The Business Owner
Tax Architecture
An integrated framework for owners of $1M–$10M revenue businesses — coordinated across the four quarters of the Llewellyn Wealth Operating System™ planning year.
What are you solving for?
Jump directly to the layer of the briefing that addresses your most pressing question.
Business owner tax strategy is not a list of tactics. It is an architecture. The owner who runs the right entity, with the right reasonable compensation, with the right retirement plan layered on top of an accountable plan, executed in the right state of residency, and sequenced toward a defensible exit valuation — that owner keeps materially more of what they build. Done in isolation, each piece produces modest savings. Coordinated across all four quarters of the LWOS planning year, the same pieces compound to substantially higher preserved capital for a typical operating owner. This briefing is the integrated framework, with companion deep-dives into each tactic.
This is a comprehensive private-client document, not a single-sitting read. The framework is organized in five layers that map to the LWOS planning year. Each layer gives you the strategic logic plus companion deep-dives to the specific article on each tactic.
If you are new to the framework, read top to bottom. If you are researching a specific tactic, jump to the layer where it lives and follow the companion deep-dive cards to the source article you need.
Why Architecture Beats Tactics
Most business owners encounter tax planning as a series of disconnected ideas. The CPA mentions the Augusta Rule at the year-end meeting. A peer at a conference brings up cash balance plans. An article recommends a §1202 election. A friend's advisor suggests a charitable remainder trust. Each idea is genuinely useful in isolation. None of them, executed alone, produces what the same set of ideas would produce if they were sequenced, sized, and coordinated as a single architecture.
The architectural shift is this: a tax planning year is not a checklist. It is an operating system. The owner who shelters six figures with a cash balance plan but never re-runs reasonable compensation against the QBI deduction is leaving meaningful value on the table. The owner who pays family members through the business but never adopts a written accountable plan is creating an audit profile without the documentation to survive one. The owner who sells a business but never positioned the entity for §1202 treatment three years earlier has forfeited a federal capital-gain exclusion that would have changed the family's after-tax outcome.
Coordination is the multiplier. Five tactics executed independently produce roughly five-tactics-worth of savings. The same five tactics executed inside a framework that respects how they interact produce ten or fifteen.
The framework below is how we organize that coordination across the planning year for our owner clients. It is the same framework that informs every quarterly review, every entity decision, and every pre-exit sequence we run.
The LWOS Tax Framework
The Llewellyn Wealth Operating System™ organizes the planning year into four quarters, each with a distinct focus. The tax architecture flows through all four, with different decisions reaching maturity in each:
Each layer is the subject of one major section below, with companion deep-dives to the detailed article on each specific tactic. The layers are intentionally drawn so that earlier layers cast forward — your entity decision in Q1 governs your retirement plan options in Q3, and both govern your pre-exit valuation in Layer 5. Done out of order, the architecture works against itself.
Foundation: Entity, Compensation, and Family Structure
Every other layer depends on the entity and compensation structure underneath it. Get this layer wrong and the rest of the framework compounds the mistake rather than the savings. Get it right and every subsequent layer is more powerful than it would be in isolation.
Entity structure Foundational
For most operating owners $1M–$10M in revenue, the choice is among S-corp, LLC taxed as S-corp, partnership / multi-member LLC, and — rarely — C-corporation.
The right entity is not a default. It's a function of revenue scale, owner count, distribution patterns, payroll capacity, real estate ownership, and exit horizon. Owners who picked an entity at formation and never revisited routinely run the wrong structure for their current circumstances.
Reasonable compensation Foundational
Set it too low and you create the Watson fact pattern. Set it too high and you overpay self-employment tax while suppressing the §199A QBI deduction.
The defensible sweet spot is a documented number anchored to comparable-pay data — rerun annually, not set once at entity formation.
Accountable plan Foundational
An accountable plan under §62(c) is the cleanest mechanism in the Code for moving legitimate business expenses — home office, vehicle, travel, cell phone, professional development — from personal after-tax dollars to entity pre-tax dollars.
The plan is a single written document. It must exist before reimbursements are made, not retroactively constructed at tax time. Most closely-held businesses we audit don't have one.
§280A "Augusta Rule" meetings Conditional
IRC §280A(g) allows an owner to rent their personal residence to their business for up to 14 days per year — rental income excluded from personal income, rental expense deductible to the business.
Properly documented (written board minutes, market-rate justification, contemporaneous records), this produces modeled annual tax-free transfer for the right business profile.
Family structures Conditional
Payments to children performing legitimate work in the business are deductible to the entity and (depending on structure and age) exempt from FICA. The Eller v. Commissioner line of cases governs what survives examination.
A family-management LLC adds a parallel structure coordinating family assets, employment, and intergenerational transfer with valuation discounts.
Walk through Layer 1 for your specific situation.
Schedule a 30-minute briefing →Income Architecture: How Dollars Are Recognized
Once the foundation is set, the second layer governs how income is recognized, characterized, and where it is sourced. This is where the largest single-tactic savings often hide — the §199A deduction alone, properly structured, preserves meaningful annual value for the right owner profile. Stack it with a §1202 positioning decision and the value compounds.
§199A QBI deduction High-Impact
The Qualified Business Income deduction provides up to a 20% deduction on pass-through income for owners below taxable-income thresholds — with phase-in / phase-out above.
For non-SSTB owners, the W-2 wage cap interacts with reasonable compensation in non-obvious ways. Each dollar of W-2 reduces SE-tax but increases QBI wage capacity. There is a calculable sweet spot — it is rarely the salary your CPA defaulted to.
§1202 Qualified Small Business Stock Flagship
Per OBBBA, qualified C-corp stock issued after July 4, 2025 receives tiered federal capital-gains exclusion. The election must be positioned at C-corp formation — not at exit.
For owners with a plausible 5+ year hold runway, §1202 may be the single largest tax preference available in the framework.
§83(b) elections and equity timing Conditional
For founders, early employees, and recipients of restricted stock or profits interests, the §83(b) election fixes the taxable event at grant rather than vest. Filed within 30 days, it can convert what would have been ordinary income at vest into capital gain at sale.
PTET elections and state-tax planning High-Impact
The pass-through entity tax workaround to the SALT cap is now available in most income-tax states, including NC. The election moves state tax from the personal return (where the $10K SALT cap applies) to the entity return (where the deduction is unlimited).
For owners with material state-tax exposure, the savings can be substantial.
§1244 small business stock designation Conditional
For closely-held C-corp investments that may fail, the §1244 designation — made at formation in corporate minutes — converts up to $100K (MFJ) of eventual loss from capital loss to ordinary loss treatment.
The designation costs nothing at formation. Retroactive designation after the business has failed is structurally too late.
Capital Architecture: Investment-Side Tax Planning
The third layer governs how investable wealth is tax-architected. This is the layer most generic financial advisors do reasonably well in isolation — but the integration with Layers 1 and 2 is what makes it powerful. A cash balance plan adopted without coordinating reasonable compensation in Layer 1 produces less than half of its potential value.
Retirement plan layering Flagship
The standard 401(k) deferral is the floor of what an owner can shelter, not the ceiling. Solo 401(k) + employer profit-sharing reaches the §415(c) overall ceiling.
Layered with a cash balance plan, an owner age 55 can shelter materially more on a fully deductible basis. The Mega Backdoor Roth, where plan design permits, adds tax-free Roth space on top.
Direct indexing and asset location High-Impact
Direct indexing replaces index funds with the underlying securities, enabling security-level tax-loss harvesting that an ETF cannot provide. For taxable accounts at $1M+, the approach typically captures meaningful incremental after-tax return through tax alpha.
Asset location — which assets sit in which account types — adds further after-tax improvement when done properly.
Real estate ownership and REPS qualification Conditional
For owners with material real estate holdings, real estate professional status under §469(c)(7) — paired with cost segregation studies — can offset substantial ordinary income with accelerated depreciation.
A non-working spouse who qualifies can produce material annual tax savings against the working spouse's income.
§41 R&D credit Conditional
For businesses developing or improving products, processes, or software, the §41 research credit can produce material annual federal credit (plus state-level credits in many states).
OBBBA-restored §174A immediate expensing of domestic R&D restored the value of pairing the credit with current-year deductibility. Small businesses (gross receipts under $31M) can retroactively amend for §174A.
Want help sizing the retirement-plan stack for your business?
Schedule a planning briefing →Optimization: Year-End Execution
The fourth layer is where the year's architecture becomes actual tax outcome. Strategies designed earlier in the year mature in Q4: Roth conversions are sized against actual income, charitable contributions are bunched or routed through DAFs, tax-loss harvesting is finalized, and the year's reasonable compensation analysis is documented.
Roth conversion sequencing High-Impact
For owners in pre-retirement, post-sale, or sabbatical years, Roth conversion windows produce some of the largest single-year tax decisions a household will see.
The right conversion is sized to fill a bracket without crossing into the next, respects IRMAA tier thresholds for Medicare-eligible owners, and is modeled multi-year rather than single-year.
Charitable bunching with donor-advised funds High-Impact
Post-TCJA, the standard-deduction architecture created a structural problem: many annual charitable contributions no longer produce deduction value because total itemized deductions don't exceed the standard deduction. Bunching multiple years of giving into a single year via a DAF restores the deduction.
For owners with a liquidity event, a DAF in the year of the event accelerates a decade of giving while maximizing the deduction at the highest-bracket year.
Year-end execution sprint Foundational
Q4 is when the year's architecture becomes operational tax outcome. The sprint includes final reasonable-compensation documentation, year-end retirement plan funding, charitable contributions, harvesting decisions, and the planning conversation that sets up the following year.
Done piecemeal in December, it produces stress. Done as a planned sequence beginning in October, it produces clean execution.
Pre-Exit Architecture (24–36 Months Out)
For owners contemplating a sale, recapitalization, or generational transfer within 24–36 months, a fifth layer overlays the framework. Pre-exit work is the most consequential window in an owner's tax life. Decisions made 24 months before an LOI can shift after-tax outcomes materially. Decisions made 60 days before an LOI rarely move the needle.
Valuation positioning Foundational
A defensible third-party valuation, established 24–36 months ahead of an exit, drives every downstream decision: buy-sell funding, estate gifting, QSBS positioning, and sale negotiation.
Owners who arrive at the LOI with no defensible valuation routinely surrender meaningful value to well-prepared buyers.
Buy-sell structuring (post-Connelly) High-Impact
The 2024 Supreme Court decision changed the estate-tax treatment of life-insurance-funded entity-purchase buy-sells.
The decision affects cross-purchase vs. entity-purchase election, life insurance ownership structure, and the valuation that flows into the estate.
§1042 ESOP rollover for C-corp owners Flagship
For C-corp owners selling 30%+ of stock to an ESOP, §1042 defers federal capital gains. Through Qualified Replacement Property held to death, the gain is permanently eliminated under §1014.
The structure requires a 3-year C-corp holding period before the sale — S-corp owners considering this path must convert at least three years ahead.
§6166 estate tax installment positioning Conditional
For owners whose business interest will represent more than 35% of a taxable estate, §6166 permits a 14-year installment payout of federal estate tax at favorable interest rates.
The election must be made on a timely-filed Form 706. Estate planning for owners above the federal exemption should anticipate §6166 and structure buy-sell and liquidity around it.
If your exit horizon is 24–36 months, the architectural window is open.
Schedule a pre-exit briefing →The Compounding Case
The framework's value is in the compounding. Tactics executed in isolation produce modest savings. The same tactics, executed inside a coordinated framework that respects how they interact, produce materially greater preserved capital. The composite case below illustrates how the layers compound across a 5-year planning arc.
Composite profile drawn from the type of work we coordinate for owner clients. Married couple, ages 52 and 50. Operating S-corp: $6.4M revenue, $1.8M of owner-level net income. Total household net worth: $9.8M, including the operating business at approximately $5.5M. NC residents. Below the federal exemption.
Year 1 — Foundation reset. Reasonable compensation rerun and lowered with documented support. Accountable plan adopted. §280A meetings formally documented. Family-management LLC formed.
Year 1 modeled incremental savings range: ~$15K–$30K
Year 2 — Income architecture. PTET election in NC. §199A optimization following the comp reset. §83(b) elections filed where applicable on equity grants.
Year 2 modeled cumulative range: ~$35K–$65K
Year 3 — Capital architecture. Cash balance plan adopted, layered with Solo 401(k) profit-sharing. Direct indexing introduced on the family's taxable account. Cost segregation study on owned commercial real estate (REPS qualifying spouse).
Year 3 modeled cumulative range: ~$95K–$170K
Year 4 — Optimization. Bracket-managed Roth conversion. Charitable bunching via DAF. Year-end harvesting in the direct-indexed sleeve. IRMAA-aware multi-year modeling.
Year 4 modeled cumulative range: ~$140K–$235K
Year 5 — Pre-exit positioning begins. Defensible valuation established. Buy-sell agreement re-papered post-Connelly. Strategic conversation initiated on S-to-C conversion for potential §1202 QSBS positioning. Estate plan refreshed; SLATs funded with portion of family-management LLC interests.
Year 5 modeled cumulative range: ~$180K–$295K
Plus: positioning for potential federal capital-gain exclusion at future exit
Plus: defensible buy-sell, estate-funded trusts, ready-to-execute exit architecture
The dollar figures above are illustrative modeled ranges based on assumed facts. The point is the compounding pattern: Year 1 alone produces modest savings; the same set of tactics, executed without coordination, would produce roughly that same modest amount and stop. Coordinated across five years, the architecture compounds — and produces structural readiness for an exit that itself may be the largest single financial event of the family's life.
Illustrative composite, not a guarantee of any specific outcome. Modeled ranges reflect assumed facts and are not based on any actual client result. Real outcomes depend on individual facts, including the specific QBI calculation, state tax conformity, retirement plan design, marginal tax rates at execution, the IRS positions on specific structures at the time of execution, and a range of other variables. Past results do not predict future outcomes. Consult qualified tax counsel before relying on any specific projection.
The Coordination Question
A reasonable response to a framework of this scope is: who actually runs this? The CPA files the return. The estate attorney drafts the documents. The investment advisor manages the portfolio. The insurance broker structures the buy-sell. Each is a specialist in their lane. None of them, by professional norm or by economic incentive, is the orchestrator of the architecture across all of them.
The orchestrator role is what the Llewellyn Wealth Operating System™ was built to fill. We don't replace your CPA or your attorney. We don't displace your investment process. We sit above them and coordinate — sequencing decisions across the planning year, ensuring that Layer 1 decisions support Layer 2 outcomes, that Layer 3 doesn't overrun the architecture set in Layer 1, that Layer 5 begins on time when an exit horizon comes into view.
This is not a catalog of every tax tactic in the Code. It is the integrated framework we use to organize tactics for operating owners $1M–$10M in revenue. Tactics that are powerful for other ICPs — exit consultants for $50M+ owners, structured debt strategies for institutional families, foreign-credit work for international operators — exist outside this framework. We refer those when we encounter them; we do not pretend the framework above is universal.
Frequently Asked Questions
How much of this should my CPA already be doing?
Most CPAs run an excellent return-preparation practice and a defensible compliance posture. The architectural work — sequencing, coordination, multi-year modeling, pre-exit positioning — is genuinely different work, and most CPAs are neither structured for it nor compensated to do it. The right question is not "should my CPA do this?" but "who in my advisory network owns the architecture?"
Where do I start if I am doing none of this today?
Layer 1, in order. The reasonable compensation analysis and the accountable plan are the cheapest, fastest, highest-leverage moves available to nearly any S-corp owner — and they produce the documentation foundation that every later layer rests on. Most owners can complete Layer 1 in 30–60 days with the right CPA cooperation.
What does it actually cost to coordinate the full framework?
Llewellyn's planning fees are flat ($12,500–$25,000+ annually depending on complexity), with optional discretionary asset management at 35 bps. The fee structure decouples planning work from AUM, so an owner whose largest asset is the operating business is properly compensated-for on the planning side. For most owners, the annual planning fee is recovered many times over by Layer 1 alone in the first year.
Does this framework apply if I'm not planning to sell my business?
Layers 1–4 apply regardless of exit plans. Layer 5 activates only when an exit, recapitalization, or generational transition comes into view (24–36 months out). Most of the savings in the framework come from Layers 1–4; Layer 5 is critical when relevant but not the foundation.
Will the framework change with future tax law?
The framework architecture is durable; specific dollar thresholds and rate parameters are not. The OBBBA-preserved $15M federal estate exemption, §1202 tiered exclusions, and §415(c) retirement plan limits are 2026 values and may adjust over time. We re-baseline the framework annually with our clients to reflect current law. The integration logic — entity supports comp supports plans supports exit — has been stable for decades and we expect it to remain so.
Business owner tax strategy is not a list of tactics; it is an integrated architecture across an operating year. The framework above is what we run with our owner clients — Layer 1 foundation through Layer 5 pre-exit positioning, sequenced and coordinated quarter by quarter through the Llewellyn Wealth Operating System™.
If you are not sure where your current setup actually sits inside the framework, that is the assessment we begin every engagement with.
This pillar briefing is for educational purposes only and does not constitute individualized tax, legal, or investment advice. Tax law, inflation-adjusted thresholds, and the specific dollar parameters cited (Social Security wage base, §415(c) limits, IRMAA tiers, federal estate exemption, §1202 thresholds) are current as of the 2026 tax year (per IRS Notice 2025-91, SSA October 2025 announcement, and OBBBA enacted 2025) and may change. Dollar figures in worked examples are illustrative modeled ranges based on assumed facts; they do not represent any specific client outcome or guarantee of result. Past performance does not predict future results. Specific tactics within the framework require qualified counsel applied to individual facts. Llewellyn Financial is a fee-only, fiduciary RIA based in Charlotte, NC.