What is a Specified Service Trade or Business?
A correct determination is more important than ever due to the tips deduction
Under the One Big Beautiful Bill Act (OB3 Act), correctly determining whether a trade or business is a §199A specified service trade or business (SSTB) is more important than ever, as it also impacts a taxpayer’s ability to claim the new §224 tips deduction. Read Tax News Roundup - October 2025 for more information.
Misclassifying a trade or business as an SSTB can reduce or eliminate the owner’s §199A deduction if they are over the §199A taxable income threshold ($197,300, or $394,600 on a joint return, for tax year 2025). This is an amendable issue if the error is identified within the relevant refund statute of limitations period.
A business is NOT an SSTB solely because it provides “services.” A business is an SSTB only if it falls squarely into one of the specific categories. Read the actual regulation and examples if the trade or business’s status is unclear.
Thirteen SSTB Categories
Health is “...the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists…” See Treas. Reg. §1.199A-5(b)(2)(ii).
Law is “…the performance of legal services by individuals such as lawyers, paralegals, legal arbitrators, mediators, and similar professionals…” See Treas. Reg. §1.199A-5(b)(2)(iii).
Accounting is “…the provision of services by individuals such as accountants, enrolled agents, return preparers, financial auditors, and similar professionals…” See Treas. Reg. §1.199A-5(b)(2)(iv).
Actuarial science is “…the provision of services by individuals such as actuaries…” See. Treas. Reg. §1.199A-5(b)(2)(v)
Performing arts is “…the performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals…” See Treas. Reg. §1.199A-5(b)(2)(vi).
Consulting is “…the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems…” See Treas. Reg. §1.199A-5(b)(2)(vii).
Athletics is “…the performance of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis...” See Treas. Reg. §1.199A-5(b)(2)(viii).
Financial services are “…the provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans…” See Treas. Reg. §1.199A-5(b)(2)(ix).
Brokerage services “…includes services in which a person arranges transactions between a buyer and a seller with respect to securities (as defined in §475(c)(2)) for a commission or fee…” See Treas. Reg. §1.199A-5(b)(2)(x).
Investing and investing management “…refers to a trade or business involving the receipt of fees for providing investing, asset management, or investment management services, including providing advice with respect to buying and selling investments…” See Treas. Reg. §1.199A-5(b)(2)(x).
Trading “…means a trade or business of trading in securities (as defined in §475(c)(2)), commodities (as defined in section 475(e)(2)), or partnership interests. Whether a person is a trader in securities, commodities, or partnership interests is determined by taking into account all relevant facts and circumstances…” See Treas. Reg. §1.199A-5(b)(2)(x).
Dealing in securities or commodities “…means regularly purchasing securities (or commodities) from and selling securities to customers in the ordinary course of a trade or business or regularly offering to enter into, assume, offset, assign, or otherwise terminate positions in securities (or commodities) with customers in the ordinary course of a trade or business…” See Treas. Reg. §1.199A-5(b)(2)(xi).
Any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners “…means any trade or business that consists of any of the following (or any combination thereof): (A) A trade or business in which a person receives fees, compensation, or other income for endorsing products or services, (B) A trade or business in which a person licenses or receives fees, compensation, or other income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity, or (C) Receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.” See Treas. Reg. §1.199A-5(b)(2)(xii).
Two Special SSTB Rules
De Minimis Rule. If a trade or business has $25 million or less in gross receipts for a tax year, it is not an SSTB if less than 10% of the gross receipts are SSTB services. If a trade or business has more than $25 million in gross receipts for a tax year, it is not an SSTB if less than 5% of the gross receipts are SSTB services. See Treas. Reg. §1.199A-5(c)(1).
Related Party Rule. If a business provides its property or services to another SSTB (e.g., a rental activity) and there is 50% or more common ownership of the businesses, then the portion of the business providing services to the commonly-owned SSTB is treated as a separate SSTB with respect to the related parties. See Treas. Reg. §1.199A-5(c)(2).