A Specified Service Trade or Business (SSTB) is a business where the principal asset is the skill or reputation of its owners or employees. This includes professions in fields such as:
- Health (e.g., doctors, therapists, veterinarians)
- Law (e.g., attorneys, paralegals)
- Accounting and actuarial science
- Consulting
- Financial services and investment management
- Performing arts and athletics
- Brokerage services
- Any business where income is primarily derived from endorsements, licensing, or appearance fees
This classification matters because it affects eligibility for the Qualified Business Income (QBI) deduction under Section 199A of the Internal Revenue Code.
Tax Benefits and Income Limits
For tax year 2025, the QBI deduction allows eligible taxpayers to deduct up to 20% of qualified business income. However, SSTBs face income-based limitations:
- Single filers: Deduction begins to phase out at $197,300 and is fully eliminated at $247,300.
- Married filing jointly: Phase-out starts at $394,600 and ends at $494,600.
If your taxable income is below these thresholds, you may claim the full deduction. If your income falls within the phase-out range, the deduction is reduced proportionally. Above the upper limit, SSTBs are not eligible for the deduction.
The De Minimis Rule
Businesses with mixed activities (both SSTB and non-SSTB services) may qualify for an exception under the De Minimis Rule:
- If gross receipts are $25 million or less, and less than 10% come from SSTB services, the business is not treated as an SSTB.
- If gross receipts exceed $25 million, the threshold drops to 5%.
This rule helps businesses avoid SSTB classification if their SSTB-related income is minimal.
Special Exceptions: Architects and Engineers
Architects and engineers are specifically excluded from the SSTB definition. This means:
- They can claim the full QBI deduction regardless of income level, as long as other eligibility criteria are met.
- However, if their business relies primarily on their reputation or skill, they may still be considered an SSTB in certain cases.
Additional Information
For detailed IRS instructions and worksheets related to the QBI deduction, refer to IRS.gov - Qualified Business Income Deduction.