$42,000 Saved in Annual Taxes
Founder, Direct-to-Consumer Brand
What Was Holding Them Back
Marcus had built a 7-figure direct-to-consumer brand over four years — premium home goods sold through Shopify and Amazon. From the outside, the business was thriving. Behind the scenes, the financial structure was a liability.
He was operating as a sole proprietor. Every dollar of business profit hit his personal 1040 at ordinary income tax rates, with full self-employment tax on top. His previous accountant filed returns accurately but never once asked a strategy question.
Three consecutive years of five-figure tax bills had become the norm. Year four, the bill landed at $67,000. That was the moment Marcus decided the status quo was no longer acceptable.
The core problem was structural, not operational. Marcus's business was genuinely profitable — gross margins above 60%, strong repeat purchase rates, and clean inventory management. But the entity structure was costing him six figures per year in avoidable taxes.
Additional complications: 18 months of bookkeeping had personal and business expenses commingled across three accounts. The prior P&L was unreliable. Before any tax strategy could be implemented, the books needed to be rebuilt from scratch.
What We Brought to the Engagement
Entity restructuring, S-Corp election, SEP-IRA setup, bookkeeping cleanup, ongoing tax planning
How We Got It Done
Week 1–2: Books reconstruction
We pulled three bank accounts and two credit card statements going back 18 months. Every transaction was categorised, personal charges removed, and a clean P&L rebuilt. This step alone revealed $11,000 in legitimate business deductions that had never been claimed.
Week 3: Entity analysis
We modelled four entity structures against Marcus's actual income: sole proprietor (status quo), single-member LLC (no change), S-Corp with salary/distribution split, and S-Corp with SEP-IRA. The S-Corp with retirement contribution was the clear winner at his income level.
Week 4–5: Entity formation and IRS election
We formed the S-Corp, filed the S-Corp election (Form 2553), established a business bank account in the entity name, and set up payroll for a reasonable salary — the amount that satisfies IRS scrutiny while maximising the distribution split.
Week 6: Retirement and deduction stack
We opened a SEP-IRA and made the maximum deductible contribution for the year. We then documented and filed the home office deduction using the actual expense method (more valuable than the simplified method at Marcus's income), the business vehicle mileage, and subscriptions/software that had been inconsistently claimed.
What Changed
Tax savings in year one: $42,000 — a combination of the S-Corp salary/distribution structure ($28K), the SEP-IRA contribution ($9K), and previously unclaimed deductions ($5K).
Books are now clean, categorised, and reconciled monthly. Marcus has a real-time P&L he can read and act on.
The SEP-IRA contribution alone builds long-term wealth while reducing the current year tax bill — a compounding benefit that grows as the business does.
Marcus's effective tax rate dropped from 38% to 24% of net business income. We expect further reduction in year two as the full S-Corp structure is in place for a complete calendar year.
I went from dreading tax season to actually looking forward to the debrief. Mac Angelo found $42,000 in savings I didn't know existed, cleaned up 18 months of books, and explained every decision in plain English. I wish I'd made this call three years ago.
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