Are Payroll Service Specified Service Business For 199a?
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 concern income (QBI) offset in tax yr 2018. On Jan. 18, 2019, the U.S. Department of the Treasury issued final regulations on this centerpiece provision of the Taxation Cuts and Jobs Act.
What is a Specified Service Trade or Concern?
An specified service trade or business (SSTB) is a trade or business involving the operation of services in the fields of health, police force, accounting, actuarial scientific discipline, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain avails or any merchandise or business where the chief nugget is the reputation or skill of 1 or more of its employees or owners. The Sec. 199A deduction does not utilize to SSTBs when taxable income is above $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 between $163,300-213,300 for other filers (tax twelvemonth 2020 amounts). Individuals with taxable income below these threshold levels are not discipline 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 organisation Income Deduction, and will assistance revenue enhancement professionals propose their clients on this aspect 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 directly related to a medical services field, such as the operation of health clubs or spas; payment processing; or the enquiry, testing, manufacture and auction of pharmaceuticals or medical devices. |
| Law | Lawyers, paralegals, legal arbitrators, mediators and similar professionals. | Services that do not crave skills unique to the field of police, such as services by printers, delivery services or stenography services. |
| Accounting | Accountants, enrolled agents, return preparers, financial auditors and similar professionals. | |
| Actuarial scientific discipline | Actuaries and similar professionals. | |
| Performing arts | Actors, directors singers, musicians, entertainers, directors and similar professionals. | Services that practise not crave skills unique to the creation of performing arts, such as the maintenance and functioning of equipment or facilities for utilize 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 assist in achieving goals and solving bug, and persons providing advice and counsel regarding advancement with the intention of influencing decisions made by a regime or governmental agency, and lobbyists attempting to influence legislators and other government officials on behalf of a client, and other like professionals. | Performance of services, other than communication of counsel, such equally sales, or the provision of preparation of educational courses. It also excludes consulting services embedded in, or ancillary to, the activities of a trade or business that isn't an SSTB, if there is no separate payment for the consulting services. |
| Athletics | Athletes, coaches and team managers in sports, such equally baseball, basketball, football, soccer, hockey, martial arts, battle, bowling, lawn tennis, golf, snowboarding, track and field, billiards, racing and other forms of athletic competition. | Services that practice not require skills unique to able-bodied competition, such every bit the maintenance and performance of equipment or facilities for apply in athletic events, or the provision of services by persons who broadcast 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 like services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in title 11 or similar cases), and raising financial capital by underwriting, or interim as a customer's agent in the issuance of securities and similar services. This includes services provided past financial advisors, investment bankers, wealth planners, retirement advisors and other similar professionals. . | Taking deposits or making loans, but does not include arranging lending transactions between a lender and borrower. |
| Brokerage services | Persons who arrange transactions between a heir-apparent and a seller of securities for a committee or fee, such as 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)(2)), commodities (as defined in Sec. 475(e) (two)), or partnership interests. | |
| Dealing in securities | Dealing in securities (as defined in Sec. 475(c)(2)), commodities (equally divers in Sec. 475(eastward)(2)) or partnership interests. | |
| "Catch-all" category | Any trade or business where the main asset is the reputation or skill of i or more of its owners or employees, equally demonstrated by:
|
De Minimis Exception
If you lot have 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 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 non treated every bit an SSTB.
- If gross receipts from a trade or business are more than $25 meg 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 concern provides services or belongings to an SSTB, and at that place is 50% or more than common ownership of the trades or businesses, that portion of the services or property provided to the SSTB is treated as a dissever 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 program.
- Contributing to a health savings account.
- Making a charitable contribution.
- Choosing married filing separate instead of married filing jointly.
Resources
- IRS Qualified Business organisation Income Deduction FAQs
- Final Regulations
Editor's note: 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 taxation law specialist for Intuit® ProConnect™, where he has worked since 1987. He monitors legislative and regulatory activeness, serves as a government liaison, circulates data to employees and customers, analyzes and tests software, trains employees and customers, and serves as a public relations representative.
Are Payroll Service Specified Service Business For 199a?,
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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