Specified Service Trades or Businesses (SSTB) - 199A Deduction
Learn how specified service trades or businesses (SSTB) can take advantage of the 199A deduction. These businesses include those providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing, and investment management.
The deduction is limited as to how it applies to specified service trades or businesses described in Sec. 1202(e)(3)(A), but excluding engineering and architecture and trades or businesses that involve the performance of services that consist of investment-type activities.
Specified service trades or businesses are described by the IRS as being trades or businesses in the fields of:
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Health – The performances of services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals who provide medical services directly to a patient. Does not include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or research, testing, and manufacture and/or sales of pharmaceuticals or medical devices.
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Law – The performance of services in the field of law means services provided by lawyers, paralegals, legal arbitrators, mediators, and similar professionals in their capacity as such. The performance of services in the field of law does not include providing services that do not require skills unique to the field of law – for example, services provided to a lawyer by printers, delivery services, or stenography services.
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Accounting - The performance of services in the field of accounting means services provided by accountants, enrolled agents, tax return preparers, financial auditors, and similar professionals in their capacity as such. Provision of services in the field of accounting is not limited to services requiring state licensure as a certified public accountant (CPA). The field of accounting does not include payment processing and billing analysis.
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Actuarial Science – The performance of services in the field of actuarial science means the services provided by actuaries and similar professionals in their capacity as such. It does not include the services provided by analysts, economists, mathematicians, and statisticians not engaged in analyzing or assessing the financial costs of risk or uncertainty of events.
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Performing Arts - The performance of services in the field of the 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. It does not include providing services that do not require skills unique to the creation of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts. Similarly, persons who broadcast or otherwise disseminate video or audio of performing arts to the public are not considered to be providing services in performing arts.
“ Commentary: The preamble of the final regulation used “writers” as an example of an occupation that may or may not be a SSTB. To quote the preamble: “To the extent that a writer is paid for written material, such as a song or screenplay, that is integral to the creation of the performing arts, the writer is performing services in the field of performing arts”.Applying that standard, it would seem the following professionals could fall into the definition of a SSTB: makeup artists, costume designers, set designers, lighting designer and director, sound and music directors, film editors, etc. However, remember Sec 199A does not apply to the earnings of those paid as employees. For example, a self-employed lighting director would be an SSTB while a lighting technician on payroll would not. ”
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Athletics - The performance of services in the field of athletics means the performances of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing. It does not include providing services that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events. It also does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of athletic events to the public.
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Consulting - The performance of services in the field of consulting means providing professional advice and counsel to clients to assist the client in achieving goals and solving problems. Consulting includes lobbyists and other similar professionals performing services in their capacity as such. It does not include minor consulting that accompanies the sale of a product. A trade or businesses is not an SSTP if less than 10% of gross receipts are from consulting (5% where the gross receipts are greater than $25 million.
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Financial Services - The definition of financial services applies to services typically performed by financial advisors and investment bankers and provides that the field of financial services includes providing the following financial services to clients: managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in title 11 (bankruptcy) or similar cases), and raising financial capital by underwriting, or acting as the client’s agent in the issuance of securities, and similar services. This includes services provided by financial advisors, investment bankers, wealth planners, and retirement advisors and other similar professionals, but does not include banking services such as taking deposits or making loans.
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Brokerage Services - The field of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities for a commission or fee. This includes services provided by stockbrokers and other similar professionals but does not include services provided by real estate agents and brokers, or insurance agents and brokers.
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Reputation or Skill - The original legislation included in its list of trades or businesses that were SSTBs, those where the principal asset of a trade or business is the reputation or skill of one or more of its employees or owners. Did this mean, for example, that a self-employed plumber who provided his skill for the business wouldn’t be eligible for the 199A deduction? Luckily, in a taxpayer-friendly interpretation, the tax regulations have generally defined “reputation and skill” to mean:
(1) Receiving income for endorsing products or services for which the individual provides endorsement services;
(2) Licensing or receiving income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity; or
(3) Receiving appearance fees or income (including fees or income to reality performers performing as themselves on television, social media, or other forums, radio, television, and other media hosts, and video game players).
(4) Investing and investment management – see description in Reg. 1.199A5(b)(2)(xi)
(5) Trading – see description in Reg. 1.199A-5(b)(2)(xii)
(6) Dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)) – see description in Reg 1.199A-5(b)(2)(xiii)