What is an SSTB?
An SSTB is a business where the main asset is the skills or reputation of its employees or owners. It must be a pass-through entity (such as an LLC, S-Corp, or sole proprietorship) to qualify for a 20% business income deduction under Section 199A of the tax code. This deduction can significantly reduce taxable income, helping business owners increase their profits.
Why SSTB Classification Matters for Business Growth
Understanding whether your business qualifies as an SSTB is crucial, as it impacts tax deductions that can lead to significant savings. The 20% deduction provided under Section 199A can help SSTB businesses reinvest in growth, hire additional staff, or upgrade equipment. However, businesses should carefully track income sources and ensure compliance with IRS guidelines. Regular reviews with a tax professional can help clarify if an SSTB classification is beneficial and how to maintain eligibility. Ultimately, SSTB classification allows service-based businesses to remain competitive while keeping more of their earnings.
Types of Businesses that Qualify
Only specific service industries meet SSTB criteria, including:
- Medical services
- Law
- Consulting
- Advertising
- Personal services
- Brokerage services
- Financial services
The ones that do not meet the criteria are:
- Banking
- Insurance
- Real estate
- Transportation
- Storage
- Communication
- Education
- Membership organization
- Entertainment
- Publishing
- Construction
- Manufacturing
- Agriculture
- Mining
- Mall services
- Restaurant
- Hotels
- Gambling
- Sports
Income Limits and Deduction Eligibility
To qualify for the 20% deduction, your taxable income must be below set thresholds: $160,700 for individuals and $321,400 for married couples. For incomes slightly above these limits, partial deductions may apply up to a second threshold ($210,700 for individuals and $421,400 for couples). Above these second thresholds, SSTBs cannot claim the deduction.
For mixed businesses, it’s essential to understand the “de minimis” rule: if more than 10% of your business revenue is from SSTB activities, the whole business is classified as an SSTB.
Maximizing Tax Savings
A tax professional or business accountant like KYKY can ensure you’re maximizing deductions. They can help assess if SSTB income affects your eligibility for the deduction. Additionally, investing in business insurance is a wise financial move, as it protects against legal or financial issues that could impact your bottom line.
