Engineered.Not estimated.
Two clients. Different industries. Same build.
Every figure below is real.
Savings follow structure.Never the reverse.
We don’t start with a savings number. We build the structure. Entity, capital, timing, and what happens after. The numbers follow.
The two engagements below are first-year figures. Structure compounds in year two, year five, and at exit. Neither client came in asking for a savings target. Both came in with a constraint.
$6M of R&D capitalthat couldn’t be capitalized in-year.
A pharmacy operator with a drug research company alongside it. Combined profits ran about $6M a year. The subsidiary needed a matching $6M put into its research pipeline. Most of that spend wouldn’t produce a deduction this year. The write-offs would come later, as the assets came online.
Left alone, this year’s profits would be taxed at 41.8%. The write-offs would show up too late to help. The operator would be funding the buildout with expensive dollars while waiting on deductions he couldn’t claim yet.
We set up a C-corp MSO next to the operating entities. A fair and reasonable compensation study supported a $3M annual management fee, roughly half of yearly profit. A management agreement laid out the arm’s-length services the MSO provides: operational oversight, strategic coordination, and compliance. Every piece was built to hold up if the IRS looks at either side of it.
The $3M routed through the MSO is now taxed at 23.5% instead of 41.8%. That saves $547,500 a year. After entity taxes, $2,295,000 stays in the MSO. It then goes back to the operating business as an intercompany loan, funding the research buildout with dollars that never hit the 41.8% personal rate.
That preserved capital isn’t a one-time win. It’s a bridge. It stays working in the buildout until the later-year write-offs catch up. Once the research assets come online and throw off their own deductions, the operator can either put that capital into the next build cycle or take it personally as profit. Structure did the work that timing couldn’t.
Two questions, answered early.
There are two businesses here, and a management company next to them. It can pull income from either one, which keeps his personal income separate from the corporate income. It also gives him capital to reinvest, already taxed at a lower rate, into projects whose depreciation he can use in the year he makes the investment. The research spend can’t do that. It has to be capitalized.
Two questions are still open. Should the research company become a C corp, so the shares can qualify for QSBS? Should the pharmacy become an LLC so it can be sold? Most owners are S corps, and buyers don’t buy S corps.
Both get answered years before a sale, not during one.
$20M firm revenue.46.9% effective on every dollar.
A law firm doing over $20M a year, set up as an S-corp. All the profit passed straight through to the partners, landing at a blended 46.9%. The majority partner’s own business income was $15M. At that size, tax wasn’t a cost of growing. It was eating the capital that should have funded the growth.
This one took the full build, not a single lever.
We set up a C-corp MSO for the majority partner alongside the firm. A $2M annual management fee runs through it, taxed at 32.0% instead of the 46.9% personal rate. A fair and reasonable compensation study and a management agreement back it up, as always. Savings at the entity layer: $297,600.
We built a relief valve inside the MSO. It gives the partner access to the cash the company has kept, without the dividend tax she’d owe on a normal distribution. She can fund personal investments out of MSO capital without undoing the savings that put it there.
$800,000 went into a farming operation the partner materially participates in. Material participation is the hinge. It makes the operation active rather than passive, so the deductions it produces can offset her regular business income instead of being stuck where she can’t use them. The structure produced $3,200,000 in active deductions. That’s 4× the capital she put in.
Those deductions landed against the partner’s $15M of personal business income and saved her $1,372,800. Added to the entity-layer savings, first-year total: $1,670,400.
None of this was a one-time move. The farming operation pays her during the year and is still worth something when she sells it. The MSO holds more cash to draw on every year. Each new allocation makes new deductions. She gets paid to keep it running.
The management company stays.
Private equity can’t own a law firm. It buys the economics through its own management company instead.
Her management company stays with her. The retained earnings stay inside it and never have to be unwound. Over time it becomes a family management company: borrowing against the balance, funding investments, with her children using it the same way.
A sale takes the firm. It doesn’t take that.
Two engagements.Same build.
What connects these two isn’t the industry, the dollar figure, or the tax benefit. It’s that both were settled at the build.
Both show the half that pays every year. The pharmacy operator fixed a timing problem. The law firm partner moved income to a lower rate and got at the cash behind it.
Both also answered the first question a buyer asks. What am I buying, and who owns it? Most owners are S corps, and buyers don’t buy S corps. They want an LLC or a C corp, or they want the assets. That gets decided when the business is built.
That’s the point. This isn’t a library of tactics. It’s reading the constraint, knowing which levers answer it, pulling them in order, and keeping the thing running so each cycle builds on the last.
Your constraints.Not these numbers.
Both engagements started with a constraint, not a savings target. That’s how every engagement we take starts. If you’re running $1M+ in net profit and nobody has deliberately built the structure underneath it, the assessment is worth the half hour.