I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox ๐ Also on YouTube at PlugAccountingandTax!
Setting Tax Strategy Priorities โ
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I spend a lot of time thinking about tax strategy for small business and real estate. So much so we've devoted an entire page on our website to "how we think about strategy" - a free tool anyone can use to see what they may be missing. That tool, while a great staring point, is incomplete if you're trying to get tax-smart. Someone still needs to run point on implementation, point out the hidden traps, and reassess. One of the most important steps to implementation is setting priorities. Anything more than 3-4 strategies at a time will feel overwhelming - so a part of our CPA-lead tax gameplan (and soon to come more affordable option ๐) will be doing just this. Let's jam โคต๏ธ Two labels, two different questionsOn the free tool, every strategy carries one of three tags: Structure (entity or trust work), Election (a box you check with the IRS), or Timing (moving when income or a deduction lands). Those tags answer "what kind of thing is this," and they're useful for browsing. They help sort which strategies belong to which taxpayer and when. They tell you nothing about what you keep. ๐งฎ For that, inside every gameplan we build, each strategy gets a second label we call its Character. There are four:
Dropping each candidate strategy into one of these buckets is what turns a list of 70+ ideas into a roadmap. It tells you which ones pay the most, which ones are blocking the others, and which ones are just good hygiene. Here's how each one works. 1. Permanent: the tax is goneA permanent strategy eliminates tax outright. No catch-up year, no recapture, no bill waiting at the exit. This is the only bucket where a dollar of savings is worth a full dollar. The unglamorous examples are the best ones. Salary and QBI optimization in an S-corp is the same idea at a bigger scale: getting the reasonable salary right so you keep the most of the 20% pass-through deduction without overpaying payroll tax. ๐ฆ An accountable plan turns the home office, mileage, and cell phone you were already paying for into reimbursements your business deducts and you never pick up as income. The Augusta rule lets your business rent your home for up to 14 days a year for a real business purpose, and that rent is deductible to the company and tax-free to you. At a supportable $1,000 a day, that's $14,000 that leaves the taxable pile for good, worth about $5,180 to a 37% bracket owner, every year, forever. Permanent strategies go to the top of the list almost every time. The only things that push one down are risk and hassle, which is why the gameplan scores both. 2. Deferral: the tax is pushed, and the push gets valued at the spreadA deferral moves tax from this year into a later year. Cost segregation, a cash balance plan, a 1031 exchange, an installment sale. These produce the biggest numbers on paper, which is exactly why they get oversold. ๐ The dishonest way to value a deferral is the gross deduction. A cost seg study that front-loads $200,000 of depreciation looks like $74,000 of savings at 37%. But that depreciation gets paid back at sale, so what you keep is the rate differential plus the time value. Sell in a year you're at 32% and the permanent piece is $200,000 times the 5-point spread: $10,000, plus five years of use of the $74,000 you didn't send to Treasury. Hold the property until it passes to your kids at a stepped-up basis, or roll it forward through 1031s until you die, and the deferral quietly becomes permanent. Sell it in two years in the same bracket and you mostly bought yourself a loan. So inside a gameplan, a deferral is counted at what the spread is worth, not what the deduction says. Same for the cash balance plan: the $150,000 you deduct today comes out as ordinary income in retirement, and the savings is the gap between your rate now and your rate then. A deferral done with a plan for the exit is one of the most intentional moves in tax. A deferral done because the deduction looked big is how people end up with a phantom income problem in the year they sell. 3. Rate Arbitrage: same income, lower bracketThis bucket leaves the income alone and moves the same dollars to a lower rate or a lower-rate taxpayer. Hiring your children is the cleanest example. Wages paid to a child under 18 by a parent-owned sole proprietorship or parent-only partnership skip payroll tax entirely, and the first $16,100 of wages in 2026 is covered by the child's standard deduction. That income was taxed at your 37% and is now taxed at 0%. For real work at market pay, one child moves roughly $4,900 a year from taxable to not. So is timing a Roth conversion into a low-income year: you're choosing the year your rate is lowest and paying the tax then. Rate arbitrage strategies are permanent in effect, but they carry more paperwork risk than the first bucket. The child has to work. The pay has to match the work. The court cases where this falls apart are the ones where someone started with the tax result and backed into the wage. ๐งพ 4. Enabler: saves nothing by itselfAn enabler produces zero tax savings on its own. Its whole job is to make another strategy legal or possible. The hours log for real estate professional status is the purest example. Logging your hours saves you nothing. But without a contemporaneous log proving 750 hours and more than half your working time in real estate, your rental losses stay passive and never reach your W-2 income, no matter how good the cost seg study was. Operating agreement tailoring is another: the OA itself moves no tax, but the wrong language can bust an S-election or strand allocations you were counting on. A family management company or a grouping election sits in the same category. They move no tax by themselves, and the biggest strategies on the list can't run without them. ๐๏ธ Enablers are the reason the four buckets matter for sequencing and not just for scoring. The hours log has to start January 1, not the week your CPA asks about it in March. The OA has to be right before the property is bought, not after. If an enabler is the gate to your biggest deferral, it becomes the first item on the list even though its own savings line reads $0. How the buckets pick the 3 or 4Once every candidate strategy is labeled, the roadmap mostly writes itself. Highest ROI first. Permanent and rate arbitrage strategies are valued at face. Deferrals are valued at the spread. Ranked that way, the biggest gross deduction often falls to third or fourth, and a boring accountable plan climbs. ๐ฐ Blockers before the strategies they block. Any enabler that gates a top-ranked strategy moves ahead of it in time, regardless of its own value. This is where most DIY plans leak: the strategy was correct, the prerequisite never happened. Hygiene gets fixed in compliance. Some permanent items are just correct bookkeeping. They don't earn a spot in your 3 or 4. They get handled in compliance and noted, so the plan stays focused on the moves that need your decision. What's left is a short list you can execute this year, a parked list with reasons, and an honest number next to each one. The TakeawayStructure, Election, and Timing tell you what a strategy is. Permanent, Deferral, Rate Arbitrage, and Enabler tell you what it's worth and when it has to happen. Rank by the second set, sequence by the enablers, cap the active list at 3 or 4, and you have a gameplan instead of a pile of ideas. Obvious caveat - I'm a CPA, but (for most of the readers) I'm not your CPA. Run any of this past your own advisor before you change anything on a return. ๐ซก Before we get to the Banger Posts of the Week ๐ Newsletters aren't cheap to host - and with subscribers growing I'm always looking for ways to offset costs. I'd appreciate it if you indulge in this advertisement for Morning Brew - a great no frills news source straight to your inbox. I get paid by the click so even taking a deeper look helps! ๐ซก Group Chat Worthy Posts ๐ฅ๐ฒ
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The Plug [Newsletter]
I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox ๐ Also on YouTube at PlugAccountingandTax!
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