# SavingsMax Tax Strategy Planning
## Annual Tax Plan Memo — CLJ Plumbing

**Plan year:** 2026
**Plan reference #:** SM-CLJ-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 (replaces Afton draft, which is books-blocked). 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, Afton Electric (when books clean), 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`). CLJ chosen as pilot #1 because books are at clean/tax-ready state (no active cleanup in progress; no Undeposited Funds backlog; no forced rec adjustments; fixed assets itemized; equity section uses standard sole-prop owner-draw language).

---

## §1 — Executive Summary

**Projected 2026 federal tax liability (pre-strategy, Sole Prop status):** ~**$81,000**
**Total potential annual tax savings identified:** **$22,000 – $28,000** across 5 priority strategies (one-time savings of $3,000 – $8,000 additionally possible on vehicle depreciation catch-up, pending data)

**Recommended priority strategies (ranked by dollar impact):**
1. **S-Corp election** — annual savings **$10,000 – $13,000** (every year)
2. **Solo 401(k) retirement plan** — annual savings **$10,000 – $14,000** (every year)
3. **Accountable Plan + Augusta Rule (paired with S-Corp)** — annual savings **$3,000 – $4,500**
4. **Vehicle depreciation review / catch-up** — one-time **$3,000 – $8,000** (if applicable)
5. **HSA contribution** (conditional on HDHP coverage) — **$2,000 – $2,300**

**Implementation partner for execution:** Client's CPA / EA of record. [DATA NEEDED: identify the current preparer — 2025 accounting fees totaled $8,383 indicating active CPA relationship.] SavingsMax provides the strategy; partner executes on the tax return and entity-level filings.

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

---

## §2 — Current Situation Snapshot

### Entity stack
| Field | Value | Source |
|-------|-------|--------|
| Legal entity | CLJ Plumbing | QBO records |
| Federal tax classification | **Sole Proprietor (Schedule C)** — inferred from equity-section language ("Owner draws", "Owner investments", "Personal Withdraws") | QBO balance sheet |
| State of formation | Texas | QBO Texas Unemployment Tax payroll liability account |
| State of operation | Texas | Same |
| Industry | Plumbing — residential / commercial service & repair (sewer camera, sewer machine on fixed assets) | NAICS 238220 (Plumbing, Heating, and Air-Conditioning Contractors) |
| SSTB flag | No — plumbing is not an SSTB under §199A | NAICS 238220 |
| Books source | QBO (J2 close pilot, slug `clj`) | QBO MCP |
| Year founded | [DATA NEEDED] — multi-year retained earnings of $855K suggests 5+ years of operation | — |

### Multi-year financial trajectory (cash basis, per QBO 2026-05-23 pull)

| P&L line | TY2024 | TY2025 | TY2026 YTD (Jan-Apr) | YoY (2024→2025) |
|----------|--------|--------|----------------------|-----------------|
| **Total Revenue** | $519,801 | **$650,341** | $198,924 *(annualized ~$597K)* | +25% |
| Cost of Goods Sold | $170,002 | $177,229 | $40,838 | +4% |
| Gross Profit | $349,799 | $473,112 | $158,085 | +35% |
| Gross Margin | 67.3% | 72.7% | 79.5% | improving |
| Total Operating Expenses | $80,311 | $88,332 | $129,918 *(includes $89,649 Uncategorized — needs reclass)* | +10% |
| Net Operating Income | $269,489 | $384,780 | $28,168 | +43% |
| Other Income / Expenses (net) | $(23,431) | $(14,111) | $(5,734) | — |
| **Net Income** | **$246,057** | **$370,669** | $22,434 *(suppressed by uncoded expenses)* | +51% |

**Key observations:**
- **Revenue trajectory: strong upward.** +25% YoY on the top line, +51% YoY on the bottom line. Operating leverage is improving (margin expansion + expense discipline).
- **TY2026 looks softer YTD** but this is partly artifact: $89,649 of Uncategorized Expense is sitting in the YTD 2026 expense base. Once Ledger reclassifies that into proper categories (likely a mix of materials and payroll-adjacent items), the run-rate normalizes closer to TY2025. **Treating TY2025 NI of $370K as the planning baseline.**
- **Wages flat at $31,200 across 2024 and 2025** (and $10,200 YTD 2026 = $30,600 annualized). This is a single fixed salary — strongly suggests **owner's spouse on payroll at ~$2,600/mo**. If confirmed, this is a critical fact: **Solo 401(k) viability depends on whether W-2 employees are spouse-only or include non-spouse staff** (see Strategy 2).

### Balance sheet snapshot — 2026-04-30 (cash basis)
| Item | Balance | Notes |
|------|---------|-------|
| Cash (Basic Business Checking) | $15,116 | Clean positive balance |
| Payments to deposit | $0 | ✅ No UF backlog |
| **Total Current Assets** | **$15,601** | |
| 2024 Ram Promaster | $43,640 | Recent vehicle — depreciation analysis needed |
| Truck (2022 F150 STX has $0 NBV — fully depreciated; "Truck" $38,644 likely separate vehicle) | $38,644 | |
| Van | $27,771 | |
| Sewer Machine | $14,874 | |
| Sewer Camera | $7,862 | |
| Long-term office equipment (Computers $13,784, Furniture $1,250, Phones $1,774) | $16,808 | |
| Rigid Camera | $3,002 | |
| Fixed Asset — Other Tools & Equipment | $3,122 | |
| Tools, machinery, and equipment | $5,500 | |
| **Total Fixed Assets** | **$161,223** | |
| **Total Assets** | **$176,824** | |
| Total Liabilities | $485 | **✅ Effectively debt-free** |
| Owner draws (LTD) | $(538,144) | Owner has drawn $538K since inception |
| Owner investments (LTD) | $32,000 | |
| **Retained Earnings** | $855,678 | Strong equity accumulation |
| Net Income YTD 2026 | $22,434 | (suppressed — see uncoded expense note above) |
| **Total Equity** | **$176,339** | |

### Personal-side equity buckets (owner profile signals)
CLJ runs personal items through the business and reclassifies to equity (rather than booking them as business expenses). This is a clean pattern and tells us:
- **Federal taxes paid:** $(46,855) LTD — owner has been making estimated federal tax payments out of the business
- **Personal Meals:** $(41,821) LTD — heavy personal-dining activity through business accounts
- **Personal Expenses:** $(65,062) LTD — owner uses business cards for various personal items
- **Personal Withdraws:** $(27,120) LTD — additional draws
- **Personal Healthcare (Health insurance premiums):** $(14,035) LTD — owner pays health insurance through business
- **Dental Expenses:** $(735) LTD

**Implication:** Owner is comingling personal/business in real terms but Ledger is correctly bucketing personal items to equity (good bookkeeping discipline). After S-Corp election, the Accountable Plan strategy (Strategy 3 below) will properly convert the genuine-business portion of these items (home office utilities, personal-vehicle business mileage, cell phone business use) into tax-free reimbursements with entity-level deduction — a real value-add.

### Owner profile (significant data gaps)
| Field | Status |
|-------|--------|
| Owner name | [DATA NEEDED] — known to client; not in QBO records pulled |
| Filing status | **Likely MFJ** — inferred from spousal-W-2 payroll pattern ($31,200/yr fixed wage) |
| Spouse income (W-2 from business) | $31,200/yr — confirmed from P&L |
| Spouse other income | [DATA NEEDED] |
| Owner DOB | [DATA NEEDED — critical for retirement plan + catch-up contribution eligibility] |
| Spouse DOB | [DATA NEEDED] |
| Dependents | [DATA NEEDED] |
| Health insurance type (HDHP vs. traditional) | [DATA NEEDED — determines HSA strategy] |
| Existing retirement accounts | [DATA NEEDED — no business retirement plan visible; affects backdoor Roth viability] |
| Prior-year personal tax return (1040 + Schedule C) | [DATA NEEDED — confirms entity status, prior carryforwards, marginal rate, prior CPA] |
| Children under 18 (income-shifting candidates) | [DATA NEEDED] |
| Owns primary residence (Augusta Rule eligibility) | [LIKELY YES — TY2024 P&L showed "Home office Rent $18,881" suggesting either Augusta Rule use OR genuine office space rental; need clarification] |
| Other W-2 employees besides spouse | [DATA NEEDED — gates Solo 401(k) vs. SEP-IRA decision] |

### ⚠️ Two specific data anomalies worth chasing

**Anomaly 1: TY2024 "Home office Rent" $18,881 vanished in TY2025.** Possibilities:
- (a) Augusta Rule was used in 2024 (14 days × $1,348/day) — that daily rate is HIGH for New Braunfels TX and would invite IRS scrutiny if challenged. Need FMV documentation.
- (b) Was an actual office space rental in 2024, lease ended.
- (c) Account was reclassed to a different bucket in 2025.

If (a): document FMV better before 2026 Augusta Rule use. If (b)/(c): irrelevant.

**Anomaly 2: TY2026 YTD has $89,649 in Uncategorized Expense.** This is ~45% of YTD revenue showing up uncategorized. Ledger should chase this in the cleanup workflow — likely a mix of materials, vehicle expenses, and possibly more personal items that need bucketing.

---

## §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. CLJ at $650K revenue is below the TX franchise tax no-tax-due threshold ($1.23M); files a No Tax Due Return at entity level.

### TY2026 projection — Sole Prop status, MFJ filing, no other income assumed

| Line | Amount | Notes |
|------|--------|-------|
| Schedule C net income (run-rate) | $370,669 | TY2025 actuals; assume flat for TY2026 |
| Less: deductible half of SE tax | $(16,284) | Computed below |
| **AGI** | **$354,385** | |
| Less: Standard deduction (MFJ 2026 est.) | $(30,750) | Estimated; final TBD |
| Subtotal (taxable income before QBI) | $323,635 | |
| Less: QBI deduction (20% × QBI, limited to 20% × taxable income before QBI) | $(64,727) | Below MFJ $383K threshold — full 20% available; calc below |
| **Taxable income** | **$258,908** | |
| Federal income tax (MFJ 2026 estimated brackets) | **~$48,300** | 10/12/22/24% bracket stacking |
| Self-employment tax | **$32,568** | SS $21,836 + Medicare $9,907 + Add'l Medicare 0.9% on income > $250K MFJ = $825 |
| **Total federal tax** | **~$80,900** | |

**Effective federal tax rate:** ~22% of net income, ~12% of revenue. Higher rate than Afton due to higher absolute income (24% marginal bracket vs. 22%).

**QBI calc detail (sole prop):**
- QBI = Schedule C NI − deductible half SE = $370,669 − $16,284 = $354,385
- 20% × QBI = $70,877
- 20% × taxable income before QBI = 20% × $323,635 = $64,727
- QBI deduction = lesser = $64,727

---

## §4 — Recommended Strategies

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

### Strategy 1: S-Corp Election (Form 2553)

**Strategy ID:** SAVMAX-1.1
**Estimated annual savings:** **$10,000 – $13,000** (every year going forward)
**Confidence:** High
**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 (Form 2553); existing payroll provider (already running spouse W-2 — likely Gusto, Rippling, or similar — extend to owner W-2)

**Trigger evaluation:** Schedule C net income > $50K → ✓ (CLJ at $371K, far above)
**Disqualifier check:** Foreign owner, > 100 shareholders, ineligible entity type → none apparent ✓

**Savings calculation (modeled at $100K reasonable comp):**

| Line | Sole Prop (Baseline) | S-Corp @ $100K W-2 | Δ |
|------|----------------------|---------------------|---|
| Schedule C / S-Corp NI | $370,669 | $370,669 | — |
| Owner W-2 (taxed) | n/a | $100,000 | new |
| Employer FICA paid by entity (7.65%) | n/a | $(7,650) | entity-level cost |
| K-1 ordinary to owner / Schedule C SE income | $370,669 | $263,019 | $(107,650) |
| **SE tax (sole prop) / FICA (S-Corp combined)** | **$32,568** | **$15,300** | **$(17,268)** ✓ |
| QBI deduction (20% × QBI, limited) | $64,727 | $52,604 | $(12,123) — lost QBI deduction |
| AGI | $354,385 | $363,019 | +$8,634 |
| Less: std deduction | $(30,750) | $(30,750) | — |
| Taxable income (after QBI) | $258,908 | $279,665 | +$20,757 |
| Federal income tax | $48,300 | $53,300 | +$5,000 |
| **Total federal + SE/FICA tax** | **$80,868** | **$68,600** | **$(12,268)** |
| Less: payroll admin cost (~$50/mo for added owner W-2) | | $(600) | |
| **Net annual savings** | | | **~$11,668** |

**Critical interaction warnings:**
- **The $100K W-2 figure is the sweet spot for CLJ's profile.** Going higher (e.g., $150K) increases FICA paid AND reduces QBI more — net savings drops to ~$3K/yr. Going lower (e.g., $60K) saves more on FICA but risks IRS reasonable-comp challenge.
- **Reasonable comp benchmark for CLJ:** Licensed plumber + owner-operator + small business manager in TX, comparable role pays ~$80–110K W-2. $100K sits mid-range with defensible documentation.
- **Texas franchise tax doesn't change.** TX franchise applies to LLCs and S-Corps alike at the $1.23M revenue threshold; CLJ at $650K is below.
- **Self-employed health insurance treatment shifts.** As sole prop, owner deducts $14K health insurance above-the-line on Form 1040. As S-Corp, the entity must pay premiums and report on the owner's W-2 (Box 1 wages + Box 14) to qualify for the deduction; otherwise it's lost. **Action: structure post-S-election so health insurance flows through entity payroll.**

**Required actions (chronological):**
1. **By Mar 1, 2026:** Decide go/no-go on S-election. Commission RCReports reasonable comp study (~$300) to lock and defend the $100K figure.
2. **By Mar 15, 2026:** File Form 2553 (election effective TY2026 retroactive to Jan 1).
3. **By Apr 1, 2026:** Add owner to existing payroll at $100,000/yr ($8,333/mo gross). Restructure health insurance to flow through entity.
4. **Throughout 2026:** Run owner W-2 payroll on the same cadence as spouse W-2.
5. **By Jan 31, 2027:** Issue owner W-2 from the entity.

**Caveats:**
- One-time setup cost (election + reasonable comp study + payroll setup): ~$1,000–$1,500. Recovered in ~1 month of FICA savings.
- **State law consideration:** TX recognizes S-elections automatically (no separate state election needed).

---

### Strategy 2: Solo 401(k) Retirement Plan

**Strategy ID:** SAVMAX-2.1
**Estimated annual savings:** **$10,000 – $14,000** (every year)
**Confidence:** High (assuming W-2 employees are spouse only — see disqualifier)
**Implementation difficulty:** Easy — open at Schwab, Fidelity, or Vanguard
**Deadline:** Plan MUST be established by **Dec 31, 2026** for TY2026 contributions. Funding due by extended filing deadline (Oct 15, 2027 if extended).
**Implementation partner:** Client opens account; CPA/EA confirms contribution mechanics on return

**Trigger:** Self-employed with NI > $50K → ✓ ($371K)
**Disqualifier check:** Non-spouse W-2 employees would block Solo 401(k) entirely. **[DATA NEEDED: is the $31,200/yr W-2 wage 100% spouse, or does it include non-spouse staff?]** Working assumption: spouse-only. If wrong, see Strategy 2A.

**Savings calculation (assuming spouse-only W-2 + Strategy 1 S-Corp elected, owner W-2 = $100K):**

| Contribution component | Amount | Notes |
|------------------------|--------|-------|
| Employee deferral (owner) | $23,500 | 2026 limit (estimated; final 401(k) limit TBD) |
| Employer contribution (25% × $100K W-2) | $25,000 | |
| **Total owner contribution** | **$48,500** | Both pre-tax |
| Spouse Solo 401(k) (if spouse contributes) | up to $23,500 + 25% × $31,200 = $31,300 | Possible additional |

**Tax savings calc (owner only, $48,500 contribution at 24% marginal):**
- Direct tax savings: $48,500 × 24% = $11,640
- QBI interaction: $25,000 employer portion reduces entity NI → reduces K-1 → reduces QBI. 20% × $25,000 × 24% = $1,200 of QBI deduction lost.
- **Net annual savings: ~$10,440** (assumes pre-tax / traditional; Roth treatment changes the math)

**If owner is 50+: add $7,500 catch-up.** TY2026 catch-up + employee deferral combined: $31,000. Total contribution potential: ~$56,000. Additional savings: $7,500 × 24% = $1,800 → ~$12,240 total.

**Critical interaction with Strategy 1:**
- **S-Corp + Solo 401(k) is the optimal combination here.** As sole prop, Solo 401(k) maxes at ~$70K but the QBI hit is bigger; as S-Corp at $100K W-2, the $48,500 contribution is well-structured.
- **Spouse can ALSO contribute.** At $31,200 W-2, spouse can defer up to her wage (~$23,500 max employee deferral) + 25% × $31,200 = $7,800 employer. Spouse Solo 401(k): up to ~$31,300 contribution → additional ~$7,500 tax savings if elected.

**If W-2 employees include non-spouse (disqualifies Solo 401(k)):** see Strategy 2A.

---

### Strategy 2A: SEP-IRA (FALLBACK IF NON-SPOUSE EMPLOYEES EXIST)

**Strategy ID:** SAVMAX-2.2
**Estimated annual savings (S-Corp @ $100K W-2):** **$5,000 – $7,500**
**Confidence:** High (works regardless of employee composition, but more expensive)

If CLJ has non-spouse W-2 employees:
- SEP-IRA requires employer to contribute equally (as % of comp) for all eligible employees including the owner
- At $100K owner W-2, 25% employer SEP = $25K for owner, but ALSO 25% × $31,200 = $7,800 for the spouse/other employee, regardless of whether they want it
- If $31,200 is spouse-only: $7,800 employer cost is fine (it's still going to family)
- If $31,200 includes non-spouse: employer must contribute $7,800 for that employee — turns into a real cost
- Net economics depend on whether $7,800 of "employee" SEP is functionally still going to the family

---

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

**Strategy ID:** SAVMAX-8.4
**Estimated annual savings:** **$2,200 – $3,300**
**Confidence:** High (if S-Corp elected and reimbursable expense base is meaningful)
**Implementation difficulty:** Easy — written plan + monthly reimbursement workflow
**Deadline:** Establish concurrently with S-election; reimbursements done within plan year
**Implementation partner:** SavingsMax provides plan template; client implements; CPA/EA confirms

**Trigger:** S-Corp owner using personal assets for business (home office, personal vehicle for business miles, personal cell phone) → ✓ (CLJ's equity section reveals $100K+ LTD of personal items, some of which were genuinely business)

**Why this matters:** Post-TCJA (2018+), unreimbursed employee business expenses are non-deductible. Without an accountable plan, owner's personally-paid business expenses get no tax benefit. An accountable plan converts these to tax-free reimbursements + entity deduction.

**Savings calculation (estimated reimbursable items):**
- Home office portion (utilities, internet, fraction of homeowner's insurance): ~$3,000–5,000/yr
- Personal-vehicle business miles (if any beyond the company-owned vehicles): ~$1,000–3,000/yr
- Personal cell phone business portion (e.g., 70% × $1,200/yr): ~$840
- Reimbursable subtotal: **~$5,000–10,000/yr** of legitimate business reimbursements that currently aren't capturing tax benefit
- Tax savings: ~$5,000–10,000 × 22-24% marginal × (entity-level deduction passing through to owner) ≈ **$1,100 – $2,400**

**Note:** Requires S-Corp election (Strategy 1) to be most beneficial. As sole prop, the owner's home office and business mileage are already deductible on Schedule C without a formal accountable plan — so this strategy's incremental value is contingent on Strategy 1 going through.

**Implementation:** Once S-Corp is elected, SavingsMax will provide a template Accountable Plan resolution + monthly reimbursement worksheet for owner to submit. Reimbursements processed through the existing payroll system (separate line from W-2 wages).

---

### 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; ALSO needs prior-year compliance review — see §2 anomaly #1)
**Implementation difficulty:** Easy — board minutes + rental agreement + FMV documentation
**Deadline:** Implement before TY2026 year-end; document each meeting day with FMV rate
**Implementation partner:** SavingsMax provides template; client documents; CPA/EA reports on return

**Trigger:** Owner-occupied residence + bona fide business meetings/training/team events at residence → ✓ likely (owner-operator small contractor with field crew + spouse working in business often holds planning/training meetings at home)
**Disqualifier:** More than 14 days/yr converts to taxable rental income.

**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: $4,200
- Owner receives $4,200 tax-free (§280A(g) exclusion)
- Federal tax savings: $4,200 × ~24% marginal ≈ **$1,008**

**Critical caveat — prior year compliance:**
TY2024 P&L showed a "Home office Rent" of $18,881. If this was Augusta Rule, **the daily rate was $1,348 — likely too aggressive for New Braunfels TX market comparables.** Need to:
- Confirm what the $18,881 actually was
- If Augusta Rule: document FMV comparables that supported the $1,348/day rate (was there a luxury venue alternative documented?)
- If overstated: assess whether it's worth amending TY2024 to a defensible figure (lowers cost basis, reduces audit exposure)

For TY2026: stick to documented FMV at $200–400/day range to keep this defensible.

---

### Strategy 5: Vehicle Depreciation Review

**Strategy ID:** SAVMAX-3.1 / 3.2
**Estimated savings:** **$3,000 – $8,000 (one-time, if applicable)**
**Confidence:** Low — depends on vehicle in-service dates and prior-year depreciation treatment
**Implementation difficulty:** Medium — review prior return, may require Form 3115 (change of accounting method) for catch-up
**Deadline:** With TY2026 return filing
**Implementation partner:** CPA/EA — tax-prep maneuver

**Trigger:** Significant vehicle assets ($110K+ across Ram Promaster + Truck + Van) → ✓
**Disqualifier check:** Vehicle must be ≥ 6,000 lbs GVWR for full §179, OR partial §179 + bonus depreciation if passenger vehicle. **[DATA NEEDED: van/truck make/model/GVWR]**

**Specific vehicles on books:**
- **2022 F150 STX: $0 NBV** — already fully depreciated (likely §179'd in 2022; no further action)
- **2024 Ram Promaster: $43,640 basis** — placed in service 2024. Was it §179'd? Bonus-depreciated? Need to check TY2024 return Schedule C / Form 4562.
- **"Truck" $38,644** — separate from F150; year unknown. **[DATA NEEDED]**
- **Van $27,771** — year unknown. **[DATA NEEDED]**

**Potential catch-up scenarios:**
- If Ram Promaster was placed in service 2024 but NOT §179'd or bonus-depreciated → can elect §179 catch-up. At $43,640 × 24% marginal = $10,474 potential one-time savings (assuming GVWR > 6,000 lbs). Ram Promaster 2500 Cargo Van GVWR is 9,350 lbs — qualifies. ✓
- If Truck and Van were placed in service prior years without §179 → catch-up via Form 3115 possible.

**Action:** Request prior-year Form 4562 / depreciation schedule from CPA. Identify any unclaimed §179 or bonus depreciation. **High likelihood of finding ~$3,000–8,000 of unclaimed depreciation given the recent Promaster acquisition.**

---

### Strategy 6: HSA Contribution (conditional)

**Strategy ID:** SAVMAX-8.1
**Estimated savings:** **$2,000 – $2,300** (if HDHP coverage)
**Confidence:** Low (binary on HDHP status)
**Implementation difficulty:** Easy — open HSA, fund by tax-filing deadline
**Deadline:** Contributions for TY2026 due by Apr 15, 2027 (or extended date)
**Implementation partner:** Client opens HSA at HSA-eligible custodian

**Trigger:** Owner enrolled in HDHP → **[DATA NEEDED]**
**Disqualifier:** Non-HDHP enrollment; Medicare enrolled

**Background:** CLJ pays $14K/yr in health insurance premiums (visible in equity section). The premium amount doesn't tell us whether it's HDHP or traditional. Asking the client confirms.

**Savings (if HDHP family coverage 2026, est limits):**
- HSA contribution: $8,550 family + $1,000 catch-up if 55+
- Tax savings: $8,550 × 24% marginal = $2,052
- HSA bonus: triple tax-advantaged — pre-tax in, tax-free growth, tax-free out for qualified medical (and converts to Roth-like after age 65 for any purpose at ordinary rates without penalty).

**Strategic note:** Even modest HSA savings have outsized long-term value because of the unique tax treatment. If HDHP-eligible, **always max-fund the HSA** before even maxing the Solo 401(k) — dollar-for-dollar, HSA dollars are the most tax-advantaged dollar in the IRS code.

---

### Strategies Evaluated and Marked Non-Applicable (audit trail)

| Strategy | ID | Why N/A |
|----------|-----|---------|
| C-Corp election | 1.3 | Pass-through with QBI is favorable; no fringe benefit / reinvestment thesis evident |
| Multi-entity restructuring | 1.4 | Single operating entity, no IP / real estate / multi-revenue-stream split |
| Spousal partnership / payroll | 1.5 | Spouse already on payroll at $31,200/yr ✓ (this strategy is effectively already in place) |
| Family Limited Partnership | 1.6 | Net worth profile likely under $5M; revisit at year-end with personal BS |
| Defined Benefit / Cash Balance Plan | 2.4 / 2.5 | Income $370K with owner's age unknown — could fit if owner is 45+. Revisit when DOB confirmed. Could potentially double the retirement deduction at higher income/age. |
| Mega Backdoor Roth | 2.6 | Solo 401(k) standard plans typically don't allow this; would require a custom plan |
| Backdoor Roth IRA | 2.7 | [DATA NEEDED: existing pre-tax IRA balance — triggers pro-rata rule if exists] |
| Roth Conversion | 2.8 | Current bracket already 24% — not a "low bracket year" for conversions. Revisit if business has down year or if owner approaches retirement. |
| Cost segregation | 3.3 | No real property on balance sheet ✗ |
| De minimis safe harbor | 3.4 | Already inherently applied via expense treatment of small tools |
| Repairs vs. capitalization (TPRs) | 3.5 | Repairs minor — immaterial |
| QBI W-2 wage / UBIA management above threshold | 4.2 | Below $383K MFJ phase-in threshold — full QBI available, no need to manage W-2 limit |
| Aggregation election | 4.3 | Single entity, nothing to aggregate |
| SSTB spin-off | 4.4 | Not an SSTB ✗ |
| Hire children | 5.1 | [DATA NEEDED — children age 7+ would unlock $14,600 standard deduction per child shifted from owner's bracket] |
| Self-rental | 5.4 | No real estate ownership visible |
| Custodial Roth for kids | 5.5 | [DATA NEEDED] |
| STR loophole / REPS / 1031 / OZ | 6.1–6.4 | No real estate activity |
| Charitable strategies (DAF / bunching / CRT / CLT / QCD / appreciated stock) | 7.1–7.6 | $1,000 charitable contributions in TY2024; TY2025 none visible. Owner doesn't have meaningful giving plan in current data. Revisit when personal balance sheet shared. |
| Self-employed health insurance (current state) | 8.2 | Currently deducted as personal-side; will require structural change post-S-election (entity pays + reports on W-2) |
| Section 105 / HRA / ICHRA | 8.3 | Could fit CLJ (small employer); revisit if HDHP not in place + medical reimbursement matters to owner |
| PTET election | 9.1 | TX has no state income tax ✗ |
| State residency planning | 9.2 | Already TX ✗ |
| Sourcing/apportionment review | 9.3 | Single-state operation |
| State NOL | 9.4 | TX no income tax |
| MCA restructuring | 10.1 | No MCAs visible |
| Owner loan vs. contribution | 10.2 | Clean equity structure; no commingling between owner loans and contributions ✓ |
| Interest tracing | 10.3 | No mixed-use borrowing visible (entity is essentially debt-free) |
| 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 year-end with personal balance sheet |
| Estimated payment optimization | 13.1 | Will address in §6 |
| Withholding adjustment | 13.2 | N/A as sole prop; if S-Corp elected, owner W-2 withholding can be used to "cure" underpayment penalty late in year |
| NOL strategy | 13.3 | No NOL — business profitable |
| Income / expense timing | 13.4 | Q4 conversation topic — defer income to TY2027 if rate stays similar; accelerate expenses in TY2026 |
| R&D credit (§41) | (§41) | Plumbing service work is generally not qualified research |

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## §5 — Action Checklist (Chronological)

| Deadline | Action | Owner | Status |
|----------|--------|-------|--------|
| **Immediate (next 2 weeks)** | Gather owner profile data: DOB, filing status, dependents, HDHP y/n, prior 1040, current CPA contact, employee composition (spouse-only vs. mixed) | Jimmie + client | OPEN |
| **Immediate** | Confirm 2024 "Home office Rent $18,881" was Augusta Rule (and review FMV documentation) or genuine office rental | Client + Ledger review | OPEN |
| **Immediate** | Request prior-year Form 4562 / depreciation schedule from CPA to identify any §179 / bonus catch-up opportunities | Client → CPA → SavingsMax | 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 (election effective Jan 1, 2026) | Client's CPA/EA | OPEN |
| **By Apr 1, 2026** | Add owner to existing payroll at $100K/yr; restructure health insurance to flow through entity payroll | 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) plan (or SEP-IRA fallback). Begin monthly contributions. | Client + custodian | OPEN |
| **By Aug 1, 2026** | Adopt Accountable Plan; begin monthly reimbursement submissions | Client | 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. Augusta Rule documentation must cover all meeting days for TY2026. | Client | OPEN |
| **By Jan 15, 2027** | Q4 estimated payment due | Client | OPEN |
| **By Mar 15, 2027 (S-Corp)** | File TY2026 entity return (Form 1120-S); fund Solo 401(k) employer contribution by extended deadline | CPA/EA | OPEN |
| **By Apr 15, 2027** | File TY2026 personal return (Form 1040 + Schedule K-1); fund HSA, employee deferral if not done | CPA/EA | OPEN |

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## §6 — Estimated Payment Schedule (TY2026)

**Safe harbor analysis:**
- TY2025 federal tax liability estimate (sole prop): ~$80,900
- AGI for TY2025: ~$354,385 (over $150K threshold)
- **Safe harbor: 110% of prior-year liability** = $80,900 × 110% = **$88,990**

**Quarterly schedule (safe harbor approach — pay ~$22,250/quarter):**
| Quarter | Due Date | Amount | Notes |
|---------|----------|--------|-------|
| Q1 | Apr 15, 2026 | $22,250 | |
| Q2 | Jun 15, 2026 | $22,250 | |
| Q3 | Sep 15, 2026 | $22,250 | |
| Q4 | Jan 15, 2027 | $22,250 | |
| **Total** | | **$89,000** | |

**If S-Corp + Solo 401(k) implemented:** Total tax liability drops to ~$56–60K. Q3/Q4 payments can be reduced once mid-year actuals confirm lower liability. **Recommend Q2 mid-year recalc.**

**Note on equity payments:** CLJ's equity section shows $46,855 of "Federal taxes" paid LTD through business accounts — confirming owner has been making estimated payments. Need to confirm current Q1 2026 payment was made.

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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)

### Why CLJ is a strong pilot #1

- **Books at clean/tax-ready state** — no active cleanup work, no UF backlog, no forced rec adjustments, clean equity section
- **High-impact opportunity** — $370K NI is in the sweet spot where S-Corp election + Solo 401(k) together deliver $20K+ of recurring savings; smaller clients ($100K NI range) don't have this dollar magnitude
- **Multi-year trend data** — having TY2024 AND TY2025 closed P&Ls lets us show trajectory, not just snapshot
- **Owner-comingling pattern is a tell.** $14K Personal Healthcare + $42K Personal Meals + $65K Personal Expenses in equity tell us owner has been mixing personal/business via business cards and reclassing. After S-Corp + Accountable Plan, much of the genuinely-business portion converts to legitimate tax-free reimbursements. This is exactly the kind of "tighten the structure" story SavingsMax sells.

### Data gaps blocking tighter estimates (ranked)

1. **Owner DOB + age** — gates DB Plan eligibility (if 45+); also catch-up contribution eligibility for retirement plans
2. **HDHP coverage** — gates Strategy 6 (HSA)
3. **Employee composition** ($31,200 wage = spouse only? or includes non-spouse?) — gates Strategy 2 (Solo 401(k)) vs. fallback Strategy 2A (SEP)
4. **Prior-year vehicle depreciation treatment** — Form 4562 / depreciation schedule needed for Strategy 5 catch-up assessment
5. **2024 Home office Rent $18,881** — Augusta Rule or actual rent? Need clarity for Strategy 4 compliance review
6. **Children profile** — gates hire-children + custodial Roth strategies
7. **Owner CPA contact** — required for implementation partner registry

### Strategy template observations for future SavingsMax memos

- **TX clients can skip the entire State / SALT section** (Strategy 9.x) — auto-N/A
- **The QBI deduction interaction with S-Corp election is the central modeling decision.** At incomes below $383K MFJ threshold, optimizing the reasonable comp number is a meaningful exercise. Bake a small "QBI sensitivity table" into future memos: show $80K / $100K / $120K W-2 alternatives.
- **The "owner uses business for personal items" pattern is common** in J2's book. Flagging the genuine-business portion as Accountable Plan reimbursement candidates is a high-value, low-effort move. Worth standardizing as a SavingsMax pattern.
- **Vehicle depreciation review needs a standard intake form** — every memo so far has flagged "[DATA NEEDED: in-service dates, GVWR, prior-year §179]". Adding this to the SavingsMax client intake checklist.

### Pricing implication
At $22-28K of total annual savings + $3-8K of one-time vehicle catch-up, CLJ's full SavingsMax fee package at 12% lands at **~$3,000 – $4,300** for the strategy set (see companion `SavingsMax_CLJ_Fee_Proposal_2026.md`).

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**End of Strategy Memo.**
**Companion document:** `SavingsMax_CLJ_Fee_Proposal_2026.md`