Professional Services

In a professional practice the main asset is the people. That shapes the tax questions: how owners are paid, whether the business qualifies for the full qualified business income deduction, and how expenses paid personally are reimbursed. We work with agencies, consultancies and medical and dental practices.

How money moves through a professional services firm

The points where tax and accounting rules come into play are numbered.

Stage 1Win the clientProposal accepted and engagement letter signed.
Stage 2Agree the scopeServices, fees and billing terms set out.1
Stage 3Deliver and track timeHours and expenses recorded by client and matter.2
Stage 4BillInvoices issued by hour, project or retainer.
Stage 5CollectPayments received and matched to invoices.
Stage 6Pay the team and ownersStaff on payroll; owners on salary and distributions.3

Numbered points are explained below.

The three points, explained

At: Agree the scope

The QBI limit for specified service businesses

The 20% deduction many business owners count on can shrink or disappear for a professional practice. Owners of pass-through businesses may deduct up to 20% of qualified business income, but health, law, accounting, consulting and similar fields are specified service trades or businesses, and above an income threshold the deduction for them phases down and then disappears.

How we help

We review what your business actually does and plan owner pay and the deduction together before year-end.

At: Deliver and track time

Accountable plans for expense reimbursement

Business expenses you pay personally and are reimbursed for can end up taxed as wages. Reimbursements under an accountable plan are not wages if expenses are business-related, substantiated and any excess is returned; payments under a plan that does not meet those rules are wages.

How we help

We check your reimbursement arrangement against the rules and keep owner expenses separate in the books.

At: Pay the team and owners

Owner pay in an S corporation

Where the owner produces most of the revenue, the salary figure is the one the practice most needs to be able to explain. An S corporation must pay shareholder-employees reasonable compensation before making other distributions.

How we help

We look at your role and document how the salary figure was reached.

Services that apply

All services

Tax Returns & Planning
Owner pay and the QBI deduction are planned together before year-end.
Bookkeeping & Accounting
Monthly books that separate owner expenses and track revenue by service line or provider.
Fractional CFO
Hiring, pricing and adding a provider or location are decisions a forecast should test first.

Questions

Still have a question?

Is my agency a specified service business?

It depends on what the agency does. Consulting is a listed field; many other services are not. The test looks at the services the business actually provides. We review your revenue before your return.

Should my practice be an S corporation?

It can make sense, but only with a reasonable salary for the owner and the payroll that comes with it. We compare the options with your figures.