The $100,000 entity mistake
THE $100,000 MISTAKE GETS A LIVE WALKTHROUGH ON AUGUST 19
Decision 1 in this letter is your entity. It's also one of four things Evan and I will cover in the live webinar on August 19 at 1 PM CT: the entity decision, your Q3 estimate, the books your CPA needs to find deductions, and the year-end moves with a December 31 deadline. One hour, four checkpoints.
Can't make it? Register anyway. The replay lands within 24 hours.
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LAST WEEK WAS THE SMALL MONEY
Last week you torched a credit card, made four phone calls, and moved some idle cash. Call it $5,000 a year. The best move in that letter paid about $3,000 an hour.
This week the rates go up by a factor of ten.
Everything in this letter is a decision. You make it once, somebody files a form, and it pays every year you're in business. No receipts. No logs. No habit to maintain.
And here's the trick of this tier: you don't pay the hassle. You buy it. The analysis hours, the filing hours, the engineering hours all belong to somebody with a license. Your hours are a meeting and a signature.
Money saved divided by brain damage. When the brain damage is somebody else's, the ratio breaks the calculator.
So why does nobody touch this tier?
Because canceling Netflix feels like action. Signing Form 2553 feels like paperwork. One is worth $200 a year. The other can be worth $20,000.
Five decisions. Each one priced.
Decision 1: Pick the entity
Every dollar of profit flows through your entity before it gets to you, and the entity decides how much the IRS keeps on the way.
Run $250K of profit through the wrong structure and you hand over tens of thousands more than the identical business next door. At $500K and up, the gap runs six figures. Same revenue. Same work. Different form on file.
The S-corp election is the classic version. Split your profit into salary and distributions, and the distributions skip self-employment tax, once you've paid yourself a reasonable salary first. One election. Permanent effect.
It's not automatic. Elect too early and the payroll cost eats the savings. Above $403,500 in taxable income (married filing jointly), sole props lose the wage-based QBI deduction, since they don't pay themselves W-2 wages. An S-corp does. That gap alone can decide the entity question at this income level.
Your side of the work is a two-hour analysis and a signature. Against tens of thousands a year, every year, that's the highest-paid meeting on your calendar. Nothing else is close.
Decision 2: Set your pay
If you run an S-corp, your salary is the most consequential number in your tax life, and most owners set it by accident. A guess in year one, never revisited.
Three forces pull on that one number.
Payroll tax wants it low. Every dollar of salary pays in.
QBI wants it high enough. Above certain income levels, your 20% deduction gets capped by the wages your business pays, unless you've got enough depreciable property to clear the cap that way instead.
The IRS wants it defensible. Reasonable comp for what you do, or the whole structure gets a second look.
The right number threads all three, and it moves as your profit moves. Set it once and forget it, and you're wrong within two years. Guaranteed.
The fix is an hour with your CPA, once a year. One hour defending five figures. You will not bill a better hour anywhere.
Decision 3: Fund the machine
A solo 401(k) lets you contribute as the employee AND the employer. Combined, the 2026 limit runs to $72,000. $80,000 if you're 50 or older. $83,250 if you're 60 to 63. At a 32 to 37% marginal rate, that's $23,000 to $27,000 of federal tax deferred, compounding until you need it.
Most solo owners never set one up. Not because they ran the numbers and decided against it. Because nobody ever put the form in front of them.
Making $500K+ and north of 45? Ask about a cash balance plan stacked on top. For the right profile, the deferral runs into six figures a year.
Your hours: an account opening and an annual contribution. Two hours a year of attention for tens of thousands of deferral. The paperwork happens to you, not by you.
Decision 4: Deduct your state taxes
If you pay state income tax anywhere, ask your CPA four letters: PTET.
The pass-through entity tax election lets your business pay your state income tax and deduct it on the federal return, stepping around the cap that limits it on your personal 1040.
The cap got bigger. It also got means-tested. The workaround wins above $500K.
In California, a 9% top rate isn't quite the shape of it. A California S-corp with $500,000 of qualified net income pays $46,500 in state tax at the entity level. That $46,500 becomes a full federal business deduction. At a 35% federal bracket, that's $16,275 back on the federal return, on state tax that used to run into the cap on your personal 1040.
The hassle is one email. That ratio doesn't exist anywhere else in this letter.
Texans, you get a bye on this one. Enjoy it.
Decision 5: Accelerate the building
Own the building your business sits in? Own rentals?
A cost segregation study breaks the property into its components and front-loads the depreciation. With 100% bonus depreciation back in the law, 20 to 30% of the purchase price can land as a year-one deduction.
Remember Dave and Sarah from the REPS letter? Their study took about three hours of their own time. Documents pulled, one call with the engineers, done. It found $128,000 of deductions and saved them $44,000.
I'm not going to do that hourly math out loud. It's rude.
If you own property and have never run the study, you're on the slow schedule by default. The fast schedule was a phone call away the whole time.
ASK THE ROBOT WHAT YOU'RE MISSING
Last week you fed Claude your bank transactions. This week, feed it your tax return.
I'm uploading last year's tax return.
Don't tell me what I owe. Tell me what's missing.
Walk through it and flag: what entity I'm filing as and whether the income level suggests it's the wrong one. Whether I'm taking the QBI deduction and whether my owner salary looks calibrated for it. What retirement contributions I made against what I was eligible for. Whether there's real estate on the return and whether the depreciation looks accelerated or left on the default schedule.
For each gap, estimate the annual dollars at stake and rank the list by dollars per hour of my involvement.
Be specific about what you can't tell from the return alone.
One caveat: this reads a return, it doesn't file one. Every number it gives you is a question for your CPA, not an answer.
But notice what that prompt produces. A ranked list of what's missing, and you can't execute a single item on it yourself. There's no card to cancel. Every line is an election, an analysis, a form that somebody with a license files on your behalf.
That's not a bug. That's the tier. This is the part of the tax code where the hassle is for sale, and it's the best purchase you'll make all year.
ONE MEETING
Five decisions. Call it one working day of your hours, total, spread across a year. Priced against five figures annually, forever.
The entity math is the gate for everything else, and it's what the August 19 webinar covers start to finish. Save your spot.
Know something's off? Own property that's never been studied? If you're at $250K+ in profit and haven't touched your entity, comp, or retirement setup in over a year, book a Visor consultation. We'll walk your return and tell you which of these five decisions is costing you the most, and what it takes to fix the biggest one before year-end.
Next week, the last letter in this series, and my favorite. The tier where the hourly rate collapses. Sometimes to zero. Sometimes below it. Backdoor Roth, hiring your kids, the Augusta rule, 529s, and the log life, each one priced. Plus the three-question test that tells you whether "free money" is free for you, or a part-time job you'll quit in month nine.
P.S. If your entity was picked from a LegalZoom dropdown in 2019, this is your sign to join us next week.