Is Your Business A Specified Service Business?

The Tax Cuts and Jobs Act (TCJA) created a new deduction for qualified business income. However, business income that comes from a specified service business is not eligible once taxable income reaches a certain limit.

So, what is considered a specified service business? The IRS definition includes businesses that involve performance of services in the field of health, law, accounting, actuarial science, performance arts, consulting, athletics, financial services, or brokerage services. The term also includes businesses that participate in investing, trading, or dealing in securities. Architecture and engineering businesses are excluded from the definition of specified services.

To help further define these specified service business categories, the IRS issued guidance on what would or would not be included  in the definition. Below is a table which illustrates two of the categories:

Field

Includes

Excludes

Health Physicians, pharmacists, nurses, dentists, veterinarians, physical therapists,  psychologists, other similar professionals providing medical services to patients Health clubs or spas, payment processing, research, testing, and manufacture and/or sales of pharmaceuticals or medical devices
Consulting Providing professional advice and counsel to clients to assist the client in achieving goals and solving problems Sales, providing training and educational courses, consulting services ancillary to sale of goods in a business that isn’t a specified service business if no separate payment for the services

 

There are also additional rules that could make a non-specified service business be treated as one, if it provides services to a specified service business and they are both owned by related parties.

If you have any additional questions, please contact Rebecca Bischoff, CPA at 314.576.1350 or rbischoff@bwtpcpa.com.

Rebecca Bischoff, CPA is a supervisor with BWTP P.C. Read more about Rebecca here.

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