DEFINITION of Personal-Service Activity
A personal-service activity is any business enterprise with the primary purpose of providing personal services. Personal-service activities encompass a wide range of professions, including law, medicine, engineering, design, finance, accounting and even performing arts. As the name implies, a personal-service activity focuses on directly providing a personalized service, such as legal advice or medical treatment, to an individual or group for compensation. Personal-service activities do not require the use of capital in order to generate material income.
You may also see personal-service activities simply called "professional services" or "services."
BREAKING DOWN Personal-Service Activity
The material participation test for personal-service activities determines whether or not a taxpayer is a material participant in a business. Taxpayers who meet test guidelines will most likely be able to deduct business losses.
Mapping personal-service activities to a personal service corporation is an important element of corporate entity classification under U.S. law. If certain conditions are met, a corporation made be determined to be a personal service corporation, and hence, is subject to certain corporate tax rates and policies.