Tax Planning Strategies for Small Business Owner Clients in 2025

Thanks for the detailed response! Quick question about the S-Corp salary vs. distribution ratio - is there a general percentage guideline that tends to keep you in the safe zone with the IRS? I've heard everything from "at least 40% of profits as salary" to specific dollar amounts. Also, do you have any thoughts on setting up defined benefit plans instead of SEP IRAs or Solo 401ks for higher-income clients? The contribution limits seem much higher but the complexity scares me a bit.

There's no magic percentage for S-Corp salaries that automatically passes IRS scrutiny. What's considered "reasonable" depends on industry standards, business size, owner responsibilities, and qualifications. I typically research what similar positions would pay in the specific industry and region, then document this research thoroughly. Defined benefit plans can be amazing tax-saving tools for established businesses with consistent high income, especially for older business owners. The higher contribution limits (potentially $300K+ annually) create massive tax savings, but they come with significant administrative costs and required annual contributions. For the right client (45+ years old, stable business generating $300K+ profits, planning to work 10+ more years), they're worth the complexity. Just partner with a good third-party administrator who specializes in these plans.

That sounds interesting, but how does it actually work? Do you upload client tax returns or financial statements? Also wondering how it handles different entity types since I have a mix of S-Corps, Partnerships, and Schedule C clients.

I'm always skeptical of AI tax tools. How does it compare to just using the tax planning modules in ProSeries or Lacerte? Those already flag potential issues and I'm not sure I need another tool on top of that.

You upload whatever documents you have - tax returns, P&Ls, balance sheets, and even receipts. It works with all entity types and actually specializes in identifying entity-specific strategies. For S-Corps, it's great at analyzing the salary/distribution ratio and documenting reasonable compensation. It's completely different from the basic flags in tax prep software. Those flags just highlight potential errors or audit triggers. This actually identifies proactive planning opportunities and quantifies the tax savings of different scenarios. It's more like having a senior tax planner review your work than just error-checking. The retirement planning module alone saved my clients over $50K last year by optimizing contribution timing and plan selection.

Wait, how does this actually work? Does someone else talk to the IRS for you? Because that seems like it would violate client confidentiality or something.

Sounds too good to be true. The IRS hold times are insane (I waited 2.5 hours last week), but I can't imagine this actually works. And even if it does, they probably charge a fortune for it.

No, they don't talk to the IRS for you. They have an automated system that waits on hold, and when a real IRS agent picks up, they connect you directly to that call. You do all the talking with the IRS - they just handle the hold time part. It absolutely works - I was skeptical too! I've used it seven times this year for client issues. The system calls you and your phone literally rings with an IRS agent already on the line. You maintain complete control of the conversation and client confidentiality. It basically lets you continue working on other clients' returns while "waiting" for the IRS instead of being stuck listening to their hold music for hours.

Are there specific employee count limitations for QSEHRAs? I have a client with around 15 employees who's been asking about alternatives to their expensive group plan.

QSEHRAs are limited to employers with fewer than 50 full-time equivalent employees and who don't offer a group health plan. Your client with 15 employees would qualify as long as they don't currently have a group health plan in place. For clients transitioning away from group plans, there's a special timing consideration - they need to terminate their group plan before implementing the QSEHRA. There's no "both/and" option here. Also, make sure your client understands they must offer the QSEHRA on the same terms to all full-time employees (though benefit amounts can vary based on family size and age).

For small business owners with student loans, I recommend looking into income-driven repayment plans if they have federal loans. The business structure can significantly impact their adjusted gross income, which then affects their required payments. S-Corps can be particularly helpful here since some income can be taken as distributions rather than salary, potentially lowering AGI for student loan payment calculations.

Thanks, that's helpful! I do have most of my clients with student debt set up as S-Corps already, but I hadn't specifically considered the loan payment angle when determining salary vs distribution ratios. I've been more focused on the SE tax savings. Do you know if the IRS and Department of Education communicate about "reasonable compensation" standards? I'd hate to optimize for student loan payments only to create an audit risk.