Are healthcare practices specified service trades or businesses (SSTB)?
A specified service trade or business (SSTB) is a business in certain professional fields (health, law, accounting, consulting, financial services, athletics, performing arts) where the QBI deduction phases out above income thresholds.
Quick answer
Yes. Under IRC Section 199A, the field of health is explicitly listed as an SSTB, including services performed by physicians, dentists, nurses, therapists, and similar healthcare professionals. SSTB status restricts the QBI deduction above income thresholds.
The detail
Section 199A(d)(2) defines SSTBs as trades or businesses involving the performance of services in fields including health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and any business where the principal asset is the reputation or skill of one or more employees or owners. Treasury Regulations under Section 1.199A-5 clarify that the field of health includes physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals. Health does not include services like fitness instruction, health spa services not requiring licensed medical providers, or operating health clubs, which can be non-SSTB. Some healthcare-adjacent activities can be structured outside SSTB status: real estate ownership, equipment leasing entities, management services organizations (MSOs), and ancillary businesses like retail products. These structuring opportunities require careful documentation and substance to survive IRS scrutiny but can preserve QBI deductions on meaningful portions of total income.
Treasury Regulations under Section 1.199A-5 explicitly include physicians, dentists, nurses, and therapists as SSTB.
Source: Treasury Regulations 1.199A-5
Health spa services not requiring licensed medical providers are generally not SSTB.
Real estate entities holding the building leased to a medical practice are generally non-SSTB and qualify for QBI.
Source: IRS Section 199A regulations
What this means for clinic owners
From Sorso
If you own your practice real estate or significant equipment, hold it in a separate non-SSTB entity. The rental income can preserve QBI deductions even when your clinical income is fully phased out. This is one of the most underused legal tax strategies in healthcare.
Related questions
What tax deductions are available to medical practices?
Medical practices can deduct ordinary business expenses including staff wages, rent, equipment depreciation, supplies, malpractice insurance, CME, retirement plan contributions, and qualified business income (QBI) where eligible.
What retirement plans work best for clinic owners?
The best retirement plans for clinic owners are Solo 401(k) and SEP-IRA for solo practices ($70,000 to $77,500 contribution limits for 2025), and 401(k) plus Cash Balance Plan combinations for partnerships, which can shelter $250,000 to $400,000+ per partner annually.
What is the QBI deduction for healthcare?
The Section 199A Qualified Business Income (QBI) deduction allows a 20 percent deduction on qualified business income from pass-through entities, but it phases out for healthcare specified service trades or businesses (SSTB) above income thresholds ($403,500 MFJ for 2026 per IRS Rev. Proc. 2025-32).
How do I structure a practice for tax efficiency?
The most tax-efficient practice structure typically involves an S corporation or PLLC for the clinical practice, a separate LLC for real estate, an MSO for non-clinical services, and a defined benefit retirement plan, optimized to preserve QBI and balance payroll tax exposure.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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