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§ INDUSTRY · Service Biz

BOCA RATON · UPDATED MAY 2026

Consulting, agencies, professional services — the S-Corp niche we know best.

Reasonable comp, K-1s, §199A QBI, multi-state nexus, and the operational tax work consulting and agency owners need every quarter. IRS notice response on returns we prepare.

You bill $200K–$2M/year. Your clients are scattered across states. You've heard you should be an S-Corp but no one explained what reasonable comp actually means or how K-1s work. The wrong preparer either underpaid the owner W-2 (IRS scrutiny risk) or overpaid it (left tax savings on the table). We get the salary right and we document the reasoning.

The vocabulary unique to your industry

Forms, acronyms, and deadlines we know cold.

Form 1120-S
The S-Corp's annual return. Reports income, expenses, and the owner's reasonable compensation. K-1s issued to each shareholder. Due March 15 (or extended Sept 15).
Schedule K-1
Each shareholder's share of S-Corp income/loss/deductions. Flows to the owner's personal 1040 via Schedule E. The K-1 and the 1040 are inseparable.
Reasonable compensation
The annual W-2 the IRS expects an owner-shareholder to take. The #1 source of IRS scrutiny on S-Corp returns. Examined under a nine-factor test from Watson, Glass Block, and McAlary case law.
§199A QBI
20% Qualified Business Income deduction. Consulting/law/health/accounting are "specified service trades" (SSTBs) with phase-out at $191,950 single / $383,900 MFJ in 2024.
Solo 401(k) / SEP-IRA
Owner retirement plans. Solo 401(k) usually wins for the same income because of the employee deferral plus profit-sharing combination.
1099-NEC issued/received
Forms you file for contractors paid $600+ (due Jan 31) and forms you receive from clients. Misclassified-contractor letters are an active IRS focus.
Wayfair / multi-state nexus
Service businesses with multi-state clients can trigger income-tax nexus and sometimes sales-tax nexus. State-by-state thresholds vary; we map yours.

How our three services apply to you

Three pillars, tuned to your industry.

§ 01 · Bookkeeping

Project-based accounting · contractor tracking · client retainer accounting · clean P&L by service line so you know what's profitable.

§ 02 · Tax

1120-S + K-1s + annual reasonable-comp memo + basis schedule · §199A QBI optimization · multi-state allocation when clients are out-of-state.

§ 03 · IRS Help

Routine IRS notice response on returns we prepared: CP2000 income mismatches · §199A QBI clarification letters · misclassified-contractor notices · CP14 / CP504 balance-due correspondence.

The S-Corp angle

When the math says yes.

This is the audience S-Corp was made for. The owner is the service. Fixed costs are low. Net income concentrates in one or a few shareholders. We size salary and distribution to be defensible under the nine-factor reasonable-compensation analysis AND maximize the legal self-employment tax savings. We write the comp memo every year so it's already on file if the IRS asks.

§ Pricing

Flat fees. No hourly surprises.

  • Monthly bookkeeping

    from $325/mo

  • 1120-S + owner 1040 (single shareholder)

    $950

  • Tax planning

    $300/hr

§ FAQ

What salary do I have to pay myself?

There's no IRS table. The standard is "reasonable compensation" — what you'd pay an outside professional to do the same work, given your training, duties, time committed, and the company's revenue. Case law (Watson v. US, Glass Block, McAlary) lays out the nine-factor test the IRS uses. In practice, for a solo consultant netting $200K, a defensible salary is usually $80K–$120K depending on industry, location, and how much of the income reflects your labor vs. capital. We pull comparables from BLS data, RC Reports, and salary surveys, then write a one-page memo defending the number you picked. That memo is the contemporaneous documentation that holds up if the IRS scrutinizes the return.

Can my spouse be on payroll if she doesn't work in the biz?

No. Wages paid to a spouse who doesn't actually work in the business aren't deductible — they're a gift recharacterized as wages, and the IRS will disallow the deduction and assess back payroll tax. If your spouse does real work (bookkeeping, admin, client communication, social media), you can absolutely put her on payroll at a market wage for the work performed. The bar is: documented duties, hours that match the wage, and a job description on file. A no-show salary is one of the easier issues for the IRS to surface and it undermines the credibility of the whole return.

Solo 401(k) vs. SEP-IRA — which?

For the same net income, a Solo 401(k) almost always lets you contribute more. The reason: Solo 401(k) stacks an employee deferral ($23,000 in 2024, plus $7,500 catch-up if 50+) on top of a profit-sharing contribution of up to 25% of W-2 compensation. A SEP-IRA only allows the 25%-of-comp piece. For an S-Corp owner with an $80K W-2, that's roughly $43,000 in Solo 401(k) vs. $20,000 in SEP. The trade-off: Solo 401(k) has setup paperwork and a Form 5500-EZ requirement once assets exceed $250,000. We set up and administer either.

Should each partner have a separate S-Corp?

Often yes — for service businesses with two or more substantive partners, separate "personal service" S-Corps that each invoice the operating partnership is a common and legitimate structure. It lets each partner set their own salary, retirement contributions, and benefits at the level appropriate for their personal situation. The operating partnership (a 1065-filing entity) then passes through the partnership profit via K-1 to each partner's S-Corp. The structure isn't free — three returns instead of one — but for partners with different income levels or retirement-planning goals, the flexibility usually pays for itself.

What's §199A and do I qualify?

§199A is the 20% Qualified Business Income (QBI) deduction passed in the 2017 TCJA. It lets owners of pass-through businesses (S-Corps, partnerships, sole props) deduct up to 20% of their qualified business income from taxable income. The catch for service businesses: consulting, law, accounting, health, financial services, and "any trade where the principal asset is the reputation or skill of the owner" are Specified Service Trades or Businesses (SSTBs). SSTBs phase out the deduction between $191,950 and $241,950 taxable income (single) or $383,900 and $483,900 (MFJ) in 2024. Below the threshold you get the full 20%; above the top, zero.

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Free 30-minute call to confirm fit. If we are the right firm for the work, we send a written scope and a flat fee. If we are not, we point you elsewhere.

(561) 334-4066

KDM Accounting

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