What a Year-End Planning Review Found for One Growing Agency

A husband and wife who own an independent agency in Minnesota came to us this month with a problem most agency owners would be happy to have. In a few short years, the agency had grown to close to $300,000 in profit. She runs it day to day, and he is getting ready to join her full time.

Every year, the tax return got filed, usually on extension. And every year, the bill was a surprise.

The bottom line: Their combined federal tax for the year was running about $113,000. A first look at the agency's structure puts it about $29,000 lower for 2026. That is the starting point, not the full plan. It comes from fixing how the agency is set up, before we have even started on the rest of the list.

What We Found

An agency still taxed as a partnership

The two of them own the agency together through an LLC that files as a partnership. That is a common starting point and a reasonable one for a new agency. At their profit level, it is expensive. In a partnership, essentially all of each owner's share of the profit is subject to self-employment tax, on top of income tax.

No plan, so every year was reactive

No ongoing tax planning. Bookkeeping done by hand at tax time. No written policy for reimbursing business expenses. No retirement plan at the agency.

The Starting Point: The Entity

The first thing we look at for any agency is whether its structure still fits its size. For this one, the entity change alone produced the 2026 number.

For 2026: S corp status and an accountable plan

Taxed as an S corporation, the owner who works in the business is paid a reasonable salary through payroll, and the rest of the profit comes out as distributions without self-employment tax. That change alone drives the 2026 estimate of about $29,000, or roughly 26% less federal tax.

The catch is timing. The normal deadline to elect S corp status for 2026 was March 16, 2026. Getting S corp treatment for a year that is already underway means asking the IRS to accept a late election, which it allows with a reasonable-cause statement. That part is still in front of us, and it is one more reason the work cannot wait until after April 15th.

The salary also has to hold up. A higher salary is safer, and it lowers the savings. We would rather show a smaller, defensible number than a bigger one. (More on that in what the IRS looks at for reasonable compensation.)

For 2027: a retirement plan for the family and more

Once he joins the agency full time, both of them can be on payroll. The 2027 plan adds a safe harbor 401(k), with each of them deferring the full employee limit and the agency making a matching contribution. Together with the S corp, the estimate for 2027 is about $37,000 less federal tax, roughly 33% lower.

Why the Calendar Matters More Than the Ideas

Nothing on this list is exotic. Any good CPA would recognize every item. The difference is when it happens. Here is the plan they agreed to:

• October: engagement signed, accounts connected, first planning conversation.
• By November 30: 2026 books current, first monthly profit and loss statement.
• Early December: strategy meeting and year-end decisions, including the 2027 retirement plan.
• December: year-end tax payments set from actual results.
• March and April 2027: returns filed on time.

Had they come in after the holidays, the S-corp salary would be more tricky to solve (W-2 is due February 1, 2027), retirement plan would have slipped a bit, and the 2026 return would have been one more accurate record of a year nobody planned.

These are first-pass estimates, built on their 2025 numbers and the assumptions above. They cover the structure and the retirement plan only. The rest of the list, from an expense reimbursement policy to clean monthly books to the year-end decisions in December, comes next. Their real 2026 result will depend on their real 2026 books. That is the point of starting now: the numbers get better every month we are working with current information.

Is Your Agency Set Up for the Size It Is Now?

Most agencies start as the simplest structure that works. The question is whether anyone has checked if it still fits. If your agency has grown and your setup has not changed, it is worth an hour before December 31. Our guide to electing S corp status covers the mechanics.

And if your agency has outgrown its setup, book a free discovery call. We will look at your numbers and tell you whether there is something worth doing before the year closes.