Section 199A classifies certain personal service businesses as a Specified Service Trade or Business (SSTB). Personal service businesses that are classified as an SSTB are as follows:
- Accounting
- Actuarial services
- Athletics
- Brokerage services
- Consulting
- Financial services (including tax preparation)
- Health
- Investing and investment management
- Medical and veterinary services
- Law
- Performing arts
- Trading or dealing in securities, partnership interests, or commodities
- Any trade or business wherein the reputation or skill of one or more of its owners or employees is its principal asset. This can be demonstrated in several ways, e.g.,
- being paid to endorse products and services;
- being paid for the use of the individual's name, image, likeness, voice, trademark, signature, or any other symbol associated with the individual;
- being paid to appear at an event or in media, e.g., radio or television.
(Note that while architectural and engineering businesses are classified as personal service businesses, they are not classified as an SSTB.)
For an SSTB, the Qualified Business Income Deduction (QBID) is subject to certain annually adjusted limitations based on the taxpayer's taxable income before QBID. See here for the annual limitations for the current and prior years.
After the taxable income limitation, QBID is phased out to the extent taxable income exceeds the threshold amount. For example, if a taxpayer’s business is a SSTB and taxable income exceeds the threshold amount by 35%, then the QBID for that SSTB will be reduced by 35%. This phase-out reduction is calculated on Form 8995-A, Schedule A. (In 2018, this phase-out reduction was calculated on Worksheet 12-A found in Publication 535.)
Form 8995-A, Schedule A is applicable if the business is designated as a SSTB and the taxable income before any QBID is taken is more than the income threshold amounts. For any SSTB below the income thresholds, the QBID is treated exactly in the same manner as it would be calculated for any other passthrough business.
A passthrough business is designated as an SSTB in the individual owner / shareholder / partner's tax return on the applicable schedule for the business. For an S corporation or partnership, it's not a designation made at the entity level and won't be indicated on the Schedule K-1 the taxpayer receives from the entity. Thus, in TaxSlayer Pro if you're pulling a Schedule K-1 from the business return into the shareholder's or partner's individual tax return, the SSTB designation isn't one of the items pulled in and must be indicated by manual entry.
In TaxSlayer Pro, by default a passthrough business is not designated as an SSTB. Designating a business as an SSTB is done in the following places:
Schedule C
From the Schedule C Edit menu select:
- Qualified Business Income Deduction Amounts
- Is Specified Service Business - Change from No to Yes.
Schedule K-1 from a Partnership
If the Schedule K-1 includes Section 199A information in Box 20 with code Z, from the K-1 1065 Edit Screen select:
- 20Z. Section 199A information
- Is Specified Service Business - Check the check box.
Schedule K-1 from an S Corporation
If the Schedule K-1 includes Section 199A information in Box 17 with code V, from the K-1 1120S Edit Screen select:
- 17V. Section 199A information
- Is Specified Service Business - Check the check box.
Note: This is a guide on indicating a business is an SSTB in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
Publication 535 - Business Expenses
Section 199A - Final Regulations