How High-Income Service Providers Can Cut Their Tax Bill in Half

Many business owners don't know, but paying less tax is possible - if you approach this process correctly and properly.

If you run a profitable consulting business, marketing agency, or professional services firm and you're earning well into the six or seven figures - chances are, you're paying more in taxes than you need to.

Its not us saying this - its what the statistics say AND is what we saw from our experience talking to business owners in the professional services industry.

We see this every week at Cutler & Co. - entrepreneurs working hard, growing fast, but missing critical tax strategies that could be saving them tens - or even hundreds of thousands each year.

In this article, we’ll walk you through why service-based businesses often overpay, what structures and strategies can dramatically improve your tax position, and how to implement them without risking IRS backlash.

But before we do this, let's start with why professional firms often overpay in taxes, in other words - what is the cause to this.

Why Professional Firms Often Overpay in Taxes

Service providers typically operate lean businesses.

From a certain angle, you could argue that's a good thing.

And you won't be wrong.

Because there’s no inventory, no physical product, and low overhead compared to other industries.

But what that means is that most of your revenue turns into taxable income.

And that is something you obviously don't want to have.

Because you see, if you're not using the right structure or proactive tax planning, that income can be taxed at the highest possible rates - federal, state, self-employment, and more.

Many consultants and firm owners start as sole proprietors or single-member LLCs.

This setup may be fine in the early days, but as revenue climbs, it becomes a tax trap.

No bueno.

Without a better structure, you're paying self-employment tax on your entire profit, missing opportunities to split income, and skipping out on dozens of legitimate deductions.

So how do you fix this?

The S-Corp Advantage for Consultants and Agencies

One of the simplest and most effective ways to reduce taxes is by electing S-Corp status.

By having an S-Corp, you can pay yourself a reasonable salary and take the rest of the profit as a distribution, which is not subject to self-employment tax.

This alone can save 15 percent on a large portion of your income.

It also creates structure for retirement plans, fringe benefits, and tax-deductible expenses that aren’t always available to sole proprietors.

However, S-Corps require proper payroll setup, documentation, and compliance - this isn’t something you want to DIY.

For example, a consultant earning $500K in net income, shifting to an S-Corp structure, can create tax savings in the $30K to $70K range annually.

Multiply that over a few years, and you're looking at a six-figure swing.

Now ask yourself - what could you do with an extra $70k a year?

That could fund your entire bill for a proper CPA firm, and still leave extra cash in the bank for other company investments.

Ok, so you've restructured your entity. Now what?

Is there anything else you can do?

Strategic Deductions and Retirement Planning

Beyond structure, most professional firms underutilize deductions and long-term planning tools.

You might be missing out on major savings opportunities such as:

• Maximizing retirement contributions through solo 401(k) or defined benefit plans

• Home office deductions that include utilities, internet, and depreciation

• Health reimbursement arrangements for family medical expenses

• Business travel that doubles as a deductible strategy time

We talked about this above, and the same applies here.

You DO NOT want to DIY this.

These strategies require clean books and proper substantiation.

Which only a handful of business owners in the US might or would be able to do themselves.

So you don't want to mess this up, because when used correctly, they can significantly reduce your taxable income while supporting your long-term financial goals.

And that we bet - you would definitely not say no to.

Real Example: Tax Savings for a 7-Figure Consultant

A Denver-based marketing agency came to Cutler & Co. with a $1.2M annual profit.

They were operating as a single-member LLC, paying full self-employment tax and lacking a strategic tax plan.

First, as discussed above, we restructured the business into an S-Corp.

We then established a defined benefit plan and identified over $100K in missed deductions.

After the first year of implementation, their effective tax rate dropped by 17 percent - and they began contributing over $150K annually to tax-advantaged retirement accounts.

How Cutler & Co. Helps Service Firms Reduce Taxes

At Cutler & Co., we specialize in helping high-income service providers build smarter tax strategies.

Besides helping you handle S-Corp setups, retirement plan alignment and quarterly tax planning - we offer end-to-end bookkeeping to keep everything compliant and optimized.

If you’re earning $300K or more in net income from your agency, consultancy, or practice - it’s time to stop overpaying.

Book a Tax Strategy Call with Cutler & Co. for a confidential call and see how we can partner together.