Tax Planning FAQ

Q: How much can I realistically save with a tax plan?

It depends on your income, entity structure, and current situation — but our clients typically save between $5,000 and $50,000+ per year. Business owners earning $150K+ in net profit often see the most dramatic results. We model your specific savings potential before you commit to anything, so you'll know exactly what to expect.

Q: When is the best time to start tax planning?

Right now — regardless of what time of year it is. Many strategies (entity elections, retirement account setup, accountable plans) need to be in place before year-end to capture savings for that tax year. The earlier in the year you start, the more options you have. Even mid-year planning can generate significant savings.

Q: Should I elect S-Corp status for my LLC?

If your LLC is generating $60,000+ in net profit, the S-Corp election is almost always worth evaluating. It allows you to split income between a reasonable salary (subject to payroll taxes) and distributions (not subject to self-employment tax). The savings on SE tax alone can be $10,000–$20,000+ annually. However, it comes with added complexity — payroll, a separate business return, and stricter compliance requirements. We'll run the numbers for your specific situation.

Q: What is the Augusta Rule and how does it work?

The Augusta Rule (Section 280A of the tax code) allows homeowners to rent their home for up to 14 days per year without reporting the rental income. For business owners, this means you can rent your home to your business for legitimate purposes — board meetings, strategy retreats, client events — and deduct the rent as a business expense. The income is completely tax-free to you personally. The rental rate must be comparable to what a hotel or event venue would charge in your area.

Q: What is an Accountable Plan and why do I need one?

An Accountable Plan is a formal reimbursement arrangement between your business and yourself (or employees) that allows business expenses paid personally to be reimbursed tax-free. Without one, reimbursements may be treated as taxable income. With a properly structured Accountable Plan, you can reimburse home office expenses, vehicle use, cell phone, internet, and more — reducing your taxable income without increasing payroll taxes.

Q: What retirement accounts should a self-employed person use?

The three main options for self-employed individuals are: (1) SEP-IRA — contribute up to 25% of net self-employment income, max $69,000 for 2024, simple to set up; (2) Solo 401(k) — contribute as both employee ($23,000 limit) and employer (25% of compensation), total max $69,000–$76,500 if 50+, allows Roth contributions and loans; (3) Defined Benefit Plan — for high earners who want to shelter $100,000–$200,000+ annually, requires actuarial calculations. The right choice depends on your income level, age, and cash flow needs.

Q: Can I deduct my home office?

Yes, if you use a portion of your home regularly and exclusively for business. The deduction can be calculated using the simplified method ($5/sq ft, max 300 sq ft = $1,500) or the actual expense method (percentage of home expenses based on office square footage). For business owners with a dedicated office space, the actual expense method typically yields a larger deduction. The space must be your principal place of business or where you meet clients.

Q: What is cost segregation and who should consider it?

Cost segregation is an engineering-based study that reclassifies building components from long-life depreciation (27.5 or 39 years) to short-life categories (5, 7, or 15 years), dramatically accelerating your depreciation deductions. For real estate investors and business property owners, this can generate $50,000–$500,000+ in additional first-year deductions. It's typically worth considering for properties valued at $500,000+. Combined with bonus depreciation, the tax impact can be massive.

Q: How do I reduce self-employment tax?

Self-employment tax (15.3% on net earnings) is one of the biggest tax burdens for business owners. The most effective strategies to reduce it include: (1) S-Corp election to split income between salary and distributions; (2) Maximizing retirement contributions, which reduce net SE income; (3) Ensuring all legitimate business deductions are captured to reduce net profit; (4) Hiring family members at reasonable wages. We'll identify the combination that works best for your income level.

Question 1

What is proactive tax planning and how is it different from tax preparation?

Answer

Tax preparation is filing your return after the year ends — it's compliance. Tax planning is the strategic work done throughout the year to legally reduce what you owe before the return is ever filed. Preparation looks backward; planning looks forward. The biggest tax savings happen during the year, not in April. A good tax plan can reduce your effective tax rate by 8–15% annually.

Question 2

How much can I realistically save with a tax plan?

Question 3

When is the best time to start tax planning?

Question 4

Should I elect S-Corp status for my LLC?

Question 5

What is the Augusta Rule and how does it work?

Question 6

What is an Accountable Plan and why do I need one?

Question 7

What retirement accounts should a self-employed person use?

Question 8

Can I deduct my home office?

Question 9

What is cost segregation and who should consider it?

Question 10

How do I reduce self-employment tax?

Question 11

What is the Qualified Business Income (QBI) deduction?

Question 12

Can I hire my children in my business to save on taxes?

Question 13

What is a Defined Benefit Plan and who qualifies?

Question 14

How does tax planning work for real estate investors?

Question 15

What happens during a tax planning strategy session?

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