Tax planning at the highest levels is not about any single strategy. It is about layering, combining multiple provisions of the tax code so that each one amplifies the others. AE Tax Advisors, a boutique Montana-based firm specializing in advanced planning for high-income business owners, recently completed a first-year engagement for a client earning approximately $750,000 annually that produced $187,000 in total tax savings through the coordinated implementation of five strategies. None were aggressive. All were fully documented and defensible. And the client’s previous CPA had implemented none of them.
The case illustrates a pattern AE Tax Advisors sees repeatedly: the business owner whose returns are accurate, whose CPA is competent, and whose tax bill is still tens or hundreds of thousands of dollars higher than it needs to be. The issue is not errors. It is the absence of planning.
About AE Tax Advisors
AE Tax Advisors works exclusively with business owners earning $500,000 or more annually. The firm builds multi-year tax architectures that stack legal strategies on top of one another, producing compounding savings that grow over time. Every engagement begins with a full diagnostic of prior returns, entity structure, real estate holdings, and retirement planning. The firm does not prepare tax returns as a standalone service. It provides the strategic planning layer that determines how every dollar of income is structured, classified, and sheltered before the return is ever prepared.
The Starting Point: Accurate Returns, Zero Optimization
The business owner operated a professional services company structured as a single-member LLC, taxed as a sole proprietorship. They also owned a short-term rental property purchased two years earlier and a personal residence valued at approximately $1.8 million. Their annual gross income was approximately $750,000 and they were paying an effective combined tax rate of roughly 42%, sending more than $315,000 per year to federal and state tax authorities.
Their prior CPA prepared accurate returns. There were no errors, no missed 1099s, no compliance issues. The returns were clean. They were simply not optimized. The CPA had done the job of reporting income. What they had not done was plan to reduce it. The business operated in the default entity structure. The rental property depreciated on the standard schedule. Retirement contributions were limited to a SEP-IRA. The Augusta Rule was not being used. And the Section 199A deduction was being calculated without any optimization of the inputs that drive it.
Strategy #1: S-Corp Election (Savings of Approximately $38,000)
AE Tax Advisors restructured the operating business as an S-Corporation. The firm conducted a reasonable compensation analysis using Bureau of Labor Statistics data, industry benchmarks, and geographic comparables, and set the owner’s salary at $175,000. The remaining $575,000 of business income flowed through as S-Corp distributions, not subject to the 15.3% self-employment tax.
The self-employment tax savings alone produced approximately $38,000 in annual reduction. The S-Corp structure also created the W-2 wage base necessary to maximize the Section 199A qualified business income deduction, which the OBBBA made permanent, generating an additional layer of savings captured in Strategy #5. AE Tax Advisors notes that the reasonable compensation analysis is the most important compliance element of this strategy, and the firm documents every salary determination with a written report that is defensible in examination.
Strategy #2: Cost Segregation on the Short-Term Rental (Savings of Approximately $67,000)
The client had purchased a short-term rental property for $525,000 two years earlier. The prior CPA depreciated the building component on a standard 39-year schedule, producing approximately $11,000 per year in depreciation deductions. AE Tax Advisors commissioned a cost segregation study that identified 32% of the building’s value, approximately $134,000, as eligible for reclassification into 5-year, 7-year, and 15-year property.
With 100% bonus depreciation now permanent under the OBBBA, the firm filed a Form 3115 change in accounting method to capture both the current-year accelerated depreciation and the cumulative missed depreciation from the two prior years in a single Section 481(a) catch-up adjustment. Because the property had an average guest stay under seven days and the owner materially participated in managing the rental, the resulting loss was classified as non-passive under IRC Section 469, meaning it offset the owner’s active business income dollar for dollar. The combined current-year and catch-up depreciation produced approximately $181,000 in total deductions, generating tax savings of approximately $67,000 at the owner’s marginal rate.
Strategy #3: Defined Benefit Plan and Solo 401(k) (Savings of Approximately $48,000)
With the S-Corp structure in place, AE Tax Advisors designed a combined defined benefit plan and Solo 401(k) for the owner, who was 52 years old. The owner contributed $69,000 to the 401(k), the maximum for the year, and $60,000 to the defined benefit plan in the first year, with actuarial projections allowing contributions to increase to $200,000 or more in subsequent years as the plan matured.
The combined $129,000 in retirement contributions was fully deductible by the S-Corp, producing approximately $48,000 in federal and state tax savings. The retirement accounts will grow tax-deferred, with distributions in retirement taxed at presumably lower marginal rates. AE Tax Advisors emphasizes that the defined benefit plan is the single most underutilized retirement vehicle for high-income business owners. It allows deductible contributions that are three to five times larger than what a SEP-IRA or Solo 401(k) permits, and it is available to any business owner with consistent income and a willingness to commit to annual contributions.
Strategy #4: Augusta Rule (Savings of Approximately $18,000)
The client’s $1.8 million home included a large finished basement and outdoor entertaining area well-suited for business events. AE Tax Advisors documented the fair market rental value at $3,500 per day based on comparable event venues in the area and established a schedule of 14 qualifying business events, including quarterly board meetings, annual strategic planning sessions, a client appreciation event, and a team retreat.
The S-Corp paid the owner $49,000 for the 14 days of rental use. The payment was deductible by the S-Corp and excluded from the owner’s personal income under IRC Section 280A(g). At the owner’s marginal rate, the combined benefit produced approximately $18,000 in savings. AE Tax Advisors prepared a full compliance package including written rental agreements, meeting agendas, minutes, comparable market analysis, and payment documentation.
Strategy #5: Section 199A Optimization (Savings of Approximately $16,000)
With the S-Corp structure generating W-2 wages and the entity holding qualified property, AE Tax Advisors optimized the Section 199A qualified business income deduction. The firm calibrated the owner’s salary to satisfy the W-2 wage limitation while preserving the maximum QBI deduction of 20% on qualifying income. The resulting Section 199A deduction reduced taxable income by approximately $86,000, producing an additional $16,000 in federal tax savings.
AE Tax Advisors notes that the Section 199A deduction is one of the most commonly mishandled provisions on high-income returns. Without deliberate salary calibration and entity structuring, the deduction is routinely reduced or eliminated by the wage and property limitations. The firm models these interactions for every client as part of its standard annual planning process.
The Combined Result
Across the five strategies, the client’s tax reduction totaled approximately $187,000 in the first year. Their effective tax rate dropped from 42% to approximately 17% on the same gross income. No income was hidden. No aggressive positions were taken. Every strategy was fully documented, supported by applicable IRC sections, and defensible in examination.
The second year and beyond will produce even larger savings as the defined benefit plan contributions increase, additional properties are acquired with cost segregation studies from day one, and the S-Corp and Section 199A structures continue to compound their benefits. AE Tax Advisors projects that the client’s cumulative tax savings over a five-year period will exceed $1 million.
What This Means for Business Owners Paying More Than They Should
A tax return can be perfectly accurate and still leave hundreds of thousands of dollars on the table. AE Tax Advisors built its practice around the difference between compliance, getting the numbers right, and planning, making the numbers work harder. For business owners earning $500,000 or more, the gap between the two is almost always measured in six figures. The question is not whether savings exist. The question is whether your current advisor has the expertise and the incentive to find them.
To learn more about AE Tax Advisors, visit: https://www.aetaxadvisors.com