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Industry tax guide

Professional services tax and accounting

Tax planning for firms whose product is their people's time.

Professional Services business environment

Consulting firms, agencies and other professional services businesses sell expertise. Their largest costs are people, their main assets are client relationships, and their owners take most of the profit.

Tax planning centers on how owners are paid, whether the firm counts as a specified service business, how contractors are classified and how office build-outs are depreciated.

Compared with a general business

What makes taxes different for professional services

Specified service limits

Consulting, accounting, law, health and financial services lose the QBI deduction above the income threshold.

Heavy use of contractors

Freelancers must meet IRS and state tests to be treated as contractors.

Work in progress and unbilled time

Firms on the accrual method report income on work performed but not yet billed.

Multi-state remote teams

Remote employees create payroll and income tax obligations in their home states.

The rules in detail

Tax rules for professional services

Specified service businesses and QBI

Consulting, accounting, law, health, financial and similar fields are specified service trades. Above the income threshold the owners' 20% qualified business income deduction phases out, so salary, retirement contributions and entity design matter more.

Contractors versus employees

Firms that use freelancers must apply the IRS control tests. Misclassification brings back payroll taxes and penalties; a correct setup, with Forms 1099-NEC filed, keeps the flexibility.

Office build-outs as qualified improvement property

Interior improvements to a leased or owned nonresidential building are 15-year qualified improvement property and eligible for 100% bonus depreciation, so a new office fit-out can often be deducted in the first year.

Planning moves

Ways to save tax in professional services

  1. Use the cash method if eligible

    Firms under the gross receipts test defer tax on receivables.

  2. Set owner salary for S-Corp savings

    Reasonable salary plus distributions.

  3. Keep QBI where possible

    Owners near the threshold plan income to stay below it.

  4. Deduct office build-outs

    Qualified improvement property with 100% bonus depreciation.

  5. Fund a retirement plan

    401(k) with profit sharing or a cash balance plan.

  6. Make the PTET election

    Owners in high-tax states deduct state tax at the entity level.

Working with OICPA

How we help

Service

Owner pay and entity structure

Salary, distributions and retirement contributions set to keep QBI and lower self-employment tax.

Business Tax Advisory
Service

Plan the year

Projections with quarterly check-ins so year-end moves are already decided.

Business Tax Planning

Bookkeeping and reporting

The accounting behind the tax work

Professional services firms sell expertise, yet their economics hinge on utilization, pricing, and how owners extract value. We connect WIP, revenue recognition choices, and partner comp so growth does not silently erode margin or create unexpected tax bills.

Revenue recognition and WIP

Project-based revenue can be lumpy. Without disciplined accruals, leadership sees profit too early or too late, which distorts bonuses, hiring plans, and tax estimates.

Partner and contractor classification

Hybrid teams of employees, contractors, and equity partners create payroll tax and state nexus considerations that many firms discover only after scaling across states.

Growth vs. cash tax timing

Winning larger contracts can strain working capital while increasing taxable income. Planning needs to pair AR strategy with quarterly payments and entity-level distributions.

What you can expect

  • Monthly management reports with KPI commentary tailored to your engagement model
  • Compensation and distribution policy guidance integrated with tax estimates
  • Multi-state nexus and apportionment review when you expand hiring or client footprint

Frequently asked questions

Is a marketing agency a specified service business?

Generally no. Advertising and marketing are not on the list, so agency owners can usually keep the QBI deduction above the threshold, subject to the wage and property limits. Consulting is on the list.

Can we deduct our new office build-out right away?

Interior improvements usually qualify as qualified improvement property, eligible for 100% bonus depreciation. Structural work, elevators and enlargements do not.

Are our freelancers really contractors?

It depends on control over how and when the work is done. We review each role against the IRS tests and the state rules, which can be stricter.

Related articles

References

  1. 26 U.S. Code § 199A: Qualified business incomeLegal Information Institute, Cornell Law School
  2. Independent contractor (self-employed) or employee?Internal Revenue Service
  3. About Form 1099-NEC, Nonemployee CompensationInternal Revenue Service
  4. Publication 946 (2025), How To Depreciate PropertyInternal Revenue Service

Rules reflect federal tax law as of November 2026.