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When a potential new client hands me a prior year return, I check three spots that are dead giveaways for immediate ROI of my fees. These are the spots that tell on a sloppy preparer (no shade, I've made these same mistakes) or an under-structured business.

I'd say the average business owner with $500k+ in profit can easily be leaking $30-$40k in these misses every year.

1) Line 23 - "Other Taxes"

Line 23 of your 1040 pulls from Schedule 2. Two taxes live there that business owners overpay:

• Self-Employment Tax (Schedule SE)
• Net Investment Income Tax, (NIIT on Form 8960)

👉 Self-Employment Tax is the 15.3% surcharge that funds Social Security and Medicare (FICA). Sole proprietorships on Schedule C pay it. Active partners in partnerships and partners that get guaranteed payments pay it. S-Corp shareholders don't pay it on K-1 profit, only on their W-2 salary.

If you see a big number on Schedule SE and you're operating as a Schedule C or regular member, the question is whether this income should be running through an S-Corp instead. For fee-based income (consulting, management fees, commissions), the SE savings usually cover the cost of an S-Corp several times over.

👉 NIIT is the 3.8% surcharge on passive-type income: capital gains, interest, dividends, rental income, and passive K-1 income.

Here's the part a lot of inexperienced preparers miss.

NIIT does not apply to income from an active trade or business. If your K-1 income is from a business you materially participate in, that income should be backed out on Form 8960 line 4b. If you sold a piece of an active business or the underlying assets, the gain should be excluded on line 5b/5c.

I have seen multi-million dollar oversights here. The fix is usually a one-line adjustment on Form 8960. The cost of the miss on $1,000,000 of income is $38,000 every year.

2) QBI Deduction Under-Optimized

QBI (Qualified Business Income, §199A) is the 20% deduction on flow-through business income (think K1s, Schedule C). It's easily one of the biggest small business tax cuts EVER. 👀

But if you DIY, or have an inexperienced pro at the helm 🚣‍♂️, it's not hard to leave money on the table.

Did you actually get the deduction?

Look at Form 8995 or 8995-A. If your taxable income exceeds the phase-in thresholds (about $394k MFJ for 2025) and your business is an SSTB (Specified Service Trade or Business: law, medicine, consulting, accounting), your QBI may be fully phased out.

If your business is non-SSTB (many CAPEX heavy businesses, manufacturing, real estate), the deduction is limited to the greater of:

• 50% of W-2 wages paid by the business, or
• 25% of W-2 wages plus 2.5% of unadjusted basis in qualified property

Are you paying enough W-2 wages?

If your QBI is capped by the W-2 wage limitation, a year-end bonus to yourself or other employees can unlock 🔑 more deduction. The math has to work, but I have seen this strategy save six figures a year.

Did you elect §199A aggregation?

If you own multiple flow-through businesses, you may be able to aggregate them under §199A to share W-2 wages across activities. It is a one-time election with limited revisions. This is helpful when most wages are in one entity but income is in another. [There are strict rules to this, so double check those!]

Are management fees structured right?

Real estate syndicators and operators often hold properties in a partnership (rental income qualifies as QBI but generates no W-2 wages) and run management fees through a separate S-Corp. Done right, the S-Corp pays a salary that supports QBI on the management fee income. Done wrong, the deduction is left on the table.

3) Schedule A - State Taxes and Interest

Schedule A is where you itemize deductions on your personal return. It is also where business owners leave money on the table by deducting items at the wrong level.

Two to check.

State taxes above the SALT cap (PTET) 🗺️

The State and Local Tax (SALT) deduction is capped (currently $40k MFJ, phasing down at higher incomes under OBBB). For business owners in high-tax states making real money, that cap is a joke. It covers a fraction of state taxes paid.

The workaround: Pass-Through Entity Tax (PTET) elections.

Most states now let pass-through entities (S-Corps and partnerships) pay the state tax at the entity level. The entity gets a federal deduction for the state tax, uncapped. The owner gets a credit on the state return for tax already paid.

Net result: state tax that was capped at the personal level becomes a fully deductible business expense.

If you are a business owner in a state with a PTET regime (most states have one) and your Schedule A shows state income tax getting limited by the SALT cap, you are likely missing this election.

Investment interest expense

Schedule A line 9 is for investment interest expense: interest on loans 🏦 used to buy investments. It is deductible up to net investment income, with the excess carried forward.

But a lot of "investment interest" is actually business interest that got mis-traced.

If you borrowed money and used the proceeds to buy or loan into a business or partnership where you materially participate, the interest tracing rules say the interest follows the use of the proceeds. That interest often belongs on Schedule E as a flow-through deduction. Fully deductible against active income. Not capped at investment income.

Common scenarios where this gets blown:

• Loan to buy into a partnership where you work: belongs on the K-1, not Schedule A
• Loan against a brokerage account used to fund an active business: traces to the business
• Refi proceeds pulled from a property and reinvested in another active venture

The Takeaway

Your personal tax return is a report card on your structure.

Most of the tax inefficiency I see is boring structural stuff that compounds year after year:

• Wrong entity type
• Missing election
• Mis-traced interest
• Unmade aggregation
• Misclassified income item

The fix isn't always cheap. The savings compound. And the only way to know if you are leaving money on the table is to actually look at the return.

Pull yours out this week. Ten minutes on Line 23, Form 8995, and Schedule A. See what you find.

🫡

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