# SavingsMax Tax Strategy Planning
## Annual Tax Plan Memo — Afton Electric, LLC

**Plan year:** 2026
**Plan reference #:** SM-AFTON-2026-001
**Prepared by:** Rex (Tax Strategist) for Jimmie Needles, J2 Bookkeeping
**Date prepared:** 2026-05-23
**Status:** ⚠️ **PROOF-OF-PRODUCT DRAFT — pilot client #1, gold-standard template for subsequent pilots**

> **Internal note (not for client):** This is the first SavingsMax memo. Structure decisions here propagate to Acadian Roofing, Thomas Garage Door, CLJ Plumbing, and Blue Agave. Markdown-only; will render to branded PDF once Pixel ships the SavingsMax brand kit. Disclaimer language reflects Jimmie's locked PTIN + AFSP + CTP single-signer credential stack (per `2026-05-23 - Rex to Jimmie - SavingsMax Phase II Prep Module Scoping.md`).

---

## §1 — Executive Summary

**Projected 2026 federal tax liability (pre-strategy):** ~**$30,200**
(based on TY2025 actuals annualized — see §3 caveats)

**Total potential annual tax savings identified:** **$19,000 – $28,000** across 6 applicable strategies

**Recommended priority strategies (top 3 by dollar impact):**
1. **S-Corp election** — annual savings $8,000–$10,000
2. **Solo 401(k) or SEP-IRA retirement plan** — annual savings $5,000–$8,000
3. **Accountable Plan + Augusta Rule** (paired) — annual savings $3,200–$5,200

**Implementation partner for execution:** Client's CPA / EA of record. (Data needed: identify the current preparer.) SavingsMax provides the strategy; partner executes on the tax return and any entity-level filings.

**Most urgent deadline:** S-Corp election (Form 2553) — **deadline March 15, 2026** for the election to be effective for TY2026. Time-sensitive.

---

## §2 — Current Situation Snapshot

### Entity stack
| Field | Value | Source |
|-------|-------|--------|
| Legal entity | Afton Electric, LLC | QBO records |
| Federal tax classification (per Ledger close work) | **Sole Proprietor (Schedule C)** | `afton_qbo_cleanup_checkpoint.md` |
| ⚠️ **Data anomaly** | Chart of accounts contains "Loans to Shareholders" ($198,557) — S-Corp/C-Corp language. **[DATA NEEDED: confirm whether Form 2553 S-election was ever filed. If yes, entire strategy lens shifts.]** | QBO balance sheet |
| State of formation | Texas (inferred) | `afton_qbo_cleanup_checkpoint.md` |
| State of operation | Texas | QBO Texas Comptroller Payable account |
| Industry | Electrical contractor (residential/commercial) | Account names (Job Materials, Tools, Excavation, Permits) |
| SSTB flag | No — electrical contracting is not an SSTB under §199A | NAICS 238210 |
| Books source | QBO (J2 closes monthly) | Ledger active pilot |
| Year founded | [DATA NEEDED] | — |

### Financial snapshot — TY2025 (cash basis, per QBO 2026-05-23 pull)

> ⚠️ **Books are in active cleanup.** Per Ledger's 2026-05-22 checkpoint, Afton's books have several open items: $285K Undeposited Funds reconciliation, $800K forced rec adjustments staged for reversal, ongoing Thryv→QBO duplication source not yet fixed. **Numbers below are working figures, subject to revision after close completes.**

| P&L line | TY2025 |
|----------|--------|
| Total Revenue | $906,392 |
| Cost of Goods Sold | $138,405 |
| **Gross Profit** | **$767,987 (84.7%)** |
| Total Operating Expenses | $624,066 |
| — of which: Wages | $176,649 |
| — of which: Payroll Taxes | $81,377 |
| — of which: Insurance (Liability + Workers Comp) | $25,030 |
| — of which: Job Materials | $158,297 |
| — of which: Fuel & Oil | $13,325 |
| — of which: Travel + Meals | $26,536 |
| — of which: Uncategorized Expenses | $33,489 *(flag — should be allocated)* |
| **Net Operating Income** | **$143,921** |
| Other Income (net) | $817 |
| **Net Income** | **$144,738** |

### Balance sheet snapshot — 2026-04-30 (cash basis)
| Item | Balance | Notes |
|------|---------|-------|
| Cash position | $(131,033) | Negative bank balance — driven by overdrafts / pending reconciliation |
| Undeposited Funds | $282,336 | Cleanup in progress (was $562K, now $285K) |
| **Loans to Shareholders** | **$198,557** | ⚠️ Entity-status anomaly — sole props don't have shareholders |
| Fixed Assets (NBV) | $23,166 | Tools/Machinery, light fixed asset base |
| Long-Term Vehicle Loans | $(78,149) | Union Square ECM Van + TD Auto Finance Van 2020 |
| Owner's Distribution (LTD) | $(335,293) | Owner has drawn $335K since formation |
| Owner's Investment (LTD) | $130,989 | Owner contributed $131K |
| Retained Earnings | $1,459,207 | Significant retained earnings accumulated |
| **Total Equity** | **$402,734** | |

### Owner profile (significant data gaps)
| Field | Status |
|-------|--------|
| Owner name(s) | [DATA NEEDED] — Riv's runbook references the Intuit Company Admin but doesn't name them |
| Filing status | [DATA NEEDED] — likely MFJ based on client age cohort, unconfirmed |
| Spouse income / employment | [DATA NEEDED] |
| Owner DOB | [DATA NEEDED — critical for retirement plan strategy] |
| Spouse DOB | [DATA NEEDED if MFJ] |
| Dependents | [DATA NEEDED] |
| Health insurance coverage (HDHP y/n) | [DATA NEEDED — determines HSA strategy] |
| Existing retirement accounts | [DATA NEEDED — affects backdoor Roth viability] |
| Prior-year personal tax return (1040 + Schedule C) | [DATA NEEDED — for carryforward tracking, prior-year QBI baseline, marginal-rate confirmation] |
| Current CPA / preparer of record | [DATA NEEDED — required for implementation partner registry] |
| Children under 18 (income-shifting candidates) | [DATA NEEDED] |
| Owns primary residence (Augusta Rule eligibility) | [DATA NEEDED — likely yes, but unconfirmed] |

> Once these data gaps close, several strategies tighten from "range" to specific dollar figures. The memo's confidence ratings reflect these unknowns.

---

## §3 — Federal Projection (Pre-Strategy)

**Caveat:** TX is a no-personal-income-tax state, so federal-only is the full picture for the owner's income tax. TX franchise tax applies to the entity if revenue exceeds the no-tax-due threshold (currently $1.23M) — Afton at $906K is **under threshold**, files a No Tax Due Return.

### TY2026 projection (assuming sole prop status, MFJ filing, no other income)

| Line | Amount | Notes |
|------|--------|-------|
| Schedule C net income (run-rate) | $144,738 | TY2025 actuals; assume flat for TY2026 |
| Less: deductible half of SE tax | $(10,233) | Computed below |
| **AGI** | **$134,505** | |
| Less: Standard deduction (MFJ 2026 est.) | $(30,750) | Estimated; final 2026 figure TBD |
| Less: QBI deduction (20% × QBI, simplified) | $(20,855) | 20% × ($144,738 - $10,233) = $26,901 (capped at 20% of taxable income before QBI = simplified to lesser) |
| **Taxable income** | **~$82,900** | |
| Federal income tax (MFJ 2026 estimated brackets) | ~**$9,500** | 10% to $23,800 + 12% to $96,800 |
| Self-employment tax (15.3% × 92.35% × NI) | ~**$20,466** | $144,738 × 0.9235 × 0.153 |
| **Total federal tax** | **~$29,966** | |

**Effective federal tax rate:** ~20.7% of net income, ~3.3% of revenue.

**If actually an S-Corp** (per the chart-of-accounts anomaly), the projection changes materially: SE tax is replaced by payroll tax on the W-2 portion only, distributions are tax-free of SE tax, and QBI deduction is calculated against (NI – W-2 wages). **Refusing to model both paths until entity status confirmed** — but if S-Corp with $75K reasonable comp:
- Payroll FICA: $11,475
- QBI deduction on $69,738 distribution: $13,948
- Federal income tax: ~$7,000
- Total: ~$22,975 — already ~$7K lower than sole-prop baseline (i.e., the S-Corp election strategy's value, if not yet realized)

---

## §4 — Recommended Strategies

Each strategy below follows Ledger's framework: **trigger / disqualifier / savings calculation / interaction warnings / implementation partner / deadline / required actions / caveats**.

### Strategy 1: S-Corp Election (Form 2553) — IF currently Sole Proprietor

**Strategy ID:** SAVMAX-1.1
**Estimated annual savings:** **$8,000–$10,000** (every year going forward)
**Confidence:** High (if entity is currently sole prop)
**Implementation difficulty:** Medium — requires payroll setup, reasonable comp determination, election filing
**Deadline:** **March 15, 2026** for the election to be effective for TY2026
**Implementation partner:** Client's CPA/EA for Form 2553 filing; payroll provider (Rippling or similar) for ongoing W-2 administration

**Trigger evaluation:** Schedule C net income > $50K → ✓ (Afton at $145K)
**Disqualifier check:** Foreign owner, > 100 shareholders, ineligible entity type → none apparent ✓

**Savings calculation:**
| Component | Calculation | Amount |
|-----------|-------------|--------|
| Current SE tax (sole prop) | 15.3% × 92.35% × $144,738 | $20,466 |
| Post-election: reasonable comp W-2 (RCReports methodology, owner-operator electrical contractor in TX, $145K NI base) | est. $70,000 – $80,000 | — |
| W-2 FICA (employer + employee portion, paid by entity) | 15.3% × $75,000 | $11,475 |
| Distribution portion (no SE tax) | $144,738 – $75,000 | $69,738 |
| **Gross SE/FICA tax savings** | $20,466 – $11,475 | **$8,991** |
| Less: payroll admin cost (Rippling or equivalent, ~$50/mo) | | $(600) |
| Less: QBI deduction loss (W-2 wages reduce QBI base) | 20% × $75,000 × ~12% marginal | $(1,800) |
| **Net annual savings** | | **~$6,591** |

**Important interaction warnings:**
- **W-2 wages reduce QBI base.** The QBI deduction is 20% of QBI. Setting reasonable comp too high erodes the QBI deduction. The "sweet spot" balances FICA savings vs. QBI loss. Model both before locking the W-2 figure.
- **Reasonable comp must be defensible.** IRS scrutinizes S-Corp owner comp; a 51%+ comp/total split is the safer side of the line for owner-operators. The $75K figure above is mid-range for the industry/region; final number should be set with a documented reasonable-comp analysis (RCReports is the industry-standard tool — ~$300 study).
- **Texas franchise tax doesn't change.** TX franchise tax applies to LLCs and S-Corps alike at the same threshold; no state impact.

**Required actions (chronological):**
1. By **Mar 1, 2026:** Decide go/no-go on S-election. Complete reasonable comp study.
2. By **Mar 15, 2026:** File Form 2553 with IRS (election effective TY2026 retroactive to Jan 1).
3. By **Apr 1, 2026:** Stand up W-2 payroll for owner (Rippling, Gusto, or equivalent).
4. **Throughout 2026:** Run W-2 payroll at the determined comp level on a regular schedule (bi-weekly or monthly).
5. By **Jan 31, 2027:** Issue owner W-2 from the entity.

**Caveats:**
- If Afton is **already an S-Corp** (per the chart-of-accounts anomaly), this strategy is N/A and the strategy shifts to "Reasonable Compensation Optimization" (Strategy 1A below) instead.
- One-time cost of election + reasonable comp study + payroll setup: ~$1,000–$2,000 first year. Recovered in 2-3 months of SE tax savings.

---

### Strategy 1A: Reasonable Compensation Optimization — IF already S-Corp

**Strategy ID:** SAVMAX-1.2
**Estimated annual savings:** **$2,000–$5,000** (depends on current comp level vs. optimum)
**Confidence:** Medium-high (depends on current comp setup)
**Implementation difficulty:** Easy — adjust payroll going forward
**Deadline:** Set 2026 comp by July 1, 2026 to allow even quarterly distribution

**Trigger:** Existing S-Corp with owner W-2.
**Required if Strategy 1 is N/A.** Otherwise skip.

**Savings calculation:** [Depends on current W-2 / distribution split — DATA NEEDED]

If owner is currently taking too much as W-2 (over-paying FICA): each $10K shifted from W-2 to distribution saves $1,530 in FICA.
If owner is currently taking too little (FICA exposure risk): underpaid reasonable comp opens IRS audit risk; this is a different problem (re-characterization risk, back FICA + penalties).

**Without current comp data, this strategy is on hold pending entity-status confirmation.**

---

### Strategy 2: Solo 401(k) or SEP-IRA Retirement Plan

**Strategy ID:** SAVMAX-2.1 / 2.2
**Estimated annual savings:** **$5,000–$8,000** (varies with contribution level and entity type)
**Confidence:** High
**Implementation difficulty:** Easy — open account at any major custodian (Schwab, Fidelity, Vanguard)
**Deadline (SEP-IRA):** Contribution due by extended tax return filing date (Oct 15, 2027 for TY2026 if extended)
**Deadline (Solo 401(k)):** Plan must be established by **Dec 31, 2026** to make TY2026 contributions; contribution due by extended filing date
**Implementation partner:** Client (account opening); CPA/EA confirms contribution mechanics on return

**Trigger:** Self-employed with net income > $50K → ✓ ($145K)
**Disqualifier check:**
- Non-spouse employees would block Solo 401(k) but allow SEP-IRA. Afton has W-2 wages of $176K = clearly has employees. **This is critical:** if those employees are non-spouse, Solo 401(k) is N/A — only SEP-IRA works, and SEP-IRA requires employer to contribute equally for all employees (cost balloons).
- **[DATA NEEDED:** are any W-2 employees the owner's spouse or children? If all non-spouse employees → Solo 401(k) blocked; SEP-IRA requires proportional contributions for employees too.]

**Savings calculation (assuming OWNER ONLY, no other employees — best case):**

| Plan type | Max contribution at $145K SE | Tax savings (est. 24% marginal MFJ) |
|-----------|------------------------------|-------------------------------------|
| Solo 401(k) — Sole Prop | $33,750 (25% × $135K SE-adjusted) | ~$8,100 |
| Solo 401(k) — S-Corp ($75K W-2) | $42,250 ($23,500 employee + $18,750 employer) | ~$10,140 |
| SEP-IRA — Sole Prop | $33,750 (same as Solo 401(k) employer-only side) | ~$8,100 |
| SEP-IRA — S-Corp | $18,750 (25% × $75K W-2) | ~$4,500 |

**Less:** QBI deduction loss (retirement contribution reduces QBI base): 20% × $33,750 × 12% marginal ≈ $810
**Net annual savings (Solo 401(k) Sole Prop):** ~**$7,290**

**Critical interaction with Strategy 1:**
- **S-Corp + Solo 401(k) is the optimal combination** if Afton has no non-spouse employees. Higher contribution ceiling than sole-prop Solo 401(k).
- **If Afton has non-spouse employees:** SEP-IRA forces employer contributions for them too. At $176K in employee wages, a 10% SEP for employees = $17,600 of employer cost just to allow the owner to contribute. Math turns negative.
- **Alternative path if employees exist:** SIMPLE IRA (lower contribution limits but lower employer cost per employee) — model separately if needed.

**Recommendation pending data:** Confirm whether Afton's W-2 employees include spouse only or non-spouse. Until confirmed, retirement strategy is **conditional**.

---

### Strategy 3: Accountable Plan (paired with S-Corp election)

**Strategy ID:** SAVMAX-8.4
**Estimated annual savings:** **$2,200–$4,000** (varies with reimbursable expense base)
**Confidence:** High (if S-Corp elected)
**Implementation difficulty:** Easy — written plan + monthly reimbursement workflow
**Deadline:** Establish concurrently with S-election; reimbursements done within plan year
**Implementation partner:** SavingsMax provides the plan template; client implements; CPA/EA confirms

**Trigger:** S-Corp owner using personal assets for business (home office, personal vehicle for business miles, etc.) → ✓ (Afton has $8,653 Auto Expenses + $13,325 Fuel & Oil = vehicle-heavy operation)

**Why this matters:** Post-TCJA, **unreimbursed employee business expenses are non-deductible.** Without an accountable plan, owner's out-of-pocket business expenses are personally absorbed without tax benefit. An accountable plan converts these to tax-free reimbursements + entity deduction.

**Savings calculation:**
- Estimated reimbursable expenses (home office portion of utilities + internet, personal-vehicle business mileage at IRS rate $0.67/mi, personal cell phone business portion):
  - Home office (estimated ~150 sq ft, ~10% of home, $X/yr utilities/etc.) — **[DATA NEEDED]**
  - Personal-vehicle business mileage (industry-typical for owner-operator electrical contractor: 8,000–15,000 business miles/yr) at $0.67/mi: $5,360 – $10,050
  - Personal cell phone business portion (80% × ~$1,200/yr): $960
  - Subtotal: ~$10,000–$15,000 of reimbursable expenses

- Tax savings: $10,000 – $15,000 × ~22% marginal × (entity-level deduction passing through to owner) ≈ **$2,200 – $3,300**

**Note:** Requires S-Corp election to be most beneficial. As sole prop, owner's business mileage on personal vehicle is already deductible on Schedule C without an accountable plan — so this strategy's incremental value is contingent on Strategy 1.

---

### Strategy 4: Augusta Rule (§280A(g))

**Strategy ID:** SAVMAX-5.3
**Estimated annual savings:** **$900–$1,200**
**Confidence:** Medium (assumes owner owns residence + has documented business meetings)
**Implementation difficulty:** Easy — board minutes + rental agreement + FMV documentation
**Deadline:** Implement before TY2026 year-end (Dec 31, 2026); document each meeting day with FMV rate
**Implementation partner:** SavingsMax provides template; client documents; CPA/EA reports on return

**Trigger:** Owner owns personal residence + business holds meetings/training/team events at the residence → ✓ likely (owner-operator electrical contractor typically holds team huddles, training sessions, planning meetings at home)
**Disqualifier check:** More than 14 days/yr would convert to taxable rental income. Stay at ≤ 14 days.

**Savings calculation:**
- 14 days × FMV daily rate for New Braunfels, TX comparable venue (mid-range meeting space): ~$300/day
- Total deduction: $4,200/yr
- Entity-level deduction (Schedule C or 1120-S): $4,200
- Owner receives $4,200 tax-free (§280A(g) exclusion)
- Federal tax savings: $4,200 × ~22% marginal ≈ **$924**

**Caveats:**
- Documentation matters. Each meeting day needs: date, business purpose, attendees, comparable-venue FMV evidence, board minutes or business log. IRS audit risk is real but defensible with proper records.
- Not a HUGE dollar number but easy to capture — recommended.

---

### Strategy 5: Section 179 / Bonus Depreciation Catch-Up on Vehicles

**Strategy ID:** SAVMAX-3.1 / 3.2
**Estimated annual savings:** **$2,000–$5,000** (one-time benefit if prior-year election was missed)
**Confidence:** Low (depends on vehicle in-service dates and prior-year tax treatment)
**Implementation difficulty:** Medium — may require Form 3115 if changing accounting method retroactively
**Deadline:** Form 3115 (change in accounting method) filed with the TY2026 return
**Implementation partner:** CPA/EA — this is a tax-prep maneuver, not a planning move

**Trigger:** Significant vehicle assets (~$78K combined loan balances suggest ~$80–100K of vehicle cost) → ✓
**Disqualifier check:** Vehicle must be ≥ 6,000 lbs GVWR for full §179, OR partial §179 + bonus depreciation if passenger vehicle. **[DATA NEEDED: van make/model/GVWR]**

**Savings calculation (estimated, pending data):**
- Two vans on the balance sheet, no "Vehicles" fixed asset account — suggests vehicles may have been §179-expensed in prior year OR are not yet on the books at all (depreciation never started)
- If second case: catch-up depreciation via Form 3115 (Change in Accounting Method) — recover unclaimed depreciation in current year as a single adjustment
- Bonus depreciation for TY2026 is **40%** (down from 60% TY2024, 20% TY2025) — phasing out
- Estimated catch-up if missed: ~$20–40K of unrecorded depreciation × 22% marginal ≈ $4,400 – $8,800 one-time savings

**Caveats:**
- This is a **diagnostic strategy** — first need to confirm whether vans are on the books, what basis, and when placed in service.
- **DATA NEEDED:** Van titles, purchase dates, prior tax return Schedule C depreciation lines.
- May be moot if prior CPA already §179'd; can only catch up if missed.

---

### Strategy 6: 2024 Phantom Revenue — Decline to Amend

**Strategy ID:** SAVMAX-13.4
**Status:** **Recommendation: do NOT amend 2024 return**
**Estimated savings impact:** $0 (the JE already done in current period captures the same tax benefit)

**Background:** Per Ledger's 2026-05-22 cleanup work, 24 of 35 duplicate-revenue pairs ($16,128 total) were misrecorded as 2024 income. The 2024 return was filed with overstated revenue. The JE executed 2026-05-22 (`AFTON-DUP-CLEAN`, $22,063) corrects all 35 pairs in **current period (2026)** rather than amending the closed period.

**Three options Ledger flagged:**
| Option | Approach | Recovers | Cost | Risk |
|--------|----------|----------|------|------|
| **A. Amend 2024** | File Form 1040-X with corrected Schedule C | ~$3,500–$4,000 refund (FY24 tax + SE tax on $16,128 at ~22-24% combined) | $500–$1,500 preparer fee | Amended return increases audit-flag risk; IRS may scrutinize the entire 2024 return |
| **B. Current-period correction** | JE in 2026 reduces 2026 taxable income by $16,128 | Same ~$3,500–$4,000 tax savings, just in TY2026 instead of TY2024 | $0 (already executed by Ledger 2026-05-22) | Standard GAAP / IRS-accepted current-period treatment for immaterial PPA |
| **C. PPA to Retained Earnings** | Prior-period adjustment to equity, no income statement impact in either year | $0 tax benefit | Higher complexity | Cleanest accounting but no tax recovery |

**Rex's recommendation: Stick with Option B (already done).** Tax math is essentially identical between A and B; the difference is *when* the savings are realized, not *whether*. Amending introduces audit-flag risk and preparer cost with no net tax benefit. Option B is a clean, executed, IRS-accepted treatment.

**Disqualifier on this strategy as a billable item:** Since Option B is already executed and recovers all available tax benefit, **no SavingsMax fee** is charged for this item. It's documented for audit trail completeness, not for billing.

---

### Strategies Evaluated and Marked Non-Applicable

For audit trail completeness, per Ledger §4 decision-engine requirements:

| Strategy | ID | Why N/A |
|----------|-----|---------|
| C-Corp election | 1.3 | Owner bracket already low (~22%); no fringe benefit / reinvestment thesis evident |
| Multi-entity restructuring | 1.4 | Single operating entity, no IP / real estate / multi-revenue-stream split visible |
| Spousal partnership / payroll | 1.5 | Spouse status [DATA NEEDED]; revisit once known |
| Family Limited Partnership | 1.6 | Net worth profile [DATA NEEDED]; FLPs only fit estates > $5M |
| Defined Benefit Plan | 2.4 | Income $145K likely too low to make DB cost-effective vs. Solo 401(k); revisit if income > $300K |
| Cash Balance Plan + Solo 401(k) | 2.5 | Same as 2.4 — income threshold |
| Mega Backdoor Roth | 2.6 | Requires plan with after-tax + in-service distributions — not in current setup |
| Backdoor Roth IRA | 2.7 | [DATA NEEDED: existing pre-tax IRA balance — triggers pro-rata rule if exists] |
| Roth Conversion | 2.8 | Owner currently in low-bracket year? [DATA NEEDED on full income picture]; possible future strategy |
| Cost segregation | 3.3 | No real property on balance sheet ✗ |
| De minimis safe harbor | 3.4 | Already inherently applied via current expense treatment of small tools |
| Repairs vs. capitalization (TPRs) | 3.5 | Repair & Maintenance only $294 — immaterial |
| QBI Optimization (W-2 wage management above threshold) | 4.2 | Below $383K MFJ threshold — full QBI available, no phase-out math needed |
| Aggregation election | 4.3 | Single entity, nothing to aggregate |
| SSTB spin-off | 4.4 | Not an SSTB ✗ |
| Hire children | 5.1 | [DATA NEEDED: any children age 7+?] |
| Self-rental | 5.4 | No real estate ownership visible |
| Custodial Roth for kids | 5.5 | [DATA NEEDED: children with earned income?] |
| STR loophole / REPS / 1031 / OZ / cost seg on rental / passive loss | 6.1–6.6 | No real estate activity |
| DAF / bunching / CRT / CLT / QCD / appreciated stock | 7.1–7.6 | Charitable giving $300/yr currently — owner doesn't have meaningful giving plan in current data |
| HSA contribution | 8.1 | [DATA NEEDED: HDHP coverage status] |
| Self-employed health insurance | 8.2 | Likely deducted on personal return already; [DATA NEEDED: confirm] |
| Section 105 / HRA / ICHRA | 8.3 | Could fit Afton (small employer reimbursing medical) — revisit if/when health insurance situation clarifies |
| PTET election | 9.1 | TX has no state income tax; PTET strategy N/A ✗ |
| State residency planning | 9.2 | Already TX; no state income tax savings available ✗ |
| Sourcing/apportionment review | 9.3 | Single-state operation |
| State NOL utilization | 9.4 | TX no income tax |
| MCA restructuring | 10.1 | No MCAs visible on balance sheet |
| Owner loan vs. contribution | 10.2 | "Loans to Shareholders" $198K is on books — needs explanation; [DATA NEEDED] |
| Interest tracing | 10.3 | Mixed-use borrowing not evident |
| Tax loss harvesting / LTCG / QSBS / installment / NIIT | 11.1–11.5 | No brokerage / investment activity visible |
| Estate / gift / GRAT / SLAT / step-up | 12.1–12.5 | Net worth profile [DATA NEEDED]; revisit at year-end with personal balance sheet |
| Estimated payment optimization | 13.1 | Will address in §6 below — quarterly schedule |
| Withholding adjustment | 13.2 | N/A — sole prop has no W-2 withholding to adjust |
| NOL strategy | 13.3 | No NOL visible |
| Income/expense timing | 13.4 | Surface in Q4 planning conversation |
| R&D credit | (§41) | Electrical contracting work is generally not qualified research — installation/service work doesn't meet §41 four-part test |

---

## §5 — Action Checklist (Chronological)

| Deadline | Action | Owner | Status |
|----------|--------|-------|--------|
| **Immediate** | Confirm Afton's federal entity classification (Sole Prop vs. S-Corp) | Jimmie + client | OPEN |
| **Immediate** | Gather owner profile data (filing status, DOB, spouse, dependents, HDHP, prior 1040, current CPA, etc. — see §2 data gaps) | Jimmie | OPEN |
| **By Mar 1, 2026** | Decide S-election go/no-go; commission RCReports reasonable comp study (~$300) | Client | OPEN |
| **By Mar 15, 2026** | File Form 2553 if going forward | Client's CPA/EA | OPEN |
| **By Apr 1, 2026** | Stand up W-2 payroll for owner (if S-elected) | Client + payroll provider | OPEN |
| **By Apr 15, 2026** | Q1 2026 estimated payment due (see §6) | Client | OPEN |
| **By Jun 15, 2026** | Q2 estimated payment due | Client | OPEN |
| **By Jul 1, 2026** | Establish Solo 401(k) or SEP-IRA (Solo 401(k) plan setup; SEP-IRA can be later but cleaner to set up now) | Client + custodian | OPEN |
| **By Sep 15, 2026** | Q3 estimated payment due | Client | OPEN |
| **By Dec 31, 2026** | Solo 401(k) plan MUST be established by year-end for TY2026 contributions; Augusta Rule documentation must cover all meeting days in TY2026 | Client | OPEN |
| **By Jan 15, 2027** | Q4 estimated payment due | Client | OPEN |
| **By Mar 15, 2027 (S-Corp) / Apr 15, 2027 (sole prop)** | Final retirement plan contribution + tax return filing | CPA/EA | OPEN |

---

## §6 — Estimated Payment Schedule (TY2026)

**Safe harbor analysis:**
- TY2025 federal tax liability (estimated): ~$30,000
- AGI for TY2025: ~$134,500 (under $150K threshold)
- Safe harbor: **100% of prior-year liability** = $30,000

**Quarterly schedule (safe harbor — pay $7,500/quarter):**
| Quarter | Due Date | Amount | Notes |
|---------|----------|--------|-------|
| Q1 | Apr 15, 2026 | $7,500 | |
| Q2 | Jun 15, 2026 | $7,500 | |
| Q3 | Sep 15, 2026 | $7,500 | |
| Q4 | Jan 15, 2027 | $7,500 | |
| **Total** | | **$30,000** | |

**If S-election + retirement contribution implemented:** Q3/Q4 payments can be reduced once mid-year actuals confirm lower tax liability. Recommend recalculating at end of Q2.

**[DATA NEEDED:** Confirm whether prior CPA already structured estimated payments for TY2026.]

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## §7 — Disclaimer

> These are strategic planning recommendations prepared under SavingsMax Tax Strategy Planning's fractional CFO advisory engagement. SavingsMax is operated by J2 Bookkeeping. Recommendations are based on the books and records maintained by J2 Bookkeeping as of the date prepared and on data provided by the client. **All tax positions must be reviewed and implemented by your CPA, EA, or other licensed tax professional of record.** SavingsMax does not prepare tax returns or render tax advice as a return preparer. Estimated savings are projections based on assumptions stated herein; actual savings will be determined by the final filed return and may vary materially based on facts not currently known to SavingsMax. Implementation of any strategy may require legal counsel (estate planning, complex restructuring) or other specialists; SavingsMax will flag such requirements but does not provide legal or specialist services directly.

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## §8 — Internal Notes (Not for Client)

### Data gaps blocking tighter estimates
Ranked by impact on memo accuracy:

1. **Entity status confirmation.** Sole Prop vs. S-Corp determines whether Strategy 1 or 1A is the headline. Get a copy of the most recent filed federal return (Schedule C if sole prop, 1120-S if S-Corp) to confirm.
2. **Owner profile** — filing status, DOB, spouse status, dependents. Drives projection accuracy + retirement plan sizing.
3. **W-2 employee composition** — spouse/family vs. non-spouse. Determines Solo 401(k) viability vs. SEP-IRA.
4. **Vehicle history** — in-service date, basis, prior depreciation method. Determines Strategy 5 (catch-up depreciation) viability.
5. **HDHP coverage** — determines HSA strategy.
6. **Current CPA/EA of record** — required for implementation partner registry per Ledger §0 and §9.

### Open items for Ledger / Cord to surface
- **Loans to Shareholders $198K** — what's this? If real shareholder loans, this is an S-Corp with the wrong checkpoint label. If vestigial owner-draw misclass, fix the chart of accounts.
- **Uncategorized Expenses $33,489** — significant; should be allocated for accurate expense categorization and any expense-recharacterization strategies.
- **Owner's Distribution $335K LTD vs. Net Income $145K TY2025** — Owner is drawing more than annual net income (likely fine for sole prop tax-wise; tracks against basis). Confirm distribution pace is sustainable.

### Strategy notes for future SavingsMax memos
- **Entity-status anomaly is a pattern to watch for.** Several J2 clients may have similar chart-of-accounts issues from prior bookkeepers/CPAs setting up the books wrong. Adding a "confirm entity status" step to the SavingsMax intake protocol.
- **TX clients have a narrower strategy library.** PTET (Strategy 9.1), state residency (9.2), apportionment (9.3), and state NOL (9.4) are all auto-N/A for TX residents. Future TX-client memos can skip these sections.
- **Industry-specific defaults useful.** Electrical contractor (NAICS 238210) is not SSTB; QBI is uncapped; auto/vehicle deductions are central. Building an industry-default template per client tier would accelerate future memos.

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**End of Strategy Memo.**
**Companion document:** `SavingsMax_Afton_Fee_Proposal_2026.md`