Alyssa Lane
The Qualified Business Income (QBI) deduction is a tax benefit for eligible taxpayers, allowing them to deduct up to 20% of their QBI. To qualify, taxpayers must have a taxable income of $315,000 or less for joint returns and $157,500 or less for other filers. The QBI deduction is applicable to sole proprietorships, partnerships, S corporations, and certain trusts, but it excludes income earned through a C corporation or as an employee. Interestingly, insurance agents are typically treated as selling company products rather than their personal services, which presents a unique situation when it comes to QBI deductions. This has led to discussions about whether insurance agents should run multiple businesses to retain the benefits of the QBI deduction while also being involved in brokerage services or owning SSTB income.
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What You'll Learn
Insurance agents are specifically excluded from SSTB
The Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their QBI. To qualify for the QBI deduction, one must be involved in a trade or business. However, certain service trades or businesses, also known as specified service trades or businesses (SSTB), are excluded from this deduction.
SSTBs are businesses that earn income from specialized services where the skill and reputation of owners or employees are the main business assets. These include services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, and dealing in certain assets.
Insurance agents and brokers are specifically excluded from the SSTB definition. This means that insurance agents do qualify for the QBI deduction. However, it is important to note that insurance agents who are also brokers, registered representatives, or RIAs may face challenges in retaining the benefits of the QBI deduction. This is because they are involved in brokerage services or have SSTB income, which is not eligible for the deduction.
To overcome this challenge, insurance agents with brokerage services or SSTB income may consider running multiple businesses to preserve the QBI deduction. This involves splitting their business lines into one for insurance income and expenses and another for other income and expenses. However, this strategy adds complexity and expense, as separate books and records must be maintained, and overhead costs must be allocated between the QBI-eligible and non-QBI-eligible revenue streams. Therefore, the decision to split the business lines should consider the added costs and benefits to determine if it is worth pursuing.
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Running multiple businesses to qualify for QBI
Running multiple businesses can be complex when it comes to qualifying for the Qualified Business Income (QBI) deduction. The QBI deduction allows eligible self-employed individuals, small business owners, and owners of pass-through entities to deduct up to 20% of their qualified business income. Pass-through entities refer to businesses where income "passes through" to the owner's individual tax return, such as sole proprietorships, partnerships, S corporations, and some trusts.
If you have multiple businesses reported on your tax return, the QBI component is determined separately for each business. This means that you can claim the QBI deduction for each eligible business that you actively participate in. However, any losses incurred by one business will be allocated proportionately among your other pass-through businesses, reducing their QBI. To allocate losses among the QBI components for multiple businesses, you will need to use Form 8995.
It is important to note that not all business income qualifies for the QBI deduction. Excluded items include capital gains or losses, interest income, income earned outside the U.S., and certain wage and guaranteed payments to partners and shareholders. Additionally, income from C-corporations or income earned as an employee is not eligible for the QBI deduction.
To qualify for the QBI deduction, your total taxable income must also meet certain thresholds. For 2025, the threshold is $197,300 for single filers and $394,600 for joint filers. If your income exceeds these limits, your ability to claim the QBI deduction becomes more complicated and may depend on the nature of your businesses.
In summary, running multiple businesses can qualify for the QBI deduction as long as each business meets the eligibility criteria and you actively participate in them. However, it is important to carefully assess each business's income, losses, and eligibility to accurately determine the overall QBI deduction.
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QBI eligibility for insurance agents with brokerage services
QBI, or Qualified Business Income, is the net amount of income, gain, deduction, and loss from any qualified trade or business. This includes income from partnerships, S corporations, sole proprietorships, and certain trusts. To qualify for the QBI deduction, one must be involved in a trade or business.
Insurance agents and brokers are not considered to be conducting specified service businesses and are excluded from the SSTB definition. This means that insurance agents and brokers are eligible for the QBI deduction. However, it is important to note that if an insurance agent or broker is also offering investment advisory services, their entire business may be considered a specified service business, and the QBI deduction may not be applicable.
For example, if an insurance agent has multiple business lines and their total revenue is under $25 million, their business will be considered a specified service trade or business if more than 10% of their income comes from investment-related activities. In such cases, insurance agents may need to separate their insurance business from their non-insurance business to preserve the QBI deduction for insurance commissions. However, doing so may not be worth it due to the added complexity and expense involved in running two separate businesses.
It is also important to note that the QBI deduction is available for tax years beginning after December 31, 2017, and ending on or before December 31, 2025. The deduction allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified REIT dividends and qualified PTP income.
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QBI eligibility for RIA owners with SSTB income
The Qualified Business Income (QBI) deduction, also known as Section 199A of the Internal Revenue Code, was established by the 2017 Tax Cuts and Jobs Act (TCJA). It enables eligible self-employed individuals and small business owners to deduct up to 20% of their QBI. This includes income from partnerships, S corporations, sole proprietorships, and some trusts and estates.
Specified Service Trades or Businesses (SSTBs) are subject to additional rules when it comes to QBI deductions. If a business is an SSTB, its eligibility for the QBI deduction depends on its total taxable income. If an SSTB's income is below the threshold, it is likely eligible for the full 20% QBI deduction. If its income is above the threshold, it may no longer be eligible for the QBI deduction.
An SSTB is a business that involves the performance of services in certain fields, such as health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services. Additionally, a business may be considered an SSTB if its primary asset is the reputation or skill of its employees, or if its income is a result of endorsing products or services.
For RIA owners with SSTB income, the eligibility for the QBI deduction will depend on their total taxable income. If their income is below the threshold, they may be eligible for the full 20% QBI deduction. If their income is above the threshold, they may not be eligible for the QBI deduction. However, there may be ways to structure their business to preserve the QBI deduction, such as by separating their SSTB income from their non-SSTB income. This can be a complex process and may require running multiple businesses, keeping separate books and records, and allocating overhead costs accordingly.
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QBI eligibility for insurance agents selling insurance products
The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. This deduction is available to owners of sole proprietorships, partnerships, S corporations, and some trusts and estates. However, income earned through a C corporation or as an employee is not eligible for the QBI deduction.
Insurance agents and brokers are specifically excluded from the definition of specified service trades or businesses (SSTBs), which are eligible for the QBI deduction. This means that insurance agents selling insurance products may not qualify for the QBI deduction. However, there are some complexities and workarounds that should be considered.
Firstly, it is important to distinguish between insurance producers or brokers and financial advisors or advisory firm business owners who also sell insurance. Insurance producers or brokers are not considered to be conducting specified service businesses and, therefore, may not be eligible for the QBI deduction. However, financial advisors or advisory firm business owners who have a mixture of insurance and non-insurance businesses may be able to preserve the QBI deduction for their insurance commissions by running two separate businesses, one for insurance income and expenses, and another for other sources of income.
While this approach is theoretically possible, it adds a layer of complexity and may not be worth it unless there are substantial insurance commissions involved. Additionally, high-income individuals may find that their QBI deduction is reduced or eliminated, which could be another factor to consider when deciding whether to separate businesses to maximize the QBI deduction.
In conclusion, while insurance agents selling insurance products may not automatically qualify for the QBI deduction, there are certain circumstances and strategies that could potentially enable them to take advantage of this tax benefit. These strategies may involve restructuring their business operations and income streams, and it is important to carefully consider the added complexity and potential benefits before proceeding.
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Frequently asked questions
No, insurance agents are specifically excluded from the SSTB definition and are treated as being in the business of selling their company's products.
QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business.
Eligible taxpayers with 2018 taxable incomes at or below $315,000 for joint returns and $157,500 for other filers can qualify for QBI.
To claim QBI as an insurance agent, you would need to run two separate businesses, one for insurance income and expenses, and another for everything else. This can be challenging due to the added expenses and work involved.
