Alyssa Lane
The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. This deduction, also known as the Section 199A deduction, was made permanent in 2025. To qualify for the QBI deduction, a business must be involved in a trade or business, including Sec. 162 trades or businesses, but excluding trades or businesses conducted through a C corporation or W-2 wages earned as an employee. Interestingly, insurance agents and brokers are specifically excluded from the definition of a specified service trade or business (SSTB) and are instead treated as selling their company's products. This exclusion raises questions for advisors with multiple business lines, such as RIA plus insurance businesses or brokerage plus insurance businesses, regarding whether they are running separate businesses or a single business with multiple lines.
| Characteristics | Values |
|---|---|
| QBI Deduction | 20% |
| QBI Deduction Expiry | Permanent |
| QBI Deduction Income Threshold (2025) | $197,300 for single filers or $394,600 for joint filers |
| QBI Deduction Income Threshold (2026) | Adjusted based on the rate of inflation |
| QBI Deduction for C-Corporations | Not eligible |
| QBI Deduction for Income as an Employee | Not eligible |
| QBI Deduction for SSTBs with Taxable Income Above $440,100 (Joint Filers) and $220,050 (Other Filers) | Partially allowed |
| QBI Deduction for High-Income Individuals | Eliminated |
| QBI Deduction for Insurance Agents | Excluded from SSTB definition |
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What You'll Learn
Insurance agents are not considered a service business
The QBI deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. This includes income from partnerships, S corporations, sole proprietorships, and certain trusts. However, it does not include income earned as an employee or through a C corporation.
The regulations specify that insurance agents, insurance producers, and insurance brokers are not conducting specified service businesses (SSTB). This is because they are not providing services in fields such as health, law, accounting, actuarial science, performing arts, consulting, athletics, or financial services, which are considered SSTBs.
The distinction between insurance agents as sellers of products rather than services is important for tax purposes. It means that insurance agents are not subject to the same tax treatment as SSTBs, and their income may be eligible for the QBI deduction. This classification also has implications for how insurance businesses are structured and how they receive commissions.
The classification of insurance agents as non-SSTBs has significantly increased the number of taxpayers eligible for the QBI deduction. This is because many insurance agents have multiple business lines, and this classification ensures that their entire business is not considered an SSTB, even if they have some income from investment-related activities.
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QBI deduction for specified service trades or businesses
The QBI deduction, or Qualified Business Income deduction, is a tax strategy that allows eligible self-employed individuals, small business owners, trusts, and estates to claim income deductions from qualified trades or businesses. This includes income from partnerships, S corporations, sole proprietorships, and certain trusts. The QBI deduction is calculated as 20% of the QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate.
Specified Service Trades or Businesses (SSTB) are a type of trade or business that involves the performance of services in specific fields, including health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and investing. Businesses in the financial services industry are included in the definition of SSTBs, specifically brokerage services and businesses involving investment management, trading, or dealing in securities.
Interestingly, insurance producers, brokers, and agents are specifically excluded from the list of SSTBs. This is because they are treated as being in the business of selling their company's products rather than their personal services. As a result, insurance agents may be eligible for the QBI deduction, provided they meet the other requirements.
To qualify for the QBI deduction, an individual or business must be involved in a trade or business with continuity and regularity, and the primary purpose must be to generate income or profit. The QBI deduction is not available to C-corporations or individuals earning income as employees rather than business owners or partners. The eligibility and amount of the QBI deduction also depend on the taxpayer's taxable income, with higher incomes potentially reducing or eliminating the deduction.
For businesses with multiple business lines, the IRS considers the entire operation an SSTB if more than 10% of their income results from investment-related activities. Therefore, it is essential to carefully assess the business structure and income sources when determining eligibility for the QBI deduction.
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QBI deduction for insurance agents
The QBI deduction, or Qualified Business Income deduction, is a tax deduction that allows eligible taxpayers to deduct up to 20% of their QBI. QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. This includes income from partnerships, S corporations, sole proprietorships, and certain trusts.
Insurance agents are specifically excluded from the definition of conducting specified service businesses (SSTB). This means that insurance agents are treated as being in the business of selling their company's products, rather than their personal services. As a result, insurance agents are eligible for the QBI deduction.
However, it is important to note that if an insurance agent has a business with multiple lines, including income from SSTBs, and more than 10% of their income results from investment-related activities, their entire business will be considered an SSTB, and they will not be eligible for the QBI deduction.
For high-income individuals, the QBI deduction may be eliminated for all of their income. In such cases, it may be beneficial to separate out the businesses, running one brokerage/RIA business and one insurance business, to maintain eligibility for the QBI deduction.
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QBI deduction for high-income individuals
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows eligible self-employed individuals and small business owners to deduct up to 20% of their QBI. This deduction is applicable to income from a domestic business operated as a sole proprietorship, partnership, S corporation, trust, or estate.
The QBI deduction was established by the 2017 Tax Cuts and Jobs Act (TCJA) and is set to expire on December 31, 2025, unless extended by Congress. It provides a significant tax benefit to high-income individuals with qualified business income, allowing them to reduce their taxable income.
However, it's important to note that the QBI deduction is subject to limitations. For high-income individuals, the deduction may be reduced or eliminated completely. The IRS has specified income thresholds above which the QBI deduction is phased out for certain specified service trades or businesses (SSTBs). For example, if an individual's taxable income exceeds $157,500, the QBI deduction for SSTBs is gradually reduced. If the income is at least $207,500, all net income from SSTBs is excluded from the QBI deduction.
Additionally, certain professions are excluded from the QBI deduction, including financial services, brokerage services, and investment-related activities. Interestingly, insurance agents and brokers are specifically excluded from the definition of SSTBs, which means they may still qualify for the QBI deduction even if they are high-income individuals.
To maximize the QBI deduction, high-income individuals may consider separating their QBI-eligible insurance business from non-QBI-eligible income streams. This strategy, however, can be complicated by IRS regulations, which state that if a single business has multiple business lines and total revenues above $25 million, it may be considered an SSTB if more than 10% of its income comes from investment-related activities. Therefore, careful planning and consultation with tax professionals are necessary to navigate the complexities of the QBI deduction for high-income individuals.
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QBI-eligible insurance businesses
The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their QBI. This deduction, also known as the Section 199A deduction, was set to expire at the end of 2025 but has been made permanent. Eligible taxpayers can claim the deduction for tax years beginning after December 31, 2017, and ending on or before December 31, 2025.
QBI is the net amount of qualified items 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. Qualified trades and businesses include Section 162 trades or businesses, excluding trades or businesses conducted through a C corporation, W-2 wages earned as an employee, and specified service trades or businesses (SSTB).
Interestingly, insurance producers, brokers, and agents are treated as being in the business of selling their company's products, rather than their personal services. As a result, they are not considered to be conducting specified service businesses and are therefore excluded from the SSTB definition. This means that insurance agents are QBI-eligible insurance businesses. However, it is important to note that if an insurance agent also has income from investment-related activities, their entire business may be considered an SSTB if more than 10% of their income results from these activities.
In conclusion, insurance agents are considered QBI-eligible insurance businesses as they are excluded from the SSTB definition. However, if they have income from investment-related activities, their business may be classified as an SSTB, impacting their QBI eligibility.
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Frequently asked questions
QBI stands for Qualified Business Income. It is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business.
Yes, insurance agents are eligible for the QBI deduction as they are specifically excluded from the list of specified service trades or businesses (SSTB).
The QBI deduction allows eligible taxpayers to deduct up to 20% of their QBI.
