Dana Whitfield

HighIn reviewProspect

Whitfield Design Co.Dana WhitfieldHNWSingleTX, CAJulian RhoQuarterlyReturn on file

Est. current income

$1,140,000

vs $905,000 prior year

Effective rate

29.9%

Marginal bracket

37% ordinary + 0.9% add'l Medicare

Dec 31 hard stops

Dana Whitfield

2026 Year-End Planning Summary

Dec 31 stops

~$208K–$269K of federal tax addressed across 5 quantified opportunities (cash-balance/DB plan, §199A QBI capture, bonus depreciation, CA PTET election, and the reasonable-comp reset that unlocks the first two), with the buyout structure and multi-state nexus to resolve before filing. Figures are additive at the item level; the DB and §179 deductions reduce QBI, so the combined result is modelled net at engagement.

Whitfield Design Co.

S-Corp

~$780,000 qualified business income

5 items · $153,000–$211,000

Dana Whitfield

W-2 · primary

$1,140,000 total

1 item · $55,000–$58,000

Est. income

$1,140,000

vs $905,000

Effective rate

29.9%

Marginal

37% ordinary + 0.9% add'l Medicare

Key changes

flagged

1. Current-Year Action Items

Time-sensitive moves before December 31.

Whitfield Design Co.

S-Corp

$153,000–$211,000 · 3 of 4 quantified

Cash-balance plan paired with the 401(k) to shelter the spike year

Dec 31 hard stop

Client response: "The business had a record year and I don't have much set aside for retirement beyond the 401(k)."

A record income year at the 37% marginal rate is the moment to install a cash-balance plan: the actuarially-determined contribution for an owner near 50 commonly runs $200K–$250K — far above the §415(c) defined-contribution limit — and is fully deductible under §404(o), funding a benefit toward the §415(b) $290,000 cap. Paired with the existing 401(k) and a 6%-of-pay profit-sharing contribution (kept within the §404(a)(7)(C)(iii) carve-out), the combined deduction shelters the spike at the top rate. The lever is only available because wages are being reset to a defensible $360,000 — distributions cannot fund plan contributions.

~$80,000–$110,000 of federal tax saved (≈$250K deductible at 37%)

Assumes a defined-benefit/cash-balance plan layered on the existing 401(k) for a ~50-year-old owner, with an actuarially-determined deductible contribution of roughly $200K–$250K (DB contributions are sized to fund a benefit up to the 2026 §415(b) $290,000 cap, not the §415(c) $72,000 DC limit). Profit-sharing is held at 6% of pay so the §404(a)(7)(C)(iii) carve-out preserves the full DB deduction. Value = deductible contribution × 37% top rate; the contribution is fundable only because wages are reset to the §401(a)(17) $360,000 limit (see the reasonable-comp item).

Without action

The spike year is taxed at 37% with no retirement shelter beyond the modest 401(k); the one-time chance to deduct a six-figure contribution at the top rate is lost.

With the plan

~$250K deductible contribution shelters the spike — roughly $80K–$110K of federal tax saved — while funding retirement.

Cross-entity dependency · Sponsored and deducted by Whitfield Design Co. on the 1120-S; the benefit reaches Dana's 1040 through the K-1. Because the deduction reduces the S-corp's ordinary income, it also reduces qualified business income — trimming the §199A deduction on the next item. Model the two together, not additively.

DeadlinePlan adopted by Dec 31, 2026; funded by the return due date

OwnerBoth

AuthorityIRC §404(o)IRC §415(b) (2026 limit $290,000)IRC §404(a)(7)(C)(iii)IRC §401(a)(17) (2026 limit $360,000)

Section 179 / 100% bonus depreciation on the equipment expansion

Dec 31 hard stop

Client response: "I'm planning to buy some new equipment, maybe before year-end."

OBBBA made 100% bonus depreciation permanent under §168(k), so qualifying current-year purchases can be fully expensed against a record income year at the 37% marginal rate. The deduction requires the property to be placed in service — installed and ready for use — by Dec 31, not simply ordered. Because this accelerates deductions rather than creating them, the benefit is timing and should be weighed against expected future rates.

$55,000–$74,000 of federal tax deferred (≈$150K to $200K placed in service)

Assumes $150K–$200K of qualifying property placed in service by Dec 31, fully expensed at the 37% marginal rate (2026 §179 limit $2.56M; 100% bonus, permanent post-OBBBA, for the balance). This accelerates, rather than creates, deductions — value is the timing benefit at the top rate.

Without action

Deduction slips to a later year (or is lost this year) if the equipment isn't in service by Dec 31.

With the plan

$55K–$74K of tax deferred by fully expensing this year against record income.

DeadlineDecember 31, 2026

OwnerBoth

AuthorityIRC §179IRC §168(k)

Elect the California pass-through entity tax before the June 15 prepayment

PYR state filings: CA and TX. S-corp K-1 ordinary income apportioned to California is exposed to the individual SALT limitation absent a PTET election.

California's elective pass-through entity tax moves a state tax liability from Dana's individual return — where the SALT limitation restricts its deductibility — to the S-corp, where it is an ordinary and necessary deduction against business income under Notice 2020-75. She then takes a credit for the same tax on her CA return, so the state result is broadly neutral and the federal deduction is the gain. The binding constraint is procedural rather than substantive: the June 15 prepayment is a condition of eligibility, and a missed prepayment cannot be cured later in the year. Apportionment must be settled first, since market-based sourcing for design services determines the base the 9.3% applies to and is the same analysis the multi-state nexus question raises.

~$18,000–$27,000 of federal tax saved (CA elective tax on apportioned income, deducted at the 37% federal rate)

Assumes CA-apportioned qualified net income between roughly $520K and $780K of the S-corp's ~$780K total, depending on market-based sourcing of design services under R&TC §25136. The entity pays 9.3% CA tax on that base, deducts it as a state tax of the entity on the 1120-S per Notice 2020-75, and Dana claims a credit for the same amount against her CA liability. Value = entity-level payment × 37% federal rate. The credit makes this close to federal-rate-free at the state level; the benefit is the federal deduction the SALT cap would otherwise deny her.

Without action

The CA tax on apportioned business income stays on her individual return, where the SALT limitation restricts the deduction, and the election is unavailable for 2026 once the June 15 prepayment passes.

With the plan

Roughly $18K–$27K of federal tax saved annually, with the state liability substantially offset by the owner credit.

Cross-entity dependency · The clearest entity/owner split in this plan: Whitfield Design Co. elects and pays the tax, deducts it federally on the 1120-S (reducing the K-1 income that reaches Dana), and Dana claims a credit for the same tax on her CA return. The federal benefit exists only because the payment sits at the entity rather than on her Schedule A.

DeadlineJune 15, 2026 (prepayment); election on the timely-filed return

OwnerCPA

AuthorityCal. R&TC §19900 (PTE elective tax)Cal. R&TC §17052.10 (owner credit)IRS Notice 2020-75Cal. R&TC §25136 (market-based sourcing)

Reset reasonable compensation — the lever that unlocks the plan and QBI

Dec 31 hard stop

Client response: "I took most of my money out as distributions this year, wages stayed about the same."

Wages held flat while distributions climb is both an audit exposure (Rev. Rul. 74-44 recharacterization) and the binding constraint on every other lever: retirement-plan contributions are limited by W-2 compensation (§415(c)(3), capped at $360,000 under §401(a)(17)), and the §199A deduction at this income is limited to 50% of W-2 wages. Resetting wages to a defensible $360,000 costs incremental Medicare tax but unlocks the cash-balance contribution and the QBI deduction — a net gain of roughly $140K. The reset must run through payroll before the year's final cycle; it cannot be booked retroactively.

Enables ~$140K+ of the savings above; nets after ~$11K added Medicare on wages

Raising W-2 wages to the §401(a)(17) $360,000 plan-compensation cap costs incremental Medicare tax (1.45% employee + 1.45% employer + 0.9% additional above $200K ≈ $11K–$14K on the added band; the 12.4% Social Security portion is capped well below). That cost is the price of admission: plan contributions and the §199A 50%-of-W-2-wages limit are both computed on W-2 wages, not distributions. It also resolves the recharacterization exposure under Rev. Rul. 74-44.

Without action

Low wages cap the pension contribution and forfeit the §199A deduction, and leave the distribution-heavy split exposed to IRS recharacterization.

With the plan

Defensible $360K wages unlock the cash-balance deduction and the QBI deduction, and make the comp split audit-ready.

DeadlineFinal payroll run of 2026

OwnerCPA

AuthorityRev. Rul. 74-44IRC §415(c)(3)IRC §401(a)(17)IRC §199A(b)(2)

Dana Whitfield

W-2

$55,000–$58,000

Capture the §199A QBI deduction (non-SSTB, wage-limited)

PYR Schedule K-1 + entity classification: products S-corp (non-SSTB) with ~$780K of qualified business income.

At ~$1.14M income the §199A deduction is past the phase-in, so it is limited to the greater of 50% of W-2 wages or 25% of wages plus 2.5% of UBIA — making the wage reset directly determinative. For a non-SSTB products business with ~$780K of QBI, 20% (~$156K) is below the 50%-of-$360K-wages cap ($180K), so the full deduction is preserved. Confirming the business is non-SSTB is essential: an SSTB receives no deduction at this income.

~$55,000–$58,000 of federal tax saved (≈$156K deduction at 37%)

Assumes a non-SSTB products business with ~$780K QBI. Above the 2026 threshold, the deduction is the lesser of 20% of QBI (~$156K) or 50% of W-2 wages ($180K at $360K wages) — so the full $156K survives once wages are reset. An SSTB would be fully phased out at this income; classification matters. Value = deduction × 37%.

Without action

Insufficient W-2 wages cap or forfeit the deduction; misclassification as an SSTB would eliminate it entirely.

With the plan

Full ~$156K §199A deduction preserved — about $56K of federal tax saved.

Cross-entity dependency · Computed from Whitfield Design Co.'s K-1 (QBI, W-2 wages, UBIA) but claimed on Dana's 1040. Two entity-level items set its ceiling: the comp reset drives the §199A(b)(2) wage limit — the greater of 50% of W-2 wages or 25% of wages plus 2.5% of UBIA — while the cash-balance and §179 deductions reduce QBI itself. Raising wages lifts the limit; deducting at the entity lowers the base.

DeadlineWith the 2026 return

OwnerCPA

AuthorityIRC §199A(b)(2)IRC §199A(d)(2) (SSTB)

2. Long-Term Opportunities

Multi-year planning to revisit beyond this season.

Whitfield Design Co.

S-Corp

Structure the minority-owner buyout for an inside basis step-up

Client response: "I might buy out my minority partner over the next year."

For an S corporation there is no partnership-style §754 inside step-up, and the deemed-asset-sale elections (§338(h)(10)/§336(e)) require an 80% qualified stock purchase — so a minority stock buyout yields outside basis only. The realistic way to step up inside asset basis on these facts is to structure the deal as an actual asset purchase, which carries its own tradeoffs for the seller. The structure must be modeled before terms are set, since it cannot be changed after the deal closes.

Basis step-up sized to the buyout (structure-dependent)

A straight purchase of a minority S-corp stake gives the buyer outside basis only — no inside step-up, and the §754 partnership rules do not apply to S corporations. The deemed-asset-sale elections (§338(h)(10)/§336(e)) are unavailable here because they require an 80% qualified stock purchase (and a corporate buyer for §338(h)(10)). On these facts the realistic path to an inside step-up is an actual purchase of assets rather than stock. Value depends on the spread between price and the target's share of inside basis.

Without action

A straight stock buyout gives outside basis only — no future depreciation from a step-up.

With the plan

An asset-purchase structure can step up inside basis, creating future deductions (subject to seller tradeoffs).

DeadlineWith the return for the year of the buyout

OwnerCPA

AuthorityIRC §1361 (S-corp status)IRC §338(h)(10) / Treas. Reg. §1.338(h)(10)-1IRC §336(e) / Treas. Reg. §1.336-2

3. Open Questions for the CPA

Items to resolve before the client conversation.

Whitfield Design Co.

S-Corp

Multi-state exposure — confirm where work is performed

New clients in another state can create income-tax nexus and a filing or apportionment obligation for the S-corp and its owner. Whether this rises to a filing requirement depends on where the work is performed and the destination state's economic-nexus thresholds, which must be confirmed before the return is prepared.

OwnerCPA

Elan

Grounded on Dana Whitfield

I flagged 2 things for Dana Whitfield.

Elan brought this to you

Elect the California pass-through entity tax before the June 15 prepayment

PYR state filings: CA and TX. S-corp K-1 ordinary income apportioned to California is exposed to the individual SALT limitation absent a PTET election.

~$18,000–$27,000 of federal tax saved (CA elective tax on apportioned income, deducted at the 37% federal rate)

Without action

With the plan

Roughly $18K–$27K of federal tax saved annually, with the state liability substantially offset by the owner credit.

DeadlineJune 15, 2026 (prepayment); election on the timely-filed return

OwnerCPA

AuthorityCal. R&TC §19900 (PTE elective tax)Cal. R&TC §17052.10 (owner credit)IRS Notice 2020-75Cal. R&TC §25136 (market-based sourcing)