Client Profile
| Industry | Multi-Business (Landscaping, Property Mgmt, Equipment Rental, Cleaning) |
| Combined Revenue | $2,800,000 |
| Entity Type | 4 LLCs + Management Company S-Corp |
| State | Michigan |
| Key Metric | $480K combined net income across entities |
| Annual Tax Savings | $78,000 |
The Problem
This business owner operated four separate LLCs: a commercial landscaping company, a property management firm, an equipment rental business, and a commercial cleaning service. Each LLC was taxed as a sole proprietorship (Schedule C), and the owner was paying full self-employment tax on the combined net income of approximately $480,000.
There was no centralized management structure, no retirement plan, and no accountable plan. The owner was also carrying $340,000 in equipment on standard depreciation schedules.
AE Tax Strategy
1. Management Company S-Corp Under IRC §482 and §1362
We formed a management company S-Corp that charged each LLC arm's-length management fees under IRC §482, totaling $200,000 per year. The owner drew reasonable compensation of $80,000 from the management S-Corp, with $120,000 passing through as distributions. Total SE tax savings: $26,000.
2. Solo 401(k) Plan Under IRC §401(a)
We implemented a Solo 401(k) through the management company. Total retirement contributions of $43,500 produced approximately $15,000 in annual income tax savings.
3. Accountable Plan Under IRC §62(a)(2)(A)
The accountable plan reimbursed the owner for $42,000 in annual business-use expenses, producing approximately $14,500 in tax savings.
4. Bonus Depreciation on Equipment Under IRC §168(k)
We identified $340,000 in equipment on standard schedules and elected bonus depreciation, producing approximately $22,500 in additional savings.
Before & After Comparison
| Tax Category | Before | After | Savings |
|---|---|---|---|
| Self-Employment Tax Reduction | $52,400 | $26,400 | $26,000 |
| Retirement Plan (401k) | $0 | $15,000 | $15,000 |
| Accountable Plan | $0 | $14,500 | $14,500 |
| Equipment Depreciation | $24,500 | $47,000 | $22,500 |
| Total | $76,900 | $102,900* | $78,000 |
*After column reflects tax benefit value.
Key Takeaways
- Business owners operating multiple entities should evaluate whether a centralized management company can consolidate tax planning and create S-Corp distribution savings.
- Arm's-length management fees under IRC §482 must be documented and reasonable.
- Accountable plans restore deductions for business expenses that are otherwise non-deductible after the TCJA.
- Equipment depreciation should be reviewed annually across all entities — bonus depreciation and Section 179 can accelerate deductions significantly.