What is a specified trade or business(SSTB)?

When it comes to business taxation in the United States, not all companies are treated the same. A key distinction exists for what the IRS defines as a Specified Service Trade or Business (SSTB). If you own or operate a business that falls into this category, it can directly influence how you qualify for certain deductions, particularly the Qualified Business Income (QBI) deduction.

Many business owners are not fully aware of how these rules apply, which may result in missed opportunities or unexpected tax obligations. Let’s break down what SSTBs are, which industries they cover, and what tax benefits or limitations they bring.

What is a Specified Service Trade or Business?

The IRS classifies a business as an SSTB if its main activity involves providing services where the value depends on the skills or reputation of employees or owners. These are industries where personal expertise, talent, or professional judgment forms the foundation of the work.

Some examples include:

  • Health services (doctors, dentists, therapists)

  • Legal services (attorneys, law firms)

  • Accounting and consulting services

  • Performing arts (actors, musicians, entertainers)

  • Athletics (professional athletes, coaches, trainers)

  • Financial services (investment advisors, brokers)

Additionally, businesses where income is primarily tied to the reputation or skill of an individual also qualify as SSTBs.

In simpler terms, if your business relies heavily on professional knowledge, personal talent, or client trust in your expertise, there’s a strong chance it falls into this category.

Why Does the IRS Separate SSTBs?

The distinction matters because it affects how business owners can claim the QBI deduction under Section 199A of the tax code. This deduction allows eligible business owners to deduct up to 20 percent of their qualified business income, reducing taxable income and lowering overall tax bills.

For many types of businesses, this deduction is straightforward. However, SSTBs face restrictions once income levels rise above certain thresholds. This is because the IRS does not want high-income professionals, like doctors or consultants, to shelter income in the same way as businesses that require significant capital investment.

Income Thresholds and Limits for SSTBs

The QBI deduction for SSTBs begins to phase out once taxable income exceeds specific levels. For 2025, these thresholds are:

  • $383,900 for married filing jointly

  • $191,950 for single filers

If your taxable income is below these amounts, your SSTB may qualify for the full 20 percent QBI deduction. Once your income rises above the threshold, the deduction gradually phases out until it disappears completely at higher income levels.

This phase-out makes careful tax planning essential for professionals in SSTBs. Without planning, business owners may lose out on significant tax savings.

Potential Tax Benefits for SSTBs

While SSTBs face limits, there are still notable benefits:

  1. Qualified Business Income Deduction (within limits)
    If your income is under the threshold, your business can take advantage of the full 20 percent deduction, which directly reduces taxable income.

  2. Entity Choice Optimization
    Structuring your business as an S corporation or partnership may provide additional opportunities for savings when combined with tax planning strategies.

  3. Retirement Contributions
    Contributing to qualified retirement accounts can help reduce taxable income, which may keep you under the threshold and preserve your QBI deduction.

  4. Business Expense Deductions
    Even without the full QBI deduction, SSTBs can still deduct ordinary and necessary business expenses, from office supplies to professional development costs.

  5. Strategic Planning Opportunities
    With the right guidance, SSTB owners can use income timing, expense acceleration, or compensation strategies to stay eligible for deductions.

Why Tax Planning is Essential for SSTB Owners

The SSTB rules add layers of complexity to tax filings. A small misstep in planning could mean losing the entire QBI deduction. On the other hand, proactive strategies can help maximize available benefits and keep more money in your pocket.

This is where working with an experienced accounting and consulting team makes all the difference. Professionals can evaluate your income, business structure, and deductions to determine the best way to navigate SSTB rules.

How We Can Help

At Zuazo & Associates, we specialize in helping businesses and professionals manage their accounting and tax needs with confidence. Whether you run a medical practice, a law firm, or another service-based business, we understand the unique challenges you face under the SSTB framework. From tax planning and preparation to ongoing financial consulting, we provide solutions that protect your income and position you for long-term success.

If you have questions about whether your business qualifies as an SSTB or how to maximize your tax benefits, our team is here to help. Call us at (714) 929-1828 or visit our website Zuazo & Associates to get in touch.

Final Thoughts

Specified Service Trades or Businesses occupy a special place in the tax code. While the rules can be restrictive at higher income levels, opportunities still exist for significant savings when the right strategies are applied. Understanding where your business fits and planning accordingly can help you maximize deductions and avoid surprises.

If you operate a service-based business, take the time to review your tax plan before filing. With expert guidance, you can ensure compliance while still benefiting from available tax advantages.