Generating $1 million, $2 million, or even $3 million in revenue does not automatically mean your business has an effective tax strategy. As income grows, small tax inefficiencies can become very expensive.
One high-ticket service provider I worked with was generating approximately $3 million annually. The business was successful, but several tax strategies had never been incorporated into the company’s financial plan.
By looking beyond the tax return and evaluating how the business, owner income, investments, and assets worked together, we identified opportunities that ultimately resulted in six figures of tax savings.
Six-Figure Savings Did Not Come From One Strategy
We started by reviewing the company’s entity structure and how income flowed to the owner. Entity optimization alone produced approximately $17,000 in tax savings.
From there, we looked deeper.
We evaluated opportunities to legitimately employ family members working in the business. When structured correctly, reasonable compensation for actual work can create a business deduction while shifting income from the owner’s higher tax bracket to a family member who may be in a lower bracket.
The client’s broader financial picture created additional opportunities. A qualifying business vehicle purchase generated substantial depreciation deductions based on the tax rules applicable to that transaction.
We also evaluated real estate and cost segregation. A cost segregation study can identify components of qualifying property that may be depreciated over shorter periods, potentially accelerating deductions and reducing current taxable income.
Combined, these strategies helped the client save six figures.
The Strategy Has to Fit the Business
The takeaway is not that every seven-figure founder should hire family members, purchase a vehicle, or invest in real estate for a deduction. Tax decisions should make economic sense first.
The opportunity comes from understanding which strategies fit your business, income, investments, and long-term wealth goals, then implementing them before the planning window closes.
At $3 million in revenue, overlooking one strategy can cost thousands. Overlooking several can cost six figures.
Most high-ticket service firm owners are overpaying the IRS and don’t know it. Click the link below to learn where tax leaks may be hiding in your business and how proactive tax planning can help you keep more of what you’ve already earned.