A profitable business can produce a complicated personal tax return.

The owner may receive a salary, take distributions, hold loans to the company, and own the building where the business operates. Each item follows rules that do not necessarily match the movement of cash.

That disconnect becomes more important when the owner adds a large purchase, a retirement plan, an outside investment, or a possible sale.

In Beyond the Return: The Pass-Through Puzzle, ClairFi’s third webinar episode, Lisa Sretenovic, CPA, joins Joel Salas of Elevated Tax Strategies and Todd May of 1031 DST Group to explore business-owner planning.

The discussion starts inside the business. Before looking for another investment deduction, understand the existing entity, compensation, basis, and operating expenses.

Then connect those decisions with the owner’s personal goals and longer-term plans.

Summary

Business owner tax planning requires a coordinated view of the company and the individual. Entity structure, compensation, distributions, deductions, and ownership basis can all affect the result. The webinar emphasizes reviewing these fundamentals before evaluating outside strategies, then maintaining a multiyear plan that includes liquidity, future taxes, and a possible exit.

Watch the Webinar Highlight: Build the Team Before the Exit

Todd explains why business owners benefit from assembling their CPA, attorneys, plan administrator, and investment professionals well before an expected sale.

The clip focuses on a practical requirement: the team needs a regular communication process, not simply a list of professional contacts.

Explore the full webinar: Beyond the Return, The Pass-Through Puzzle.

Key Takeaways

• Start with the business’s current structure and financial records.
• Consider legal exposure and ownership needs alongside taxation.
• Review owner compensation, distributions, and basis before year-end.
• Evaluate deductions within the operating business before considering additional investments.
• Distinguish tax deferral from permanent tax reduction.
• Maintain supporting records and a multiyear model.
• Assign clear responsibilities across the advisory team.

Start With the Business the Owner Actually Has

Joel begins with prior business and personal tax returns, a current profit-and-loss statement, the general ledger, and the balance sheet.

Those records show how the business has operated. A conversation with the owner reveals what may change.

Is the owner satisfied with the current business? Are they expanding, reducing involvement, buying another company, or preparing to sell?

Todd’s questions about the business life cycle are important because each answer changes the planning priorities.

An owner expecting to operate for another decade may evaluate a long-term commitment differently from someone hoping to sell within two years.

Similarly, an expansion can create demands for cash that are not obvious from the tax return.

A planning review should connect the records with the owner’s intentions.

Information to Review	What It Helps Establish
Prior Business and Personal Returns	Existing tax treatment and carryforwards.
Current Financial Statements	Profitability, obligations, and cash movements.
Payroll Records	Compensation and employment-tax treatment.
Ownership and Loan Records	Basis, financing, and distribution questions.
Planned Transactions	Decisions that require action before completion.

The first objective is an accurate starting position.

Review Entity Structure Before Adding Strategies

Lisa identifies three considerations in entity selection: risk, ownership, and tax.

Focusing on only one can produce a structure that works poorly elsewhere.

An S corporation election may have tax implications, but it also comes with eligibility requirements and operating responsibilities. A partnership has different allocation and liability considerations. A C corporation follows a different tax framework again.

An LLC is a legal form that can receive different federal tax classifications.

Consequently, “form an LLC” is not a complete tax strategy.

Ask What the Structure Needs to Support

Before changing an entity or adding another company, establish the purpose.

Questions include:

• Who owns the business now?
• Are additional owners expected?
• What assets need legal protection?
• How will the owner receive compensation?
• Will the business acquire or hold real estate?
• What might a future buyer want to purchase?

Legal counsel and the tax professional should evaluate changes together.

Adding a holding company or subsidiary does not automatically improve the outcome. It can also introduce administrative costs, filing obligations, and restrictions.

The right structure supports the owner’s activities and goals without relying on unnecessary complexity.

Examine Compensation, Distributions, and Basis

The webinar highlights a problem many business owners recognize: money was available in the business account, so they withdrew it.

That cash movement does not establish the tax treatment.

Review Reasonable Compensation

For an S corporation shareholder who provides services, compensation requires attention.

The IRS guidance on S corporation compensation explains that shareholder-employees must receive reasonable compensation for services before nonwage distributions. The analysis considers the work performed and other relevant factors.

A salary should not be selected solely to create a desired employment-tax result.

Review responsibilities, time devoted to the company, and compensation for comparable work.

Track Stock Basis Separately From Debt Basis

Basis affects the treatment of losses and distributions, but the calculations are not interchangeable.

For an S corporation, a nondividend distribution is generally tax-free only to the extent of stock basis. Debt basis does not make an otherwise excess distribution tax-free.

The IRS stock and debt basis guidance also explains that shareholders are responsible for tracking basis.

This is a reason to review distributions during the year.

An account balance can look healthy even when the owner’s tax basis has changed substantially. Partnership rules require a separate analysis rather than an assumption that the S corporation treatment applies.

Review the Operating Business Before Outside Investments

Joel recommends examining the business’s existing opportunities before deciding how much personal taxable income remains to address.

This starts with accurate bookkeeping and legitimate business expenses.

An expense paid outside the main business account can be overlooked. Conversely, a personal cost does not become deductible simply because the owner pays it through the company.

The review should establish the facts and supporting records.

Consider Retirement Planning in Context

The episode raises defined benefit and cash balance plans as subjects for discussion.

Their suitability depends on the business, workforce, funding capacity, and plan requirements.

An owner should understand ongoing commitments and employee-related obligations before treating a projected contribution as an available deduction.

Coordinate with the appropriate plan professional early enough to evaluate the design and deadlines.

Review Depreciation Choices

Accelerated depreciation can affect taxable income, but maximizing the immediate deduction is not automatically the best overall decision.

The webinar discusses a business expecting a loss while also considering future financing.

That example shows why the team should model alternatives. Ask how a proposed election affects current taxes, future deductions, carryforwards, and the financial information a lender will review.

IRS Publication 946 explains the requirements for Section 179 and bonus depreciation. They are separate provisions with different rules.

Evaluate Research Expenses and QBI Carefully

The conversation also examines research spending and the qualified business income deduction.

These provisions deserve a factual review rather than a broad assumption that every innovative company qualifies for every benefit.

Distinguish Research Expensing From the Research Credit

Section 174A permits a deduction for qualifying domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Alternative treatment and transition provisions may apply.

That deduction is separate from the research credit, and coordination rules matter.

The IRS instructions for Form 6765 describe the relevant changes and their interaction.

Buying software or using AI does not, by itself, establish eligibility for a research credit.

The team needs to identify what work occurred, where it occurred, the expenses involved, and the applicable requirements.

Model the Qualified Business Income Interaction

A business deduction can change qualified business income as well as taxable income.

Other factors, including the type of business and the owner’s circumstances, may affect the QBI deduction.

Ask the tax professional to show the combined effect. Adding the apparent benefits of separate provisions can overstate the result when the calculations interact.

Build a Multiyear Plan for Ownership and Exit

The short clip captures the episode’s broader message: assemble the team before a major transaction creates urgency.

A three-to-five-year model can help organize expected profits, compensation, distributions, acquisitions, retirement contributions, and a possible sale.

The projection should be updated as decisions change.

Separate the Business Sale From a Real Estate Sale

If the owner also holds business premises, selling the operating company and selling the building are distinct events.

Different assets can create different tax consequences. A qualifying exchange of investment or business real property does not make the sale of operating-business assets automatically eligible for Section 1031 treatment.

Determine what is being sold before selecting a planning approach.

Put Deferred Taxes on the Calendar

Todd emphasizes that deferring tax is different from eliminating it.

The episode discusses Opportunity Zones as an example. Existing and newer investments can follow different timing rules.

IRS guidance describes the original program’s deferred-gain recognition deadline of December 31, 2026, subject to earlier inclusion events. The amended framework provides a rolling five-year deferral for qualifying investments under its effective-date rules.

These are different planning situations.

A future recognition date should appear in the cash plan from the beginning. Do not assume the investment will distribute enough money to pay the tax when required.

For current developments, review the IRS Opportunity Zones resources with the relevant professionals.

Test a Change of Plan

Business owners frequently encounter new opportunities.

What happens if the owner wants to sell sooner, fund an acquisition, or withdraw from a long-term investment?

A useful model includes those possibilities. It should identify potential costs and limitations before the owner becomes committed.

Maintain a Shared Planning File

Joel closes with an operational recommendation: retain the documents supporting the strategy and track the consequences over time.

A file might include ownership documents, basis schedules, transaction records, elections, participation evidence where relevant, and the assumptions used in the projections.

Good records do not guarantee that a tax position will be accepted. They make it easier to understand and support what was done.

Assign responsibility for maintaining the file and updating it after major events.

The same applies to communication. A warm introduction with a current tax projection is more useful than asking the owner to repeat a technical conversation from memory.

Clair360 provides a starting point for exploring a more connected approach to tax and wealth planning.

Frequently Asked Questions

Does a Profitable Business Automatically Need an S Corporation Election?

No. Entity decisions depend on ownership, legal considerations, compensation, administrative requirements, and the business’s goals.

Can I Take Distributions Whenever the Business Has Cash?

Cash availability is only one consideration. Tax basis, compensation requirements, legal restrictions, and operating needs can also matter.

How Early Should I Plan for a Business Exit?

Begin before the transaction is imminent. Some structural and financial decisions benefit from several years of preparation, while others have specific deadlines.

Solve the Connections Before Choosing the Strategy

The Pass-Through Puzzle shows why business owner tax planning starts with the existing company.

Review its structure, compensation, distributions, and deductions. Establish the owner’s goals. Then assess additional strategies within a multiyear plan.

Watch the full Episode 3 webinar for the complete conversation.

Explore Clair360 to connect business decisions with personal tax and wealth-planning priorities.

This article summarizes an educational webinar and provides general information. It does not provide individualized tax, legal, or investment advice. Strategies require review against current law and the owner’s circumstances.