Planning with team
Planning with team

Professional services: QBI deduction (SSTB)

Read the Article

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 income (QBI) beginning in tax year 2018. On Jan. 18, 2019, the U.S. Department of the Treasury issued final regulations on this centerpiece provision of the Tax Cuts and Jobs Act.

What is a specified service trade or business?

An specified service trade or business (SSTB) is a trade or business involving the performance 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 where the principal asset is the reputation or skill of one or more of its employees or owners. The Sec. 199A deduction does not apply to SSTBs when taxable income is above $440,100 for joint filers and $220,050 for other filers, and is partially allowed when taxable income is between $340,100-440,100 for joint filers and between $170,050-220,050 for other filers (tax year 2022 amounts). Individuals with taxable income below these threshold levels are not subject to the limitations.

The regulations elaborate and provide examples on which professions are included and excluded in the definition of a specified service trade or business. The chart below includes excerpts from instructions for Form 8995-A, Qualified Business Income Deduction, and will help tax professionals advise their clients on this aspect of the Sec. 199A deduction.

De Minimis exception

If you have a blend of income from an SSTB and a non-SSTB, and your gross receipts from the SSTB component are under a certain threshold percentage, a de minimis rule applies and will allow the SSTB to be fully eligible for the QBI deduction.

  • If gross receipts from a trade or business are $25 million or less, AND less than 10% of the gross receipts are from an SSTB, the activity is not treated as an SSTB.
  • If gross receipts from a trade or business are more than $25 million AND less than 5% of the gross receipts are from an SSTB, the activity is not treated as an SSTB.

Ancillary rule

If your trade or business provides services or property to an SSTB, and there is 50% or more common ownership of the trades or businesses, that portion of the services or property provided to the SSTB is treated as a separate SSTB.

Planning Tip: If taxable income is above the threshold, consider trying to reduce taxable income so you 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.


Editor’s note: This article was originally published Jan. 17, 2019, and republished with updates on July 22, 2019, March 3, 2020, and March 29, 2023.

Mike D'Avolio, CPA, JD

Mike D’Avolio, CPA, JD, is a tax law specialist for Intuit® ProConnect™ Group, 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. More from Mike D'Avolio, CPA, JD

30 responses to “Professional services: QBI deduction (SSTB)”

  1. Does a sole proprietorship that engages in sales of flowers qualify for the QBI deduction

  2. Aloha,
    I am individual tax preparer. I have a client who has a rental. This year I am having a problem with disallowed passive loss. It is asking me for 2020 & 2019 years of Disallowed Passive Loss, Operating Loss. When I input the amount of those year of loss. It is telling me (QBI Op loss should not be greater than the total loss) of 2021 amount? My client previous years is a loss and greater than 2021 amount. How or what can I do to figure this out?
    Any advice would be appreciated.
    Thank you!

    • Hi Solidad – thanks for your question. Each year has an Operating loss and a QBI operating loss. The amount in the QBI operating loss should not be greater than the operating loss. In addition, the total operating losses of all years should not be greater than the operating losses entered under Regular. (code 55).

      Would you send us a test client so I can illustrate the question? Thanks.

  3. I own and operate an audiology clinic (set up as an LLC and taxed as a pass through Partnership) and am a licensed audiologist. The primary source of revenues for the clinic are from the sales and servicing/repairs of hearing aids. Some revenue is also generated by hearing testing. This appears to be a vague area with regards to the language in the statue around medical device sales vs. Health Care services.

    Any thoughts as to if my clinic income is considered a SSTB or does this fall under the exclusion from SSTB?

    • Thank you for your comment. We cannot offer tax advice, please consider seeking help from a tax professional. Thanks!

  4. I have a client (PLLC) who is an architect. He has a drafter working with him in his office. I would like clarification or any other information you may have found on architects. The profession is not listed as one of the specified service trade or businesses (I also did not see it listed in the final regulations as specifically excluded).

    • Sec. 199A specifically excludes engineers and architects from the definition of a specified service trade or business. Here is an excerpt from the tax code:

      A specified service trade or business is: (A) any trade or business involving the performance of services described in Code Sec. 1202(e)(3)(A) other than engineering or architecture or which would be so described if the term “employees or owners” were substituted for “employees” in that section (Code Sec. 199A(d)(2)(A))

  5. Am I understanding correctly that if it is a service business for instance a tax service or accounting firm then as long as they are under the income limits they can use the QBI?

    • Correct. If your taxable income before the QBI deduction isn’t more than $157,500 ($315,000 if married filing jointly), your specified service trade or business is a qualified trade or business, and thus may generate income eligible for the QBI deduction. If your taxable income before the QBI deduction is more than $157,500 but not $207,500 ($315,000 and $415,000 if married filing jointly), an applicable percentage of your specified service trade or business is treated as a qualified trade or business.

      For more information, please refer to Chapter 12 of IRS Publication 535.

  6. Hi Mike! Thanks for the info and article.

    I am a physician with a K1. My AGI $426K. Do I qualify for QBI?

    • Hi Jane, we at Intuit ProConnect are not allowed to give tax advice. You may want to seek out the advice of a tax professional. All the best this tax season!

  7. Does Royalty Income from publications of books qualify as QBI?

    What about oil & gas royalties?
    Thank you,

    • In most cases, you report royalties on Schedule E (Form 1040). However, if your client holds an operating oil, gas, or mineral interest or is in business as a self-employed writer, inventor, artist, etc., report income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040).

      To qualify for the QBI deduction, your client must be involved in a trade or business. Qualified trades and businesses include your Sec. 162 trades or businesses, other than trades or businesses conducted through a C corporation, W-2 wages earned as an employee, and specified service trades or businesses. In general, to be engaged in a trade or business, you must be involved in the activity with continuity and regularity, and your primary purpose for engaging in the activity must be for income or profit.

  8. I understand Real estate agents and brokers, or insurance agents and brokers are excluded from the SSTB definition. What about a business that is a Mortgage Broker?

    • Hi Jeff, it is unclear based on this paragraph from IRS Publication 535:
      • Brokerage services, including services in which a person arranges transactions be- tween a buyer and a seller with respect to securities for a commission or fee includ- ing services provided by stock brokers and other similar professionals. However, it ex- cludes services provided by real estate agents and brokers, or insurance agents and brokers;

  9. Mike,
    Hoping you can help re: life on Unadjusted Basis for property calc on section 199A.
    Lacerte is allowing 40 year, straight line property where the 40 years has not yet ended, thus the last day of the applicable recovery period has not been completed. In some research I have seen the requirement further defined as property under section 168 (c) which lists MACRS recovery periods, thus Residential rental property is 27.5 years and then depreciable period would have ended. Can you tell me why or on what basis Lacerte (also Ultra Tax) is including those properties as allowable basis for the 199A calculation? Just trying to find any way 40 year property will work for my clients with about $50M of cost basis.

  10. A specified service sch C filer has his QBI delimited by the 157k threshold. But is this delimitation based on taxable income, so all his dividends, rentals, etc., get thrown in and if TI is over the 157 he gets delimited even if schedule C is not over this amount? (seems unfair to savers/investors)

    Also, does the delimitation apply only to his sch C, but rentals, PTP, REITS, etc., are all NOT delimited? Or does the specified service designation now delimit all forms of QBI coming into the return?

    • You must be involved in a trade or business to qualify for the QBI deduction, and you must report the income on Schedule C if you’re involved in a trade or business. Here is a blurb from the Schedule C instructions:
      Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 21, or Form 1040NR, line 21.

      • Doesn’t Notice 2019-07 provide that rentals, reits, ptp all qualify for QBI? So the question is that if delimited by the specified service limits for the sch C income, does that same delimitation then also apply to the sch E, etc., types of QBI or do they get calculated without the delimitation?

      • Notice 2019-07 provides for a new safe harbor for real estate activities. Individuals and entities owning rental real estate can treat a rental real estate enterprise as a trade or business for QBI purposes if they meet certain requirements. Please refer to IRS Publication 535 for all the rules, computations and limitations associated with QBI:–dft.pdf.

        Generally, real estate activities are not considered specified service trades or businesses and thus are not subject to the limitations. See page 2 of the publication.

      • According to Chapter 12 of IRS Publication 535, if you own an interest in a pass-through entity, the trade or business determination (including rental real estate activities) is made at that entity’s level. The Schedule K-1 will report out Qualified Business Income, W-2 Wages and Unadjusted Basis Immediately After Acquisition (UBIA), and these amounts will be used to calculate the QBI deduction on the individual return.

  11. Does income from stock brokerage reported on a 1099 & reported as other income on the 1040 qualify for the deduction, or must you show it on a schedule c?

  12. I’m curious why the cap is so low ($157k). How many successful sole proprietor businesses owners earn less than $157k/yr?

  13. Hello Mike,

    Just to clarify – For those “Included Fields” column in the chart above, does this mean that they cannot utilize the QBI even if their joint taxable income is under $315,000 (even if they wanted to)?

    But those in the “Excluded Fields” column can?

    • Hi Joseph,

      The included fields are deemed specified service trades or businesses and subject to a phase-out of the QBI deduction when taxable income exceeds $315,000 on joint returns. A full deduction is available under this taxable income threshold.

      Excluded fields fall under the general rules and computations for QBI.

      Please refer to IRS Publication 535 for more details:–dft.pdf

      Thank you,