When it Comes to the Section 199A Deduction, It Doesn’t Matter if a Performing Artist is “Really Terrible”

Founded in Edinburgh more than 30 years ago, the Really Terrible Orchestra – yes, that’s really its name - gives amateur musicians a place to play and perform together. The point of the orchestra isn’t to compete with the major orchestras – it’s to enable amateur musicians to work together and share music with the community.

The music industry so frequently focuses on the exceptional -- the prodigy, seasoned virtuoso, or the singer who fills an arena before singing a note–– that there must be something freeing about unabashedly saying your orchestra is meant to be “really terrible.” It’s also perhaps realistic.

People play in community orchestras, church ensembles, school concerts, chamber groups, and living rooms. Even many professional musicians cobble together a living from teaching, performing part-time, and maybe taking on some small gigs. Few make a living from a single full-time job, and even fewer go on national tours. While these endeavors are impactful, most musicians simply don’t have the luxury of aiming for perfection all of the time.

Being free to play as well as one can, without any pressure to be perfect, is appealing – so much so that, in 2008, the idea started in Edinburgh found its way across the pond. Like their Scottish counterpart, there now are Really Terrible Orchestras in Pennsylvania, North Carolina, New York, and California. By creating a safe place to enjoy music for its own sake, those groups are charming because they lower the pressure without diminishing the pleasure for the musicians or the audience.

But suppose one of these groups, or another like it, charged for performances, paid expenses, kept records, and made money such that the tax law viewed it as a business. Suppose the orchestra formed a limited liability company, with the musicians as members, and that they shared the profits. They might be a pass-through entity that needs to consider how Section 199A of the Internal Revenue Code (IRC) affects the orchestra members’ taxes.

The Section 199A deduction was created by the Tax Cuts and Jobs Act, and the Big Beautiful Bill made it permanent. Section 199A’s initial purpose was to level the tax playing field for small businesses, which frequently are sole proprietorships or pass-through entities for tax purposes.  This article discusses the Section 199A deduction for pass-through entities and how it currently affects performing artists in particular.

What is Section 199A

Section 199A allows certain non-corporate taxpayers to deduct up to 20% of qualified business income from a qualified trade or business. When you think about it, a 20% deduction of your income off the top is huge for those who qualify. However, not every business owner or every pass-through entity qualifies for the deduction, and performing artists are more vulnerable to being left out than other types of artists.

The Section 199A deduction is potentially available to owners of sole proprietorships, partnerships (including most limited liability companies, which typically are taxed as partnerships), S corporations, and some trusts and estates. The deduction can’t be applied against wages earned as an employee or to income earned through a C corporation. The deduction isn’t a “refundable” credit. In other words, a taxpayer might be able to reduce their tax liability to as low as zero, but because it’s not a tax credit (like earned income credit, for example), they can’t receive a refund in addition to paying zero taxes.

The final Treasury regulations generally apply the Section 162 trade-or-business standard for Section 199A. So, the analysis turns on how the business actually operates. And a performance group that regularly books engagements, markets services, tracks expenses, negotiates fees, and approaches the activity with continuity and profit motive starts to look much like a business for tax purposes.

Specified Service Trades or Businesses

Once there is a trade or business for tax purposes, Section 199A considers the type of trade or business. Most trades or businesses can qualify for Section 199A, but Congress created special (less favorable) rules for specified service trades or businesses (SSTBs).

The listed service fields include health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading, and dealing in certain financial assets. Doctors fall under the health category. Lawyers, accountants, consultants, financial advisors, athletes, and performing artists fall under specifically listed services categories.

The 199A deduction won’t phase out due to SSTB limitations for businesses built around capital, products, employees, or property. But service businesses built around an owner’s training, license, judgment, talent, or personal services receive less favorable treatment – this is one place where talent and hard work performing a service doesn’t necessarily pay off. But for some reason, performing artists (such as musicians and actors) receive less favorable treatment than visual artists, engineers, architects, and skilled trades didn’t. The list doesn’t have to make sense to the average person, but it’s still the law.

Although not all doctors, accountants, financial advisors, or athletes make a lot of money, the fact that performing arts are included seems particularly unfair, since most performing artists aren’t highly compensated. Musicians may be teachers, accompanists, sidemen, church musicians, regional actors, comedians, or wedding singers, stitching together income from inconsistent sources. However, since Congress decided to include performing artists in the list for less-favored tax treatment, members of a Really Terrible Orchestra could fall into the same category as a famous rock star under Section 199A.

When Section 199A first appeared, one of the most uncertain phrases referred to a business whose principal asset is the reputation or skill of one or more employees or owners. Read too broadly, that phrase could have reached almost every successful small business. After all, a diner might depend on its chef/owner's cooking skills, or an interior design business's success might depend on its owner's talent.

The final IRS regulations addressed this question. The rule now aims more specifically at income from endorsements, appearance fees, and income from licensing or use of a person’s name, image, likeness, signature, voice, or similar identity-related rights – what generally falls under name, image, likeness. It’s now clear that a restaurant doesn’t become an SSTB merely because it’s owned by a talented chef, and an interior design studio doesn’t become an SSTB simply because the owner has great taste.

Unfortunately for the Really Terrible Orchestra, performing arts work differently under Section 199A. A musical performance business doesn’t need to fit within the reputation-or-skill language. If the activity is a trade or business providing performing arts services, it’s an SSTB by law.

That isn’t necessarily unfair in every case. Famous performers can earn substantial income from personal services, and it’s understandable why every high-income service professional might not receive the full pass-through deduction. But the performing arts category applies to all musicians, no matter how far they are from working as a headliner.

The Price of Success — Reducing 199A Deduction

SSTB status might not affect performing artists with income below the income limits. But for taxpayers within the phase-in range, only part of the SSTB income remains eligible. For taxpayers above the range, SSTB income generally is excluded from qualified business income. Currently, Section 199A uses a $75,000 phase-in range for non-joint returns and a $150,000 phase-in range for joint returns, but these amounts are to be adjusted for inflation.

A pass-through entity provides the tax information to the owners, but each owner’s taxable income determines how the limits apply. Since Section 199A applies at the owner/taxpayer level, this means the same business can produce different tax results for different owners.

Imagine that a Really Terrible Orchestra operated as a pass-through trade or business and generated performance income and suppose three musicians receive identical income from the orchestra. One musician might have taxable income below the threshold and receive the deduction. Another might fall within the phase-in range and receive only part of it. And a third might have income above the range and receive no deduction for SSTB income.

The sad thing about this is the musician who makes the most money might only be doing so because they have a second job and are working 60-80 hours per week. This is a place where hard work doesn’t pay off financially!

Section 199A Can Be Really Terrible for Musicians

The Really Terrible Orchestra example illustrates why, when it comes to performing arts, a performing arts group doesn’t become an SSTB because it’s excellent or even famous. Under the tax law, a touring rock star and a community-level performer may live in very different artistic and economic worlds, but Section 199A starts by placing them in the same statutory box. In this way, it’s easy to see why performing artists might view Section 199A as the “really terrible tax law.”

© 2026 by Elizabeth A. Whitman

Any references to clients and their legal situations have been modified to protect client confidentiality.

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