Is A Realtor A Specified Service Business
Sec. 199A of the Internal Revenue Lawmaking 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) starting time in tax year 2018. On Jan. 18, 2019, the U.S. Department of the Treasury issued terminal regulations on this centerpiece provision of the Tax Cuts and Jobs Human action.
What is a Specified Service Trade or Business organisation?
An specified service trade or business (SSTB) is a trade or business organisation involving the operation of services in the fields of wellness, constabulary, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any merchandise or business organization where the principal nugget is the reputation or skill of one or more of its employees or owners. The Sec. 199A deduction does non use 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 betwixt $326,600-426,600 for joint filers and between $163,300-213,300 for other filers (taxation 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 trade or concern. The chart below includes excerpts from instructions for Form 8995-A, Qualified Business Income Deduction, and will assistance tax professionals advise their clients on this aspect of the Sec. 199A deduction.
| Included fields | Excluded fields | |
|---|---|---|
| Health | Physicians, pharmacists, nurses, dentists, veterinarians, concrete therapists, psychologists and other like healthcare professionals. | Services non directly related to a medical services field, such as the functioning of health 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 like professionals. | Services that do non require skills unique to the field of law, such equally services past printers, delivery services or stenography services. |
| Accounting | Accountants, enrolled agents, return preparers, financial auditors and like professionals. | |
| Actuarial science | Actuaries and similar professionals. | |
| Performing arts | Actors, directors singers, musicians, entertainers, directors and like professionals. | Services that do not require skills unique to the creation 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 assist in achieving goals and solving problems, and persons providing communication and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental bureau, and lobbyists attempting to influence legislators and other authorities officials on behalf of a client, and other like professionals. | Functioning of services, other than advice of counsel, such equally sales, or the provision of training of educational courses. It as well excludes consulting services embedded in, or ancillary to, the activities of a trade or business concern that isn't an SSTB, if at that place is no separate payment for the consulting services. |
| Athletics | Athletes, coaches and squad managers in sports, such as baseball, basketball game, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, snowboarding, track and field, billiards, racing and other forms of athletic competition. | Services that do not require skills unique to able-bodied competition, such every bit the maintenance and operation of equipment or facilities for employ in athletic events, or the provision of services by persons who broadcast video or sound of able-bodied 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 eleven or similar cases), and raising fiscal capital past underwriting, or acting every bit a client's agent in the issuance of securities and similar services. This includes services provided by fiscal advisors, investment bankers, wealth planners, retirement advisors and other like professionals. . | Taking deposits or making loans, just does not include arranging lending transactions between a lender and borrower. |
| Brokerage services | Persons who suit transactions between a buyer and a seller of securities for a commission or fee, such as stock brokers and other similar professionals. | Services provided by real manor 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 advice on ownership and selling investments. | Service of direct managing existent property. |
| Trading | Persons who trade in securities (equally defined in Sec. 475(c)(2)), bolt (as defined in Sec. 475(e) (2)), or partnership interests. | |
| Dealing in securities | Dealing in securities (as defined in Sec. 475(c)(2)), commodities (as defined in Sec. 475(e)(two)) or partnership interests. | |
| "Take hold of-all" category | Any merchandise or business where the chief asset is the reputation or skill of i or more of its owners or employees, equally demonstrated by:
|
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 nether a certain threshold percentage, a de minimis rule applies and will allow the SSTB to exist fully eligible for the QBI deduction.
- If gross receipts from a merchandise or business concern are $25 1000000 or less, AND less than x% of the gross receipts are from an SSTB, the activeness is not treated as an SSTB.
- If gross receipts from a merchandise 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.
Coincident Rule
If your trade or business provides services or belongings to an SSTB, and at that place is 50% or more common buying of the trades or businesses, that portion of the services or property provided to the SSTB is treated every bit a divide SSTB.
Planning Tip:If taxable income is above the threshold, consider trying to reduce taxable income so you tin can authorize 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 split up instead of married filing jointly.
Resources
- IRS Qualified Business Income Deduction FAQs
- Concluding Regulations
Editor's note: This commodity was originally published January. 17, 2019, and republished with updates on July 22, 2019, and March 3, 2020.
Mike D'Avolio, CPA, JD, is a tax 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.
Is A Realtor A Specified Service Business,
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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