Marketing Agency S-corp Conversion + Owner Comp Redesign

The situation

The agency had grown from one founder to two partners and 12 staff. Both partners were taking large draws and paying full self-employment tax on every dollar. Their prior bookkeeper had no view into the S-corp election decision; their tax preparer filed returns annually but didn't run owner comp scenarios.

What we did

We modeled S-corp vs. LLC for both partners across three years of projections, including California's 1.5% S-corp tax and the QBI deduction interaction. We documented reasonable comp using BLS data and industry surveys, filed Form 2553 with late-election relief under Rev. Proc. 2013-30, set up multi-state payroll for the partners and staff, and converted the entity's books to accrual to handle retainer revenue properly.

• S-corp election analysis (Form 2553 + late-election relief)
• Reasonable compensation documentation
• Multi-state payroll setup (CA, NY, TX, WA)
• Quarterly partner tax estimates
• Annual 1120-S and personal 1040 returns

The outcome

Combined annual payroll tax savings of $58K across both partners, fully documented with reasonable comp analysis. The agency now closes monthly on accrual basis with deferred revenue tracking, and both partners receive coordinated business + personal tax planning under one engagement.