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

**Plan year:** 2026
**Plan reference #:** SM-CLJ-2026-001 (Rev. 2)
**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.**

> **Revision history:**
> - **Rev. 2 (2026-05-23):** Owner profile corrected to **Single, age 30** (previously assumed MFJ). Strategy savings and projections rebuilt for Single status at 32% marginal bracket. Solo 401(k) reclassified as disqualified (non-spouse W-2 employee inferred); SEP-IRA / SIMPLE IRA elevated as retirement strategy. DB Plan demoted to N/A (age-dependent — revisit at 45+). Added: §45E Retirement Plan Startup Credit, Backdoor Roth IRA, HRA/ICHRA. Removed: spousal-payroll-related logic.
> - **Rev. 1 (2026-05-23):** Initial draft based on MFJ assumption (incorrect).

> **Internal note (not for client):** This memo serves as the gold-standard template for the remaining 4 pilots. The single most important lesson from the v1 → v2 rebuild: **filing status + age are intake fields that gate the entire strategy math.** Never assume MFJ or guess age — collect on intake.

---

## §1 — Executive Summary

**Projected 2026 federal tax liability (pre-strategy, Sole Prop status):** ~**$117,000**
(Substantially higher than my v1 estimate — single filers hit higher brackets sooner AND fully lose the QBI deduction phase-out at $247K AGI)

**Total potential annual tax savings identified:** **$36,000 – $48,000** (recurring) **+ $19,000 – $24,000** (one-time, primarily §45E retirement plan startup credit + vehicle depreciation catch-up)

**Recommended priority strategies (ranked by year-1 dollar impact):**
1. **S-Corp election** — annual savings **$28,000 – $29,000** (every year going forward)
2. **SEP-IRA retirement plan** (Solo 401(k) blocked by non-spouse employee) — annual savings **$6,000 – $9,000**
3. **§45E Retirement Plan Startup Credit** — **$15,500 total credit** over the first 3 years of the new plan
4. **Backdoor Roth IRA** — **$2,200/yr** current tax-equivalent value, **substantial lifetime value** at age 30
5. **HSA contribution** (conditional on HDHP) — **$1,400/yr** current + invested compounds to ~$200K+ by retirement
6. **Accountable Plan** (paired with S-Corp) — **$1,600 – $3,200/yr**
7. **Augusta Rule** — **$1,300/yr**
8. **Vehicle depreciation catch-up** — **$3,000 – $8,000 one-time**

**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 effective for TY2026. This is the highest-leverage strategy and the most time-sensitive.

---

## §2 — Current Situation Snapshot

### Entity stack
| Field | Value | Source |
|-------|-------|--------|
| Legal entity | CLJ Plumbing | QBO records |
| Federal tax classification | **Sole Proprietor (Schedule C)** | Equity-section language ("Owner draws", "Owner investments", "Personal Withdraws") |
| State of formation | Texas | QBO Texas Unemployment Tax payroll liability |
| State of operation | Texas | Same |
| Industry | Plumbing — residential / commercial service & repair | NAICS 238220 |
| 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 RE of $855K suggests 5+ years operation | — |

### Multi-year financial trajectory (cash basis)

| P&L line | TY2024 | TY2025 | TY2026 YTD | YoY (24→25) |
|----------|--------|--------|------------|-------------|
| **Revenue** | $519,801 | **$650,341** | $198,924 *(annualized ~$597K)* | +25% |
| COGS | $170,002 | $177,229 | $40,838 | +4% |
| Gross Profit | $349,799 | $473,112 | $158,085 | +35% |
| Operating Expenses | $80,311 | $88,332 | $129,918 *($89K uncategorized — needs reclass)* | +10% |
| Net Operating Income | $269,489 | $384,780 | $28,168 *(suppressed by uncoded expenses)* | +43% |
| Other Income / Expenses | $(23,431) | $(14,111) | $(5,734) | — |
| **Net Income** | **$246,057** | **$370,669** | $22,434 *(suppressed)* | +51% |

**Trajectory:** strong upward, +25% revenue / +51% NI YoY 2024→2025. TY2026 underlying run-rate appears similar to TY2025 once Uncategorized Expense is reclassified.

### Owner profile (data captured + remaining gaps)
| Field | Value | Source |
|-------|-------|--------|
| **Filing status** | **Single** | Owner confirmed 2026-05-23 |
| **Age** | **30** | Owner confirmed 2026-05-23 |
| Spouse | None (single) | — |
| Dependents | [DATA NEEDED — if any, may shift to Head of Household] | — |
| Children under 18 (income-shifting candidates) | [DATA NEEDED] | — |
| Health insurance type (HDHP vs. traditional) | [DATA NEEDED — determines HSA strategy] | $14K/yr health insurance visible in equity |
| Existing retirement accounts | [DATA NEEDED — affects Backdoor Roth viability via pro-rata rule] | None visible on business books |
| Prior-year personal tax return (1040 + Schedule C) | [DATA NEEDED] | — |
| Owns primary residence (Augusta Rule) | [DATA NEEDED] | — |
| Owner CPA / EA of record | [DATA NEEDED] | $8,383 in accounting fees TY2025 indicates active relationship |
| **W-2 employee composition** | **[CRITICAL DATA GAP] — likely non-spouse** since owner is single | $31,200/yr fixed wage visible; if non-spouse, blocks Solo 401(k) |

### ⚠️ Why the W-2 employee identity matters now (Single status changes this)
The $31,200 wage on the books was previously interpreted as "spouse on payroll." With Single status confirmed, that interpretation breaks. The wage is now most likely a **non-spouse employee** (admin, part-time helper, family member other than spouse). This has a critical consequence:

- **Solo 401(k) requires NO non-spouse W-2 employees.** With a non-spouse employee, Solo 401(k) is **disqualified entirely**. Owner must use SEP-IRA or SIMPLE IRA instead.
- **SEP-IRA requires equal-percentage employer contributions for all eligible employees.** This shifts the economics of the retirement strategy.

[DATA NEEDED: confirm whether the $31,200 employee is family (parent, sibling, child) or completely unrelated, AND whether they meet SEP-IRA eligibility requirements (age 21+, worked 3 of last 5 years, > $750 comp).]

### ⚠️ Two specific data anomalies worth chasing (carried from Rev. 1)

**Anomaly 1: TY2024 "Home office Rent" $18,881 vanished in TY2025.** Possibilities:
- (a) Augusta Rule was used in 2024 (14 days × $1,348/day) — high daily rate, possibly aggressive; need FMV documentation.
- (b) Was an actual office space rental in 2024, lease ended.
- (c) Account was reclassed to a different bucket in 2025.

**Anomaly 2: TY2026 YTD has $89,649 in Uncategorized Expense** — Ledger should reclassify in cleanup workflow.

### Personal-side equity buckets (owner profile signals)
| Bucket (LTD) | Amount | Insight |
|---|---|---|
| Owner draws | $(538,144) | Heavy lifetime draw activity |
| Owner investments | $32,000 | Modest capital contribution |
| Personal expenses | $(65,062) | Owner runs personal items through business |
| Personal Meals (personal) | $(41,821) | Heavy personal dining via business |
| Federal taxes paid | $(46,855) | Owner has been making estimated tax payments |
| Personal Healthcare (premiums) | $(14,035) | Health insurance paid via business |
| Personal Withdraws | $(27,120) | Additional draws |
| Dental Expenses | $(735) | Minor personal |

Owner has clean equity discipline (personal items properly reclassed to equity, not buried in expenses). Some legitimate-business items in here can be converted to tax-free Accountable Plan reimbursements post-S-election (Strategy 6).

---

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

**Caveat:** TX has no personal income tax. CLJ at $650K revenue is below the TX franchise tax threshold ($1.23M); files No Tax Due Return at entity level.

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

| Line | Amount | Notes |
|------|--------|-------|
| Schedule C net income | $370,669 | TY2025 actuals; assume flat for TY2026 |
| Less: deductible half of SE tax | $(16,284) | Below |
| **AGI** | **$354,385** | |
| Less: Standard deduction (Single 2026 est.) | $(15,375) | |
| Subtotal | $339,010 | |
| Less: QBI deduction | $(15,600) | **Phased into W-2 wage limit** (Single phase-out complete at $247K; owner's AGI $354K above) |
| **Taxable income** | **$323,410** | |
| Federal income tax (Single 2026 brackets — stacked through 35% marginal) | **~$82,742** | |
| Self-employment tax | **$32,568** | SS $21,836 + Medicare $9,907 + 0.9% Add'l Medicare on >$200K Single |
| Add'l Medicare 0.9% on SE income > $200K | **$1,276** | (SS/Medicare wage base × 0.9% on excess) |
| **Total federal tax** | **~$116,586** | |

**Effective federal tax rate:** ~31% of net income, ~18% of revenue. Significantly higher than MFJ would be due to single brackets + lost QBI.

### QBI deduction detail (Single phase-out math)
- QBI = Sched C NI − half SE = $354,385
- Owner's AGI ($354,385) is **above the Single QBI fully-phased-in threshold** of ~$247,300 (2026 est)
- W-2 wage limit applies: **greater of** 50% × W-2 wages **or** 25% × W-2 wages + 2.5% × UBIA
  - 50% × $31,200 = **$15,600**
  - 25% × $31,200 + 2.5% × $161,223 UBIA = $7,800 + $4,031 = $11,831
  - Greater = $15,600
- **QBI deduction capped at $15,600** (down from the otherwise-eligible $70,877)
- **$55,277 of QBI deduction lost** under current sole-prop structure — this is the largest single benefit of switching to S-Corp (Strategy 1 restores the W-2 wage limit math)

---

## §4 — Recommended Strategies

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

**Strategy ID:** SAVMAX-1.1
**Estimated annual savings:** **$28,000 – $29,000** (every year)
**Confidence:** High
**Implementation difficulty:** Medium — payroll setup, reasonable comp study, election filing
**Deadline:** **March 15, 2026** for retroactive TY2026 effective date
**Implementation partner:** Client's CPA/EA (Form 2553); existing payroll provider (extend to owner W-2)

**Why this strategy is now massive (vs. v1):** At Single status, two effects compound:
1. **FICA savings** on distribution portion: SE tax 15.3% (sole prop) → FICA 15.3% on $100K W-2 only (S-Corp). Same as v1 = ~$17,000 saving.
2. **QBI restoration**: As sole prop Single, QBI is capped at W-2 wage limit ($15,600). As S-Corp at $100K W-2 + $31,200 employee = $131,200 total wages, the W-2 wage limit is high enough that 20% × QBI ($52,604) is the binding limit instead of W-2 wages. **The QBI deduction roughly triples**. This is unique to Single status — at MFJ, owner is below the phase-in threshold so QBI is uncapped either way.

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

| Line | Sole Prop (Single) | S-Corp @ $100K W-2 | Δ |
|------|----------------------|---------------------|---|
| Schedule C / S-Corp NI | $370,669 | $370,669 | — |
| Owner W-2 | — | $100,000 | new |
| Employer FICA paid by entity | — | $(7,650) | entity-level cost |
| K-1 ordinary | $370,669 | $263,019 | $(107,650) |
| **SE tax (sole prop) / FICA (S-Corp combined)** | **$33,844** | **$15,300** | **$(18,544)** ✓ |
| AGI | $354,385 | $363,019 | +$8,634 |
| Std deduction | $(15,375) | $(15,375) | — |
| **QBI deduction** | **$15,600** *(W-2 wage capped)* | **$52,604** *(W-2 wage limit no longer binding)* | **+$37,004** ✓ |
| Taxable income | $323,410 | $295,040 | $(28,370) |
| Federal income tax (Single 2026 brackets) | $82,742 | $72,812 | $(9,930) |
| **Total federal + SE/FICA** | **$116,586** | **$88,112** | **$(28,474)** |
| Less: payroll admin cost (~$50/mo) | | $(600) | |
| **Net annual savings** | | | **~$27,874** ✓ |

**Sensitivity to reasonable comp choice:**
| Reasonable comp | Net annual savings |
|-----------------|---------------------|
| $80,000 | ~$29,500 (more savings; defensibility risk increases) |
| $100,000 | $27,874 (recommended — defensible mid-range) |
| $120,000 | ~$25,000 (more conservative; less FICA savings) |
| $150,000 | ~$18,000 (overpaying FICA; QBI also reduced) |

Mid-range $100K is the recommended target. RCReports study (~$300) confirms defensibility.

**Required actions:**
1. **By Mar 1, 2026:** Decide go/no-go; commission RCReports study.
2. **By Mar 15, 2026:** File Form 2553 (effective Jan 1, 2026).
3. **By Apr 1, 2026:** Add owner to existing payroll at $100K/yr; restructure health insurance to flow through entity payroll (required for SE health insurance deduction post-S-election).
4. **Throughout 2026:** Run owner W-2 payroll alongside existing employee.
5. **By Jan 31, 2027:** Issue owner W-2.

---

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

**Strategy ID:** SAVMAX-2.2
**Estimated annual savings:** **$6,000 – $9,000** (every year, depends on contribution % and employee count)
**Confidence:** High
**Implementation difficulty:** Easy — open SEP-IRA at any custodian
**Deadline:** Contribution due by extended tax return filing date (Oct 15, 2027 for TY2026 if extended); **plan must be in place by tax filing deadline** to make a TY2026 contribution
**Implementation partner:** Client opens account; CPA/EA confirms contribution mechanics on return

**Why Solo 401(k) is OFF the table:** Solo 401(k) requires NO non-spouse W-2 employees. CLJ has a non-spouse W-2 employee ($31,200/yr — likely non-spouse given Single owner). **Solo 401(k) is disqualified.**

**SEP-IRA mechanics (S-Corp with $100K owner W-2 + $31,200 employee):**
- Employer must contribute the SAME percentage of comp to ALL eligible employees (including owner)
- At 25% contribution rate:
  - Owner gets 25% × $100K = $25,000 employer SEP contribution
  - Employee gets 25% × $31,200 = $7,800 employer SEP contribution
  - Total employer cost: $32,800
- Owner's contribution ($25,000) is the personal retirement benefit
- Employee's contribution ($7,800) is an employer-paid retention/benefit cost (not lost — employee values it)

**Tax savings calculation (owner only, 32% marginal):**
| Component | Amount |
|-----------|--------|
| Owner SEP contribution | $25,000 |
| Personal tax savings @ 32% marginal | $8,000 |
| QBI reduction (employer SEP reduces entity NI by $32,800 → reduces K-1 → reduces QBI) | 20% × $32,800 × 32% = $2,099 lost |
| **Net annual tax savings to owner** | **~$5,900** |

**Add: employer deduction benefit on employee SEP contribution:**
- $7,800 employee SEP contribution is deductible to entity → reduces K-1 → reduces owner's taxable income by $7,800 → $7,800 × 32% = $2,496 tax savings to owner
- **Total owner benefit: ~$8,400/yr**
- (The $7,800 employee SEP contribution is real money to the employee — view it as a retention benefit rather than a loss.)

**Alternative: SIMPLE IRA** — Lower contribution, lower employee cost.
- Owner deferral: $16,500 (2025 limit) + 3% match × $100K = $19,500 total owner contribution
- Employee match required: 3% × $31,200 = $936 (much lower than SEP's $7,800)
- Owner tax savings: $19,500 × 32% − QBI hit ≈ $5,400 net
- **Better economics if you want minimum employee cost.** SIMPLE IRA contribution limits also rise to $20K for 2025 (and projected $21K for 2026) for businesses with auto-enrollment.

**Recommendation:** Default to **SEP-IRA at 25%** for maximum owner contribution. If owner wants to minimize employee-side cost, **SIMPLE IRA** is the alternative. Final choice depends on owner's view of employee benefit value.

**Strategic note (age 30 angle):** At 30, retirement runway is 35+ years. **Roth bias is heavily favored** at this age — pre-tax retirement contributions defer to a higher-rate future (likely). But SEP-IRA doesn't allow Roth (only pre-tax). To capture Roth advantage, pair the SEP with the Backdoor Roth IRA (Strategy 4).

---

### Strategy 3: §45E Retirement Plan Startup Credit

**Strategy ID:** SAVMAX-NEW-1 (added Rev. 2)
**Estimated savings:** **$15,500 total tax credit** over 3 years (one-time-ish — applies only to the years the new plan is in startup phase)
**Confidence:** High (statutory; requires plan establishment + at least 1 non-highly-compensated employee covered)
**Implementation difficulty:** Easy — credit claimed automatically on the entity return when the new plan is established
**Deadline:** Establish retirement plan (SEP-IRA, SIMPLE, or 401(k)) for TY2026
**Implementation partner:** CPA/EA claims the credit on the entity return

**Trigger:** Small employer (≤ 100 employees making >$5K) establishing a new qualified retirement plan with at least one non-highly-compensated employee. CLJ qualifies ✓ (small employer + non-HCE employee exists).

**Credit structure:**
- §45E credit: lesser of $5,000 OR 100% of qualified startup costs (with at least 1 non-HCE participant), **for each of the first 3 plan years**
- Maximum: **$5,000/yr × 3 years = $15,000 in credits**
- PLUS: §45T auto-enrollment credit: **$500/yr × 3 years = $1,500** for adding auto-enrollment features
- **Combined potential: $16,500 over 3 years**

For CLJ specifically:
- Years 2026, 2027, 2028 each carry up to $5,500 of §45E + §45T credits
- These are non-refundable but offset other tax owed
- At CLJ's projected entity-level tax, full $5,500/yr is usable

**Critical pairing:** This credit is essentially a "discount" on establishing the retirement plan. Should always pair with Strategy 2 (SEP-IRA).

**Interactions:** None negative. Independent of other strategies. Pure upside.

---

### Strategy 4: Backdoor Roth IRA (annually)

**Strategy ID:** SAVMAX-2.7
**Estimated savings:** **$2,200/yr current tax-equivalent value** + significant lifetime value at age 30
**Confidence:** Medium — high if owner has no pre-existing pre-tax IRA balance
**Implementation difficulty:** Easy — annual workflow at any IRA custodian
**Deadline:** Contribute by Apr 15 of following year (extends with filing extension)
**Implementation partner:** Client; CPA/EA reports on Form 8606

**Mechanics:** Owner contributes $7,000/yr (2025 limit, projected $7,500 2026) to a non-deductible Traditional IRA, then immediately converts to Roth IRA. Future growth and qualified distributions are tax-free.

**Disqualifier check:** **Pro-rata rule** — if owner has any pre-existing pre-tax IRA balance (rollover IRA, traditional IRA), conversion is taxed pro-rata across all IRAs. **[DATA NEEDED: existing pre-tax IRA balances]**. If clean: full Roth conversion works. If pre-existing pre-tax balance: strategy is impaired (still works but with current-tax friction).

**Why this matters more at age 30:** At 30 with 35+ years to retirement at typical 7-8% returns, $7,500/yr contributions grow to **~$1.0M+ tax-free corpus by age 65** (at 7% return on $7,500/yr × 35 years). Future tax savings on that withdrawal capacity (assuming 22% future ordinary rate): **$220K+ lifetime value**.

**Current-year tax-equivalent value:** $7,000 contribution × 32% marginal = $2,240/yr in "tax I would owe on the equivalent taxable amount."

**Strategic combination:** Pair with SEP-IRA (Strategy 2). The Roth provides tax-diversification — future withdrawals from Roth aren't subject to income tax at retirement age, balancing pre-tax SEP distributions.

---

### Strategy 5: HSA Contribution (conditional on HDHP)

**Strategy ID:** SAVMAX-8.1
**Estimated annual savings:** **$1,400/yr current** + substantial lifetime invested compound value
**Confidence:** Low (binary on HDHP status — DATA NEEDED)
**Implementation difficulty:** Easy
**Deadline:** Contributions for TY2026 due by Apr 15, 2027
**Implementation partner:** Client opens HSA at HSA-eligible custodian (Fidelity, Lively, etc.)

**Trigger:** Owner enrolled in HDHP. **[DATA NEEDED]** — $14K/yr health insurance premiums visible but type unknown.

**Savings (single HDHP coverage, 2026 est. limits):**
- HSA contribution: $4,400 (self-only HDHP, 2026 est.)
- Tax savings: $4,400 × 32% marginal = **$1,408**
- HSA tax treatment: pre-tax in, tax-free growth, tax-free out for qualified medical (or ordinary rate at 65+ for any purpose, no penalty)

**Why HSA is high-leverage at age 30:**
- **35-year compounding runway** (age 30 to age 65)
- Treat HSA as a **stealth retirement account** — pay current medical from cash flow, leave HSA invested
- At 7% annual return on $4,400/yr × 35 years = **~$612K invested HSA corpus by age 65**
- Triple-tax-advantaged: best dollar in the tax code

**Strategic note:** If HDHP-eligible, **prioritize HSA above the SEP contribution** for the first $4,400 — HSA dollar-for-dollar beats SEP dollars on lifetime tax efficiency.

---

### Strategy 6: Accountable Plan (paired with S-Corp election)

**Strategy ID:** SAVMAX-8.4
**Estimated annual savings:** **$1,600 – $3,200/yr** (higher than v1 due to 32% marginal vs. v1's 24%)
**Confidence:** High (post S-election)
**Implementation difficulty:** Easy
**Deadline:** Establish with S-election; reimburse throughout the plan year
**Implementation partner:** SavingsMax provides template; client implements; CPA/EA confirms

(Same mechanics as v1 — convert personal-paid business expenses to tax-free reimbursements. Updated savings range for 32% marginal rate.)

**Reimbursable items estimate:** $5,000–$10,000/yr (home office utilities/portion, personal-vehicle business miles, personal cell phone business portion)
**Tax savings:** $5,000–$10,000 × 32% = **$1,600–$3,200**

---

### Strategy 7: Augusta Rule (§280A(g))

**Strategy ID:** SAVMAX-5.3
**Estimated annual savings:** **$1,300** (32% × $4,200 deduction; v1 had $1,008 at 24%)
**Confidence:** Medium (assumes owner owns residence + documented business meetings)
**Implementation difficulty:** Easy (with proper documentation)
**Deadline:** Document each meeting day in TY2026

(Same as v1 — 14 days × ~$300 FMV daily rate = $4,200 deduction. **TY2024 prior-year compliance review remains a flag** — $18,881 was either Augusta Rule at aggressive FMV or actual rent expense.)

---

### Strategy 8: Vehicle Depreciation Review / §179 Catch-Up

**Strategy ID:** SAVMAX-3.1 / 3.2
**Estimated savings:** **$3,000 – $8,000 one-time** (if applicable)
**Confidence:** Low (depends on prior-year treatment of 2024 Promaster)
**Implementation difficulty:** Medium (may require Form 3115)
**Deadline:** With TY2026 return filing

(Same as v1 — review Form 4562, confirm whether §179 / bonus depreciation was claimed on Ram Promaster $43,640 and other vehicles. Potential catch-up via Form 3115 if missed.)

---

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

| Strategy | ID | Why N/A (Rev. 2) |
|----------|-----|---------|
| C-Corp election | 1.3 | Pass-through with QBI restored post-S-election is favorable; no reinvestment thesis |
| Multi-entity restructuring | 1.4 | Single operating entity, no IP / RE split |
| Spousal partnership / payroll | 1.5 | No spouse ✗ |
| Family Limited Partnership | 1.6 | Net worth under $5M (likely); revisit at year-end |
| **Defined Benefit Plan** | **2.4** | **N/A at age 30** — DB economics favor older owners (actuarial calculations allow much higher contributions as you age). Revisit at age 45+. |
| **Cash Balance Plan** | **2.5** | Same as 2.4 — age-dependent. Revisit at 45+. |
| Solo 401(k) | 2.1 | **Disqualified** — non-spouse W-2 employee on payroll. SEP-IRA / SIMPLE IRA are the alternatives (see Strategy 2). |
| Mega Backdoor Roth | 2.6 | Requires custom plan; SEP-IRA doesn't support |
| Roth Conversion | 2.8 | At peak income year — wait for lower-bracket year |
| Cost segregation | 3.3 | No real property ✗ |
| De minimis safe harbor | 3.4 | Already inherent |
| Repairs vs. capitalization (TPRs) | 3.5 | Repairs immaterial |
| QBI W-2 wage/UBIA management above threshold (sole prop) | 4.2 | Will be addressed by S-Corp election (Strategy 1) — restores QBI |
| Aggregation election | 4.3 | Single entity |
| SSTB spin-off | 4.4 | Not SSTB ✗ |
| Hire children | 5.1 | [DATA NEEDED — does owner have children?] At 30, possible. If yes, $14,600/child standard deduction at 0% federal rate = potentially significant. |
| Self-rental | 5.4 | No real estate ownership |
| Custodial Roth for kids | 5.5 | [DATA NEEDED — same as 5.1] |
| Real estate strategies (STR/REPS/1031/OZ/cost seg on rental/passive loss) | 6.1–6.6 | No RE activity |
| Charitable strategies (DAF/bunching/CRT/CLT/QCD/appreciated stock) | 7.1–7.6 | At 32% marginal, DAF bunching is now more attractive than v1 — revisit if owner has charitable intent. $1K given in 2024; no major giving plan in current data. |
| Self-employed health insurance (current state) | 8.2 | Will require structural change post-S-election (entity pays + W-2 reports) |
| Section 105 / HRA / ICHRA | 8.3 | **Now applicable** as added strategy — see below |
| PTET election | 9.1 | TX no state income tax ✗ |
| State residency planning | 9.2 | Already TX ✗ |
| Sourcing/apportionment | 9.3 | Single-state |
| State NOL | 9.4 | TX no income tax |
| MCA restructuring | 10.1 | No MCAs |
| Owner loan vs. contribution | 10.2 | Clean equity structure |
| Interest tracing | 10.3 | Debt-free entity |
| Tax loss harvesting / LTCG / QSBS / installment / NIIT | 11.1–11.5 | No investment activity visible |
| Estate / gift / GRAT / SLAT / step-up | 12.1–12.5 | Net worth profile [DATA NEEDED]; revisit at year-end. **At age 30 and accumulating, estate planning premature.** |
| Estimated payment optimization | 13.1 | Addressed in §6 |
| Withholding adjustment | 13.2 | N/A as sole prop; post-S-election, owner W-2 withholding can "cure" underpayment |
| NOL strategy | 13.3 | No NOL — profitable |
| Income/expense timing | 13.4 | Q4 conversation topic |
| R&D credit (§41) | (§41) | Plumbing service work generally not qualified research |

### Additional Strategies Added in Rev. 2 (worth noting for audit trail)

| Strategy | Status |
|---|---|
| **§45E Retirement Plan Startup Credit** | ✓ Included (Strategy 3) |
| **Backdoor Roth IRA** | ✓ Included (Strategy 4) |
| **§174 R&D capitalization** | N/A — no R&D |
| **WOTC (Work Opportunity Tax Credit)** | Conditional — if owner hires from qualifying groups (veterans, ex-felons, long-term unemployed, etc.); flag as "consider on future hires" |
| **§45F Employer-Provided Child Care Credit** | N/A — CLJ doesn't provide child care |
| **EV credit on Ram Promaster** | [DATA NEEDED — confirm if it's the EV variant; gas Promaster is more common] |
| **Energy credits (§25C/§25D/§45L/§179D)** | N/A — no building / no home improvements visible |
| **HRA / ICHRA** | Conditional — could be added if owner wants to provide health benefits to employee. Tax-deductible to entity, tax-free to employee. ~$3K-$5K of potential employer-paid medical = $960-$1,600 tax savings to entity (32% bracket). |
| **Tax-free fringe benefits for owner as S-Corp employee** | Limited (working condition fringe, de minimis) — not material |
| **Conservation easement** | Very high audit risk; not recommended |
| **Captive insurance** | Income threshold not yet met — revisit at $1M+ NI |

---

## §5 — Action Checklist (Chronological)

| Deadline | Action | Owner | Status |
|----------|--------|-------|--------|
| **Immediate (next 2 weeks)** | Gather remaining owner data: HDHP y/n, prior 1040, pre-existing pre-tax IRA balances (gates Backdoor Roth), W-2 employee identity confirmation, children y/n | Jimmie + client | OPEN |
| **Immediate** | Confirm 2024 "Home office Rent $18,881" treatment | Client + Ledger | OPEN |
| **Immediate** | Request prior-year Form 4562 from CPA | Client → CPA → SavingsMax | OPEN |
| **By Mar 1, 2026** | Decide S-election go/no-go; commission RCReports study | Client | OPEN |
| **By Mar 15, 2026** | File Form 2553 (election effective Jan 1, 2026) | CPA/EA | OPEN |
| **By Apr 1, 2026** | Add owner to existing payroll at $100K/yr; restructure health insurance 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 SEP-IRA (or SIMPLE IRA). Begin owner's first-year contributions. **Activate §45E credit on entity return for TY2026.** | Client + custodian | OPEN |
| **By Aug 1, 2026** | Adopt Accountable Plan; begin monthly reimbursements | Client | OPEN |
| **By Sep 15, 2026** | Q3 estimated payment due | Client | OPEN |
| **Ongoing 2026** | Backdoor Roth IRA: $7,500 contribution + immediate conversion | Client | OPEN |
| **Ongoing 2026** | HSA contribution (if HDHP): $4,400 by year-end or Apr 15 of following year | Client | OPEN |
| **By Dec 31, 2026** | All retirement plan setup complete. Augusta Rule documentation cover all TY2026 meeting days. | Client | OPEN |
| **By Jan 15, 2027** | Q4 estimated payment due | Client | OPEN |
| **By Mar 15, 2027** | File TY2026 entity return (Form 1120-S); fund SEP-IRA by extended deadline; claim §45E credit | CPA/EA | OPEN |
| **By Apr 15, 2027** | File TY2026 personal return; finalize Backdoor Roth + HSA | CPA/EA | OPEN |

---

## §6 — Estimated Payment Schedule (TY2026)

**Safe harbor analysis:**
- TY2025 federal tax liability estimate (sole prop, Single): ~$117,000
- AGI for TY2025: ~$354,385 (over $150K threshold)
- **Safe harbor: 110% of prior-year liability** = $117,000 × 110% = **$128,700**

**Quarterly schedule (safe harbor — pay ~$32,175/quarter):**
| Quarter | Due Date | Amount |
|---------|----------|--------|
| Q1 | Apr 15, 2026 | $32,175 |
| Q2 | Jun 15, 2026 | $32,175 |
| Q3 | Sep 15, 2026 | $32,175 |
| Q4 | Jan 15, 2027 | $32,175 |
| **Total** | | **$128,700** |

**If S-Corp + SEP-IRA + Accountable Plan implemented:** Tax liability drops to ~$75-80K. Q3/Q4 payments can be reduced once mid-year actuals confirm lower liability. **Recommend Q2 mid-year recalc** ($30K+ overpayment otherwise).

**Note:** Equity section shows $46,855 of "Federal taxes paid" LTD — owner has been making estimated payments. Confirm current Q1 2026 was made.

---

## §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 the v1→v2 rebuild was material

The Single-status correction shifted CLJ's tax picture from "high-income MFJ" to "high-income Single." Three structural changes:

1. **QBI deduction collapsed** as sole prop. Single phase-out completes at $247K; owner at $354K AGI was fully into W-2 wage limit, losing $55K of deduction. **S-Corp election now restores QBI** in addition to saving FICA — combined effect ~$28K/yr (vs. $11K under MFJ).
2. **Marginal rate jumped to 32-35%.** Every dollar of deduction is now worth 32-35% in tax savings, vs. 24% under MFJ. Strategies become more valuable.
3. **Retirement plan choice changed.** Solo 401(k) was viable under MFJ (assumed spouse W-2). Under Single, the $31,200 W-2 is non-spouse, disqualifying Solo 401(k). Forced to SEP-IRA or SIMPLE IRA with employee-side cost considerations.

### Strategy template observations for future SavingsMax memos

- **Filing status and age are intake fields, not assumptions.** Memo template must mandate these be confirmed before any quantification.
- **The QBI W-2 wage limit math is the central pricing driver for Single filers above $247K.** A specific worksheet should be built for this: "QBI deduction loss as sole prop" → "S-Corp election restoration value."
- **§45E Retirement Plan Startup Credit is automatic upside** anytime a new retirement plan is recommended. Add to default strategy checklist.
- **Single age 30 = Roth-bias retirement strategy.** Backdoor Roth IRA + HSA-as-retirement should be standard for under-40 Single owners. Long compounding runway makes these dollar-for-dollar more valuable than pre-tax retirement contributions.
- **Non-spouse W-2 employee is a Solo 401(k) blocker.** Standard intake question.

### Pricing implication (Rev. 2)
At $36–48K of recurring annual savings + $15.5K of §45E credit + $3–8K vehicle catch-up + $2K conditional HSA, CLJ's full SavingsMax fee package lands at **~$4,500 – $6,500** for the strategy set (see updated `SavingsMax_CLJ_Fee_Proposal_2026.md`).

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**End of Strategy Memo (Rev. 2).**
**Companion document:** `SavingsMax_CLJ_Fee_Proposal_2026.md` (also updated Rev. 2)