the SSTB may be taken into account for the deduction. If the taxpayer’s income is below the threshold, the SSTB is treated as a qualified trade or business, and the deduction may be available.
Summary: Directing or producing a commercial is an SSTB under section 199A because it is considered a service in the field of performing arts as defined by the regulations and supported by regulatory examples.
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