The tax and financial quirks
- Most professional service firms are Specified Service Trades or Businesses (SSTB) for QBI. Law, health, consulting, accounting, and financial services all fall into the SSTB category under Section 199A. Architecture and engineering are notable carve-outs, which for those firms is itself a planning opportunity: full QBI at any income level. For 2026, the deduction begins phasing out for SSTB owners above roughly $201,750 of taxable income (single) or $403,500 (joint), and is gone entirely above roughly $276,750 / $553,500. The 2025 law widened those phase-out ranges, which keeps a partial deduction alive at income levels where it used to vanish. The planning implication is that the structural choice between partnership and S-corp is rarely decided by QBI alone, but the phase-out range is now wide enough that income timing inside it is worth real money.
- Partnership vs S-corp is not the same question it is for a non-SSTB business. For a non-SSTB, S-corp conversion often saves payroll tax net of compliance cost. For an SSTB fully above the phase-out, QBI is gone on either side of the comparison, so it should not drive the entity choice at all; payroll tax and allocation flexibility drive it. The partnership structure offers flexibility on special allocations and partner-specific comp that the S-corp rigidly cannot.
- Owner compensation is a documented call, and the doctrine depends on the entity. For a PC or S-corp principal, reasonable compensation is the exposure: the W-2 has to be defensible against comparable data, time allocation, and the firm's own compensation policy. For a partner in a ten-partner LLP drawing $700K, the live question is self-employment tax characterization of guaranteed payments versus distributive share, which the IRS has been litigating aggressively. Either way, the analysis belongs in the file before an examiner asks. Most firms do not bother.
- Multi-partner K-1 coordination is a full workflow, not a byproduct. Partners in professional service firms typically receive distributions, guaranteed payments, health insurance reimbursements, and qualified retirement plan contributions. Each flows through the K-1 differently. A firm that does not walk each partner through the K-1 before release will field angry calls in April. We walk each one through before release.
- PTET elections flow through to the partner's personal return. For a partnership electing PTET at the entity level, each partner claims a credit on the NY personal return. The allocation has to track the operating agreement, not the K-1 income split alone. Getting this wrong creates a partner-level NY filing issue that surfaces months after the entity return is done.
- Succession planning is a five-year conversation. Buying out a retiring partner through a Section 736(a) vs Section 736(b) structure has real tax consequences for both the retiring partner and the continuing partners. The decision typically should be made at least two to three years before the buyout. Most firms do not have the conversation until six months before.
How we engage professional service firms
Most professional service firms start with tax strategy and preparation. From there, engagements deepen based on the complexity of the business: quarterly advisory for year-round strategy, embedded fractional CFO for multi-entity or growth-stage operations, entity restructuring when the business crosses natural thresholds. The engagement matches the need, not a template.
Where AI comes in
The most practical AI use in professional services today is proposal drafting, scope refinement, and internal research. A consulting firm drafting twenty proposals a month can compress the drafting time by half without losing the voice of the firm. A law firm using AI-assisted research tools can cut associate hours on standard memos. An architecture practice using AI for fee proposal estimation and scope letter drafting sees similar compression.
The workflows that are not yet ready for AI are the ones that require client judgment and the ones that rely on privileged information. We help draw the line.
Who this fits
Two to fifty partner firms in law, architecture, consulting, engineering, or creative services. Fee revenue $1M to $25M annually. Firms facing an imminent partner promotion, lateral partner hire, office expansion, or retirement buyout where the tax structure matters.
First engagement
A free call to understand the partner structure and current comp policy. If we are a fit, we scope an onboarding that includes a review of the operating agreement against the actual K-1 allocations, a reasonable comp analysis for owner-principals, a PTET review, and a first-quarter projection. Ongoing monthly work begins in month four.
A partnership is a document about people and their agreement. A partnership return that does not reconcile to the agreement is the return that eventually creates the partner dispute.