If you run a digital or creative agency with multiple partners, there’s a strong chance the payments you’re making to yourselves are being categorized as guaranteed payments. And if they are, you may be handing the IRS far more money than necessary each year.
Most agencies stick with the same partner pay structure year after year. Money goes out, partners get their draws, and bookkeeping keeps moving. But guaranteed payments come with a big tax downside. They do not qualify for the Qualified Business Income (QBI) deduction. Distributions do. And shifting the classification doesn’t change how cash reaches the partners. It only changes how the IRS treats it.
Switching partner payments from guaranteed payments to distributions opens up more agency profit that qualifies for the 20% QBI deduction. That deduction is one of the most powerful tax benefits available to agency owners, and it’s often blocked simply because of how partner payments are labeled.
Here’s what this means in real numbers for an agency.
Say your tax rate is 30%. If we shift $500,000 of guaranteed payments over to distributions, that instantly makes $500,000 of your profit eligible for the QBI deduction. It doesn’t create new income. It simply moves the income into a category the IRS rewards.
Twenty percent of $500,000 is $100,000. At a 30% tax rate, that’s $30,000 in tax savings from one simple adjustment.
Why Guaranteed Payments Exist in the First Place
Guaranteed payments were originally designed to give partners a “salary like” income stream regardless of profit. They make sense in certain industries or where partners need a minimum level of income no matter how the business performs.
But in modern service businesses (especially agencies with recurring revenue, predictable retainers, and stable margins) guaranteed payments are often unnecessary. Agencies typically have steady cash flow, and partners already take regular distributions to cover living expenses. In these cases, guaranteed payments simply add friction and eliminate the QBI deduction for a large chunk of income.
Why Your Accountant May Have Missed This
This issue is unbelievably common in the agency world. Many accountants default to guaranteed payments because:
- It’s what QuickBooks prompts
- It mirrors a “salary,” which feels familiar
- They don’t specialize in partnerships or agency structures
- They never revisit the tax impact after year one
Meanwhile, the agency loses tens of thousands in tax savings each year simply because the partner-pay structure was never optimized.
This is one of the reasons agency specialized tax planning matters. These details compound over time.
FAQ: Common Questions Agencies Ask About This
Does switching to distributions change how we get paid?
No. You still transfer money the same way. The change is in the tax classification, not the cash flow.
Can partners receive different amounts?
Yes. Distributions can vary based on ownership, responsibilities, or partner agreements.
Can we make the change mid-year?
Usually, yes. In many cases, we can adjust prospectively and clean up the partnership agreement if needed.
Does this affect payroll?
No. Partners in partnerships aren’t on payroll. This is only about how your K-1 income is structured.
What This Means for Your Agency
If your agency is doing over $500k, has multiple partners, and you’re paying yourselves through guaranteed payments, there’s a strong chance you’re leaving meaningful tax savings on the table every single year.
We can review your current structure, identify whether guaranteed payments are hurting your QBI deduction, and show you how to shift the arrangement the right way.
For some agencies, this becomes one of the biggest tax wins of the entire year.
