Specified Service Trades or Businesses (SSTBs) Explained: How They Affect Your QBI Deduction

If you run a business or work for yourself, you’ve probably heard about the Qualified Business Income (QBI) deduction—a tax break that can reduce your taxable income by up to 20%. It was introduced under Section 199A of the 2017 Tax Cuts and Jobs Act (TCJA) to help small business owners and independent professionals keep more of what they earn.

But here’s where things get tricky. Not every business qualifies equally. The IRS places special limits on certain “service-based” businesses—known as Specified Service Trades or Businesses (SSTBs)—that rely mainly on personal skill or reputation. If your business falls under this category, your ability to claim the full 20% deduction could shrink or disappear once your income passes specific thresholds.

In this guide, we’ll break down what SSTBs are, why they matter for your QBI deduction, which businesses qualify (and which don’t), and how to determine where you stand before filing your taxes.

What Is a Specified Service Trade or Business (SSTB)?

A Specified Service Trade or Business (SSTB) is a classification used by the IRS to describe certain service-based businesses that depend on the expertise or reputation of their owners or employees. This definition comes from Section 199A, the same section that governs the QBI deduction.

In simpler terms, an SSTB is any business where your customers are essentially paying for you—your knowledge, judgment, or skill—rather than a tangible product or capital investment.

The IRS defines SSTBs as including the following fields:

• Health (e.g., doctors, dentists, chiropractors, physical therapists)

• Law (e.g., attorneys, paralegals, mediators)

• Accounting (e.g., CPAs, bookkeepers, tax preparers)

• Actuarial science

• Consulting (business, management, or marketing advisors)

• Performing arts (actors, musicians, entertainers)

• Athletics (professional athletes, coaches)

• Financial services (financial planners, investment advisors, brokers)

• Investing and investment management

• Trading or dealing in securities, commodities, or partnership interests

In addition, any business where the principal asset is the reputation or skill of one or more employees or owners can be classified as an SSTB.

Important note: Not all service providers fall under this rule. The IRS specifically excludes certain professions, such as architects and engineers, because their work is considered tied to tangible production rather than personal skill. That distinction makes them eligible for the QBI deduction even at higher income levels.

Why the IRS Limits QBI Deductions for SSTBs

The QBI deduction was designed to reward business owners who create jobs, hire workers, and invest in assets. But service-based businesses, like consulting or law firms, often rely more on human expertise than on capital or property.

To prevent high-income professionals from benefiting disproportionately from this tax break, Congress restricted QBI eligibility for SSTBs once income exceeds certain levels. The reasoning is simple: the deduction aims to encourage business investment, not to reward personal income generated from specialized skills.

For the 2025 tax year, here are the key income thresholds:

If your taxable income is below the lower limit, your SSTB can claim the full 20% QBI deduction. Once your income enters the phase-out range, the deduction gradually decreases. Above the top limit, SSTBs lose the deduction completely.

This distinction only applies to SSTBs. Non-SSTB businesses may still qualify for a partial deduction based on W-2 wages paid or the value of qualified property—even if their income exceeds the top threshold.

How the Phase-Out Works for SSTBs

The QBI phase-out for SSTBs can feel complicated, but it follows a straightforward formula based on your taxable income. Here’s a simple example:

Example:
If you’re a consultant filing as single and earn $220,000 in 2025, your income is within the phase-out range ($197,300–$247,300). That means your 20% QBI deduction starts to shrink proportionally.

If your income climbs to $247,300 or higher, you lose the deduction entirely.

The IRS uses a sliding-scale approach—meaning the higher your income moves within that range, the smaller your eligible deduction becomes until it phases out completely.

Here’s a quick reference:

So, for an SSTB, staying below those thresholds can make the difference between keeping or losing one of the most valuable small-business deductions available.

How to Tell If Your Business Qualifies as an SSTB

This is where many business owners get confused. The IRS definition of an SSTB is broad, and some industries fall into gray areas—especially when a company performs multiple activities.

Here’s how to evaluate whether your business might qualify as an SSTB:

1. Review your primary source of income.
   If your business earns most of its revenue from your personal services (like giving advice, performing, or representing clients), it likely qualifies as an SSTB.

2. Apply the “reputation or skill” test.
   If your customers hire you because of your reputation or personal expertise, your business probably fits the SSTB category.

3. Check for mixed business activities.
   Some businesses have both SSTB and non-SSTB components. For example, a medical supply company owned by a doctor might have both a service arm (consultations) and a retail arm (equipment sales). Only the service portion would count as an SSTB.

4. Consult IRS guidance or a tax professional.
   The official IRS rules under Section 199A include detailed examples that clarify borderline cases. Working with a qualified CPA can help you determine your business’s proper classification.

Examples: SSTB vs. Non-SSTB Businesses

The difference between an SSTB and a non-SSTB can be subtle but crucial for your tax savings.

SSTB examples (subject to income limits):

• Medical practices (e.g., doctors, dentists, therapists)

• Law firms and solo attorneys

• Accounting and tax firms

• Consulting agencies

• Investment advisors or portfolio managers

• Professional athletes or entertainers

Non-SSTB examples (not subject to income-based restrictions):

• Architecture and engineering firms

• Manufacturing companies

• Retail or e-commerce businesses

• Real estate rental businesses (if they meet IRS safe harbor rules)

• Construction or contracting companies

Example:
A real estate agent providing property management services would be considered an SSTB because they rely on personal expertise. However, a property holding company that simply rents out commercial buildings may not fall under SSTB rules, depending on structure and operations.

Why SSTB Classification Can Be Tricky

While the IRS provides a list of designated SSTB industries, there’s often confusion around hybrid or emerging business models. For example, tech-enabled service providers, online coaches, and consultants who sell digital products may wonder how they’re classified.

Here are some scenarios that often require professional review:

• A financial coach who sells both one-on-one sessions (SSTB) and online courses (potentially non-SSTB).

• A medical professional who operates a telehealth platform—part SSTB (medical advice), part tech service.

• A marketing consultant who also runs a productized software business.

In these cases, the IRS looks closely at how much of your revenue depends on your personal services. If over a certain percentage of your income comes from SSTB activities, the entire business might be classified as an SSTB.

Because of these nuances, it’s critical to maintain detailed records and documentation that clearly show the nature of your revenue streams.

Common Misconceptions About SSTBs

Even experienced business owners get tripped up by how SSTB rules work. Here are a few misconceptions worth clearing up:

• “All service businesses are SSTBs.”
  Not true. Architects, engineers, and certain design professionals are excluded from SSTB classification.

• “SSTBs can’t claim the QBI deduction at all.”
  They can, as long as taxable income stays below the phase-out range.

• “You can just reclassify income to avoid SSTB limits.”
  Risky move. The IRS looks at the substance of your operations, not just your business structure. Artificially separating SSTB and non-SSTB income without a valid business reason can trigger scrutiny.

• “Being an LLC protects me from SSTB limits.”
  The IRS bases SSTB status on what your business does, not its legal structure. Whether you’re an LLC, partnership, or S corporation, SSTB rules still apply.

Conclusion: Why Knowing Your SSTB Status Matters

Understanding whether your business is an SSTB can make a big difference at tax time. It determines whether you’re eligible for the 20% QBI deduction, how much you can deduct, and how your taxable income interacts with IRS thresholds.

If your income is near or above the limits, knowing your SSTB classification early gives you time to plan—by adjusting expenses, contributing to retirement accounts, or exploring legitimate restructuring options.

Above all, always verify your business type with a qualified tax professional before filing. Small errors in classification can mean thousands of dollars lost in missed deductions or IRS disputes.

For more details, see the IRS guidance on Section 199A and check out our related article: “Qualified Business Income Deduction Explained (2025 Update).”

Frequently Answer Questions

What does SSTB mean?

A Specified Service Trade or Business (SSTB) is a service-based business where the main value comes from the owner’s or employees’ skills or reputation.

Which industries are considered SSTBs under Section 199A?

Health, law, accounting, consulting, athletics, financial services, performing arts, and investment-related fields.

How do SSTBs affect the QBI deduction?

SSTBs lose the 20% deduction once income passes the IRS phase-out thresholds.

Are consultants and freelancers SSTBs?

Usually, yes—especially if they provide advice or expertise directly to clients.

Can a high-earning SSTB still get a QBI deduction?

Only if their taxable income is below the upper threshold or reduced through legitimate deductions.

Do SSTB rules apply to LLCs?

Yes. Entity type doesn’t change SSTB classification.

What happens if your business is partially an SSTB?

You may need to separate activities for tax purposes, but only if each operates independently and has distinct revenue streams.

Will SSTB rules change after 2025?

The QBI deduction is scheduled to expire after 2025 unless extended by Congress, so SSTB limits may also change in the future.

Can an SSTB be restructured to become a non-SSTB?

In some cases, yes—but only if the business activities genuinely change. The IRS reviews substance over form, so reclassification must reflect actual operational differences.

How can I find out if my business is listed as an SSTB by the IRS?

Check the IRS guidance under Section 199A or refer to Publication 535. These include detailed examples of what qualifies as an SSTB and what doesn’t.