Is A Message Therapist A Specified Service Business
Sec. 199A of the Internal Revenue Code affords owners of sole proprietorships, partnerships and S corporations (and some trusts and estates) a lucrative 20 percent deduction on their qualified business organisation income (QBI) beginning in taxation year 2018. On Jan. 18, 2019, the U.South. Department of the Treasury issued terminal regulations on this centerpiece provision of the Tax Cuts and Jobs Act.
What is a Specified Service Merchandise or Business concern?
An specified service trade or business (SSTB) is a merchandise or business involving the operation of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business organization where the primary nugget is the reputation or skill of i or more of its employees or owners. The Sec. 199A deduction does not employ to SSTBs when taxable income is to a higher place $426,600 for joint filers and $213,300 for other filers, and is partially allowed when taxable income is between $326,600-426,600 for joint filers and betwixt $163,300-213,300 for other filers (tax year 2020 amounts). Individuals with taxable income below these threshold levels are not bailiwick to the limitations.
The regulations elaborate and provide examples on which professions are included and excluded in the definition of a specified service merchandise or business organization. The chart below includes excerpts from instructions for Form 8995-A, Qualified Business organization Income Deduction, and volition assistance tax professionals advise their clients on this attribute of the Sec. 199A deduction.
| Included fields | Excluded fields | |
|---|---|---|
| Health | Physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists and other similar healthcare professionals. | Services not direct related to a medical services field, such as the operation of wellness clubs or spas; payment processing; or the research, testing, manufacture and sale of pharmaceuticals or medical devices. |
| Police force | Lawyers, paralegals, legal arbitrators, mediators and similar professionals. | Services that do not require skills unique to the field of police force, such as services past printers, commitment services or stenography services. |
| Bookkeeping | Accountants, enrolled agents, return preparers, fiscal auditors and similar professionals. | |
| Actuarial scientific discipline | Actuaries and similar professionals. | |
| Performing arts | Actors, directors singers, musicians, entertainers, directors and similar professionals. | Services that practice non crave skills unique to the cosmos of performing arts, such every bit the maintenance and operation of equipment or facilities for employ in the performing arts, or the provision of services by persons who broadcast video or audio of performing arts to the public. |
| Consulting | Persons providing clients with professional advice and counsel to assistance in achieving goals and solving problems, and persons providing advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency, and lobbyists attempting to influence legislators and other government officials on behalf of a client, and other like professionals. | Operation of services, other than advice of counsel, such as sales, or the provision of training of educational courses. It also excludes consulting services embedded in, or ancillary to, the activities of a trade or concern that isn't an SSTB, if in that location is no divide payment for the consulting services. |
| Athletics | Athletes, coaches and squad managers in sports, such as baseball, basketball, football, soccer, hockey, martial arts, battle, bowling, tennis, golf, snowboarding, runway and field, billiards, racing and other forms of athletic competition. | Services that do non crave skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in able-bodied events, or the provision of services by persons who circulate video or audio of athletic events to the public. |
| Financial services | Persons managing clients' wealth, advising clients on finances, developing retirement plans, developing wealth transition plans, providing advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in title 11 or similar cases), and raising financial capital past underwriting, or interim as a client's agent in the issuance of securities and similar services. This includes services provided by financial advisors, investment bankers, wealth planners, retirement advisors and other similar professionals. . | Taking deposits or making loans, only does not include arranging lending transactions between a lender and borrower. |
| Brokerage services | Persons who arrange transactions between a buyer and a seller of securities for a commission or fee, such equally stock brokers and other similar professionals. | Services provided by real estate agents and brokers, or insurance agents and brokers. |
| Investing & investment management | Persons providing, for a fee, investing, asset management or investment management services, including providing communication on buying and selling investments. | Service of directly managing real property. |
| Trading | Persons who trade in securities (as defined in Sec. 475(c)(ii)), commodities (every bit defined in Sec. 475(due east) (2)), or partnership interests. | |
| Dealing in securities | Dealing in securities (as divers in Sec. 475(c)(2)), commodities (as divers in Sec. 475(e)(2)) or partnership interests. | |
| "Grab-all" category | Any merchandise or concern where the principal asset is the reputation or skill of i or more of its owners or employees, as demonstrated past:
|
De Minimis Exception
If you take a blend of income from an SSTB and a non-SSTB, and your gross receipts from the SSTB component are nether a certain threshold percentage, a de minimis dominion applies and will allow the SSTB to be fully eligible for the QBI deduction.
- If gross receipts from a trade or business are $25 one thousand thousand or less, AND less than 10% of the gross receipts are from an SSTB, the activeness is non treated as an SSTB.
- If gross receipts from a trade or business are more than $25 one thousand thousand AND less than v% of the gross receipts are from an SSTB, the action is not treated as an SSTB.
Ancillary Rule
If your trade or business provides services or holding to an SSTB, and there is 50% or more common ownership of the trades or businesses, that portion of the services or belongings provided to the SSTB is treated as a separate SSTB.
Planning Tip:If taxable income is higher up the threshold, consider trying to reduce taxable income so y'all tin can qualify for the QBI deduction, including the following:
- Bunching income (defer income/accelerate expenses).
- Contributing to a retirement plan.
- Contributing to a health savings account.
- Making a charitable contribution.
- Choosing married filing separate instead of married filing jointly.
Resources
- IRS Qualified Business Income Deduction FAQs
- Concluding Regulations
Editor's annotation: This article was originally published Jan. 17, 2019, and republished with updates on July 22, 2019, and March 3, 2020.
Mike D'Avolio, CPA, JD, is a revenue enhancement law specialist for Intuit® ProConnect™, where he has worked since 1987. He monitors legislative and regulatory activity, serves as a government liaison, circulates information to employees and customers, analyzes and tests software, trains employees and customers, and serves as a public relations representative.
Source: https://proconnect.intuit.com/taxprocenter/tax-law-and-news/professional-services-guidance-for-the-qbi-deduction-helps-define-specified-services/
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