Case Study - Saved $18,000 through business entity restructuring

Overview

When Michael first came to us, he was overwhelmed by the tax burden of running his successful Starkville restaurant. Operating as a sole proprietor for 5 years, he was facing:

• High self-employment taxes (15.3% on net income)
• Confusion about what business expenses could be deducted
• Mixed personal and business expenses in his accounting
• No retirement savings plan for himself or employees
• Growing income that pushed him into higher tax brackets

The challenge wasn't just the tax bill—it was properly structuring the business and identifying all legitimate deductions to minimize his tax burden while staying compliant.

The Challenge

Small business taxation presents several key challenges:

1. Entity Structure: Determining the optimal business structure for tax efficiency
2. Self-Employment Taxes: The heavy burden of FICA taxes on business income
3. Expense Tracking: Identifying and properly documenting all deductible business expenses
4. Retirement Planning: Balancing current tax savings with future retirement needs

Our Solution

We developed a comprehensive approach to optimize Michael's business tax situation:

1. S-Corporation Election

We helped Michael transition from sole proprietor to S-Corp:

• Filed necessary formation documents with Mississippi
• Set up reasonable salary structure to minimize self-employment taxes
• Established corporate formalities and record-keeping
• Created payroll system for owner and employees

2. Expense Maximization

We identified numerous overlooked deductions:

• Business use of personal vehicle (documented mileage)
• Home office deduction for administrative work
• Business meals and entertainment (properly documented)
• Continuing education and professional development
• Equipment purchases using Section 179 deduction

3. Tax Planning Strategy

We implemented ongoing tax optimization:

• Quarterly estimated tax payment schedule
• Strategic timing of equipment purchases
• Proper classification of all expenses
• Sales tax compliance guidance

4. Retirement Planning

We established tax-advantaged retirement savings:

• Set up SEP-IRA for owner
• Established Simple IRA for eligible employees
• Maximized deductible contributions
• Created long-term wealth-building strategy

Results

Through our comprehensive approach, Michael was able to:

• Reduce his tax liability by $18,000 in the first year through S-Corp election and proper deductions
• Gain complete clarity on his business tax obligations
• Establish a retirement savings plan for himself and employees
• Implement ongoing tax optimization strategies for sustainable growth

The success of this engagement demonstrates our expertise in small business taxation and our ability to provide personalized solutions for Starkville's local business community while ensuring full compliance.