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The agency S-corp: high margins meet the election early
The short answer
Agencies hit the S-corp breakeven (~$60k–$80k of owner profit) earlier than most businesses — retainer margins are kind. The agency-specific wrinkle is the reasonable salary: an owner-operator who writes the copy is priced differently than an owner-manager whose delivery runs through contractors. Get the salary study right, run real payroll, and coordinate with QBI.
The agency setup, in order
- Confirm the breakeven on trailing profit — calculator first, real analysis second.
- Elect (or fix late) via Form 2553.
- Price your actual role: manager-of-contractors vs hands-on producer changes the comparable wage.
- Run payroll + an accountable plan for the home office, gear, and travel you already pay for.
- Stack the Solo 401(k) against the salary you chose.
Frequently asked questions
At what agency size does the S-corp make sense?
Same breakeven as everywhere: roughly $60k–$80k of consistent owner profit. Agencies often hit it early because margins on retainers are high relative to costs.
How do contractor costs affect my reasonable salary?
They shape the analysis: an owner whose delivery is largely subcontracted looks more like a manager (one market wage) than a doer (another). The salary study should reflect who actually produces the work.
Should my agency pay me through payroll or draws?
After the S election: payroll for the reasonable salary, distributions for the rest — never just draws. The mechanics are what the IRS examines.
Do retainers change anything?
Predictable retainer income makes the election math easier to trust — volatility is one of the main reasons to wait.
Agency profit past $80k?
One engagement: election, salary study, payroll, accountable plan, retirement — the full owner stack.
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