Agency Owner Taxes: Contractors, R&D, and Keeping More of What You Bill
Start with four areas when you review your agency's taxes: contractors, software development, your own pay, and estimated payments. Getting these right helps you plan what the business can afford to pay you.
Four areas to review
- Do any freelancers work much like your employees?
- Have you paid people to build software or a technical tool?
- If you're an S corporation owner, does your salary reflect your work?
- Have your tax payments kept up with changes in profit?
Check how your contractors actually work
A contract calling someone a freelancer doesn't decide their tax status. The IRS considers how you direct the work, the financial arrangement, and the overall relationship.
Set hours, ongoing responsibilities, the tools you provide, and the worker's ability to take other clients can matter. No single fact decides the result. Ohio unemployment law has its own 20-factor test, so a federal tax review doesn't settle every employment-law question.
Review your contractor arrangements when the work changes. Keep the agreements and notes explaining the classification. If someone should have been on payroll, unpaid employment taxes, penalties, and interest may follow.
Separate software costs from routine client work
For tax years beginning after December 31, 2024, Section 174A generally allows a current deduction for domestic research and experimental costs, including software development. Timing follows when costs are paid or incurred under your accounting method. Foreign research costs still have to be deducted over 15 years.
If you capitalized domestic costs in 2022 through 2024, an election can accelerate the remaining deductions. For a calendar-year business, the options generally put them in 2025 or split them between 2025 and 2026. Filing and accounting-method requirements apply.
A separate small-business election allowed qualifying costs to be deducted on earlier returns. Its general July 6, 2026 deadline has passed, and refund deadlines could have expired earlier. Available options depend on earlier filings and the IRS transition rules.
The research credit has additional tests. Technical uncertainty and experimentation matter; a new campaign or creative idea alone doesn't qualify. Client-funded work and software for internal use need particular care. The deduction and credit must also be coordinated, generally by reducing the deduction or electing a reduced credit. The IRS research credit instructions explain these requirements.
Support your S corporation salary
If you work in your S corporation, it must pay reasonable compensation for your services before making nonwage distributions to you. Wages carry payroll taxes. Your share of the corporation's profit generally isn't subject to self-employment tax, but it remains reportable for income tax.
There isn't a standard salary percentage that works for every agency. Look at your duties, hours, experience, comparable pay, and how the business earns its revenue. Keep the calculation and revisit it when your role changes. The IRS compensation guidance explains the factors.
Plan estimated payments around your income
These are the regular 2026 payment dates for calendar-year individuals, for both federal and Ohio income tax.
| Payment | Due date |
|---|---|
| First | April 15, 2026 |
| Second | June 15, 2026 |
| Third | September 15, 2026 |
| Fourth | January 15, 2027 |
Federal rules generally let you avoid an underpayment penalty by paying the smaller of 90% of current-year tax or 100% of prior-year tax through timely installments and withholding. The prior-year percentage rises to 110% if your prior-year adjusted gross income exceeded $150,000, or $75,000 if married filing separately. The prior-year return must cover 12 months.
Those rules determine required payments, not your final tax bill. If income arrives unevenly, the annualized income method may reduce earlier installments. See 2026 Form 1040-ES.
Ohio's estimated-tax rules are separate. Payments generally apply when Ohio tax after credits and withholding exceeds $500. Its usual payment target is the smaller of 90% of current-year tax or 100% of prior-year tax, without the federal 110% tier. The prior-year option requires a filed return for a 12-month year. School district and municipal taxes need their own review.
Keep the plan current
A tax reserve should reflect the agency's expected profit, owner pay, and payments already made. Review it when those numbers change. Retirement contribution deadlines depend on the plan; some options remain after year-end.
Read more about our work with agencies on our marketing agencies page, or contact Schultz CPA, LLC to review your setup.
This article provides general information. Tax treatment depends on your circumstances.