must be located in the United States, does not involve performing services as an employee nor a specified service trade or business (SSTB), and it must satisfy requirements stated in Code Sec. 162 for the deduction of trade or business expenses. For example, a qualified trade or business would include a business that takes paying customers on fishing excursions that is run by a skilled fisherman, but it would not include a business that is a health club. It would also exclude facilities such as testing services and medical research, along with the creation and sales of medical devices [ CITATION IRC1 \l 1033 ]. Code Sec. 162 states what qualifies for the deduction of trade or business expenses. These expenses include the following: 1. A reasonable allowance for salaries or other compensation for personal services actually rendered 2. Traveling expenses (meals, lodging, etc.) that are incurred away from home due to the pursuit or a trade or business 3. Rentals or other payments that must be paid for the continuous use of a property for a trade or business, with the taxpayer not having any equity in the property nor the ownage of the title There are also three exceptions to what is considered a qualified trade or business: 1. A trade or business conducted by a C corporation 2. A taxpayer’s taxable income is above the threshold amount and they have a trade or business is a specified service trade or business (SSTB) 3. A trade or business of performing services of an employee [CITATION IRS191 \l 1033 ] A C corporation is a separate entity from their owners or shareholders and is taxed accordingly. These corporations are subject to the corporate income tax and their owners or shareholders are taxed on personal levels, meaning that there is double taxation involved. A married couple filing jointly cannot have a taxable income exceeding $315,000, and all other taxpayers cannot have a taxable income exceeding $157,500. If any of these threshold amounts are below a taxpayer’s taxable income, then they do not qualify for the 199A deduction. In addition, the following trades and businesses that perform the following services are considered to be SSTBs and are considered exempt from the 199A deduction: 1. Health 2. Law 3. Accounting 4. Actuarial science
Strawser 4 of 13 5. Performing arts 6. Consulting 7. Athletics 8. Financial service 9. Investing and investment management 10. Trading or dealing Simply put, if the principal asset in a taxpayer’s business is their skill set or reputation, then they do not qualify for the 199A deduction. If an entertainer established their own business as a professional actor or actress, that business would not be considered a qualified business because the entertainer’s reputation and skill set as a professional actor or actress is their principal asset.
- Spring '14
- Taxation in the United States, QBI, Gracie Strawser