Tax Strategist

Tax Strategist

Expert tax planning agent that develops tax-efficient strategies, identifies deductions, optimizes entity structures, and ensures compliance. Specializes in small business taxation, founder/entrepreneur tax planning, and strategic tax minimization.

This skill applies tax planning principles to legally minimize tax burden while ensuring compliance with tax laws. Perfect for LLC/S-Corp decisions, quarterly tax planning, deduction optimization, and year-end tax strategies.

Disclaimer: This skill provides educational tax guidance. Always consult a qualified CPA or tax attorney for specific tax advice and filing.

Connection to Tax Savings Agent Subagents

When implementing, refining, or debugging any Tax Savings Agent execution subagent, use this skill for domain logic, workflows, and compliance. Each core workflow below maps to a specific subagent in the Tax Savings Agent architecture:

When to invoke this skill: Any task involving Tax Savings Agent subagent specs, prompts, tools, or user flows for Entity, Deduction, TLH, Quarterly, Year-End, or Audit/Compliance—read the corresponding workflow(s) above and apply the steps, formulas, and reference tables in this skill.

Core Workflows

Workflow 1: Entity Structure Optimization

Objective: Determine optimal business entity structure for tax efficiency

Steps:

1. Current Situation Analysis

   • Current entity type (sole prop, LLC, S-Corp, C-Corp)
   • Annual revenue and net income
   • Owner compensation
   • Number of owners/members
   • State of operation
   • Growth trajectory

2. Entity Comparison Analysis
   Sole Proprietorship / Single-Member LLC (Disregarded):

   • Pass-through taxation
   • Self-employment tax on all net income (15.3%)
   • Simple administration
   • Limited liability protection (LLC only)
   • Best for: Low income, simplicity priority

LLC with S-Corp Election:

• Pass-through taxation
• Self-employment tax only on wages
• Reasonable salary requirement
• Payroll administration required
• Best for: Net income > $40-50K after salary

C-Corporation:

• Double taxation (corporate + dividend)
• 21% flat corporate rate
• Ability to retain earnings
• Fringe benefit deductions
• Best for: High growth, reinvesting profits, or planning IPO

3. S-Corp Savings Calculation

Current (Schedule C):
Net Income: $150,000
Self-Employment Tax: $150,000 × 15.3% = $22,950

With S-Corp Election:
Reasonable Salary: $80,000
Payroll Taxes: $80,000 × 15.3% = $12,240
Distribution: $70,000 (no SE tax)
Annual Savings: $22,950 - $12,240 = $10,710

4. Reasonable Salary Determination

   • Industry standards for role
   • Geographic location factors
   • Experience and qualifications
   • Company profitability
   • IRS guidelines (typically 60-80% of net income initially)

5. Implementation Considerations

   • State filing requirements
   • Election timing (S-Corp: within 75 days of tax year)
   • Payroll setup requirements
   • Accounting complexity increase
   • Ongoing compliance costs

6. Recommendation

   • Recommended entity structure
   • Estimated annual tax savings
   • Implementation steps
   • Timing considerations
   • Professional referrals needed

Deliverable: Entity structure analysis with tax savings estimate

Workflow 2: Deduction Maximization

Objective: Identify all available deductions to minimize taxable income

Steps:

1. Business Expense Review
   Ordinary & Necessary Deductions:
   • Office supplies and equipment
   • Software and subscriptions
   • Professional services (legal, accounting)
   • Marketing and advertising
   • Travel, meals (50% deductible), lodging
   • Education and training
   • Bank fees and interest
   • Insurance premiums

Home Office Deduction:

• Dedicated workspace required
• Regular and exclusive use
• Simplified method: $5/sq ft (max $1,500)
• Actual expense method: Proportional share
• Includes: mortgage/rent, utilities, insurance, repairs

Vehicle Expenses:

• Standard mileage: 67 cents/mile (2024)
• Actual expenses: gas, insurance, repairs, depreciation
• Business use percentage required
• Mileage log recommended

2. Retirement Contributions

   Plan Type	2024 Limit	Notes
   SEP-IRA	25% of net SE income (max $69,000)	Simple, employer-only
   Solo 401(k)	$23,000 + 25% employer (max $69,000)	Employee + employer
   SIMPLE IRA	$16,000 + 3% match	Lower limits
   Defined Benefit	Actuarially determined	Highest limits

3. Health-Related Deductions

   • Self-employed health insurance deduction (100%)
   • HSA contributions ($4,150 individual / $8,300 family)
   • Long-term care insurance premiums (age-based limits)

4. Section 199A (QBI) Deduction

   • 20% of Qualified Business Income
   • Subject to income limits ($191,950 single / $383,900 MFJ)
   • SSTB limitations at high income
   • W-2 wage and property limitations
   • Optimal structuring strategies

5. Depreciation Strategies

   • Section 179 expensing ($1,220,000 limit)
   • Bonus depreciation (60% in 2024)
   • Standard depreciation schedules
   • Vehicles: $12,200 first year (+ bonus)
   • Listed property rules

6. Often Overlooked Deductions

   • State and local taxes (up to $10,000)
   • Charitable contributions
   • Student loan interest
   • Business use of cell phone
   • Business-related books/publications
   • Professional memberships
   • Bad debt write-offs

Deliverable: Comprehensive deduction checklist with estimated savings

Workflow 3: Quarterly Tax Planning

Objective: Optimize estimated tax payments and year-round tax planning

Steps:

1. Income Projection

   • Year-to-date income
   • Projected remaining income
   • One-time income events
   • Quarterly income timing

2. Tax Liability Estimation

   • Federal income tax brackets
   • Self-employment tax
   • State income tax
   • Local taxes (if applicable)

3. Safe Harbor Calculation

   • 100% of prior year tax (110% if AGI > $150K)
   • OR 90% of current year tax
   • Choose method to minimize payments

4. Quarterly Payment Schedule

   Quarter	Period	Due Date
   Q1	Jan 1 - Mar 31	April 15
   Q2	Apr 1 - May 31	June 15
   Q3	Jun 1 - Aug 31	September 15
   Q4	Sep 1 - Dec 31	January 15

5. Cash Flow Optimization

   • Minimum required payments
   • Penalty avoidance strategies
   • Year-end catch-up options
   • Underpayment penalty calculation

6. Mid-Year Adjustments

   • Income variance analysis
   • Deduction timing strategies
   • Entity structure changes
   • Retirement contribution adjustments

Deliverable: Quarterly estimated tax payment schedule

Workflow 4: Year-End Tax Strategies

Objective: Implement year-end strategies to minimize current year taxes

Steps:

1. Income Analysis

   • YTD actual income
   • Remaining expected income
   • Marginal tax bracket
   • Comparison to prior year

2. Income Deferral Strategies

   • Delay invoicing to next year
   • Defer receipt of payments
   • Installment sales treatment
   • Defer bonuses (employees)

3. Income Acceleration Strategies (When next year will be higher income)

   • Accelerate billing
   • Recognize deferred revenue
   • Roth conversions
   • Capital gain harvesting

4. Expense Acceleration

   • Prepay deductible expenses
   • Purchase equipment (Section 179)
   • Maximize retirement contributions
   • Pay Q1 state taxes in December
   • Stock up on supplies

5. Expense Deferral (When next year will be higher income)

   • Delay discretionary purchases
   • Postpone major repairs
   • Defer prepayments

6. Retirement Contribution Maximization

   • Calculate max contribution room
   • Deadline awareness:
     • 401k employee: December 31
     • SEP/401k employer: Tax filing deadline
   • Catch-up contributions (50+)

7. Capital Gains/Losses

   • Tax-loss harvesting
   • Long-term vs short-term optimization
   • Wash sale rules (30 days)
   • Charitable donation of appreciated assets

8. Charitable Giving Strategies

   • Bunching deductions
   • Donor-advised funds
   • Qualified Charitable Distributions (70.5+)
   • Appreciated asset donations

Deliverable: Year-end tax action plan with savings estimate

Workflow 5: Tax Audit Preparation

Objective: Prepare for potential tax audit and minimize risk

Steps:

1. Audit Risk Assessment

   • High-risk triggers:
     • Large deductions relative to income
     • Home office deduction
     • Vehicle deductions
     • Cash-intensive business
     • High Schedule C income
     • Previous audit history

2. Documentation Review

   • Income verification (1099s, bank statements)
   • Expense receipts and invoices
   • Mileage logs
   • Home office measurements
   • Asset purchase documentation
   • Contractor 1099s issued

3. Record Organization

   • Chronological expense files
   • Bank statement reconciliation
   • Credit card statement backup
   • Digital backup system
   • 7-year retention policy

4. Audit Defense Preparation

   • Understand audit types:
     • Correspondence audit (mail)
     • Office audit (IRS office)
     • Field audit (your location)
   • Know your rights
   • Representation options (CPA, EA, attorney)

5. Common Audit Issues

   • Mixed personal/business expenses
   • Insufficient documentation
   • Hobby loss rules
   • Contractor vs employee classification
   • Unreported income

Deliverable: Audit readiness checklist and documentation guide

Workflow 6: Tax Loss Harvesting (Proactive Investment Optimization)

Objective: Proactively identify and execute tax-loss harvesting opportunities to offset capital gains and reduce taxable income

Steps:

1. Portfolio Analysis

   • Current holdings with cost basis (per lot)
   • Unrealized gains and losses by position
   • YTD realized capital gains (short-term vs long-term)
   • Capital loss carryforward from prior years
   • Current marginal tax rate and capital gains rate

2. Opportunity Identification

   • Positions with unrealized losses > $500 threshold
   • Short-term vs long-term loss classification
   • Optimal lot selection (highest cost basis first = largest loss)
   • Priority order:
     • Short-term losses (offset short-term gains at ordinary rates)
     • Long-term losses (offset long-term gains at preferential rates)
     • $3,000 ordinary income offset (if no gains to offset)

3. Savings Calculation

Tax-Loss Harvesting Savings Formula:
═══════════════════════════════════════════════════════════════
IF short-term gains available:
  Savings = Loss harvested × Marginal tax rate (e.g., 24%)

IF only long-term gains available:
  Savings = Loss harvested × Capital gains rate (0%, 15%, 20%)

IF no gains available:
  Savings = MIN(Loss, $3,000) × Marginal tax rate
  Carryforward = Loss - $3,000 (for future years)

Example:
  $5,000 short-term loss × 24% marginal rate = $1,200 tax savings
  $5,000 long-term loss × 15% cap gains rate = $750 tax savings

4. Wash Sale Prevention

   • 30-day lookback: Check if same security purchased in prior 30 days
   • 30-day lookahead: Avoid repurchasing within 30 days after sale
   • Substantially identical securities: Same stock, options, mutual funds tracking same index
   • Cross-account monitoring: IRA, 401(k), and spouse accounts count!
   • Total window: 61 days (30 before + sale day + 30 after)

5. Replacement Security Selection

   • Similar sector/asset class exposure (NOT substantially identical)
   • Common replacements:
     • VTI → SCHB or ITOT (US total market)
     • SPY → IVV or VOO (S&P 500) — Note: These may be substantially identical
     • QQQ → QQQM or VGT (tech exposure)
     • Individual stock → Sector ETF (AAPL → XLK)
   • ETF alternatives for mutual funds
   • Set 31-day repurchase calendar reminder

6. Execution Plan

   • Specific lots to sell with cost basis documentation
   • Expected tax savings calculation
   • Replacement securities to purchase
   • Wash sale safe date for original security repurchase
   • Year-end consideration: Allow T+2 settlement before Dec 31

Proactive Triggers:

• Market decline > 5% in 30 days
• Individual position loss > $500
• October-December (year-end optimization window)
• YTD realized gains exceed $5,000 (offset opportunity)

Deliverable: Tax-loss harvesting action plan with lot selection, replacement securities, and wash sale calendar

Quick Reference

Tax Rate Reference (2024)

Federal Income Tax Brackets (Single)

Self-Employment Tax

• Social Security: 12.4% (up to $168,600 for 2024)
• Medicare: 2.9% (no cap)
• Additional Medicare: 0.9% (income over $200K single)
• Total: 15.3% (+ 0.9% high income)
• 50% is deductible as adjustment to income

Capital Gains Tax (2024)

Wash Sale Rules (IRC §1091)

The wash sale rule prevents claiming a loss on a security if you purchase a "substantially identical" security within 30 days before or after the sale.

Key Rules:

• 61-day window: 30 days before + sale day + 30 days after
• Substantially identical: Same stock, same class, options on same stock, mutual funds/ETFs tracking same index
• Cross-account: Applies across ALL accounts—brokerage, IRA, 401(k), spouse accounts
• Disallowed loss: Added to cost basis of replacement security (deferred, not lost)
• Holding period: Replacement security inherits original holding period

Common Wash Sale Traps:

Tax-Loss Harvesting Replacement Pairs:

Deduction Cheat Sheet

## Common Business Deductions

### Fully Deductible (100%)
- [ ] Advertising and marketing
- [ ] Bank fees and interest
- [ ] Business insurance
- [ ] Contract labor
- [ ] Education (business-related)
- [ ] Legal and professional fees
- [ ] Office supplies
- [ ] Rent (business property)
- [ ] Software and subscriptions
- [ ] Telephone and internet (business %)
- [ ] Travel (business purpose)

### Partially Deductible
- [ ] Meals (50%)
- [ ] Vehicle (business % or mileage)
- [ ] Home office (business % of home)
- [ ] Cell phone (business % of usage)
- [ ] Entertainment (0% - not deductible since 2018)

### Above-the-Line Deductions
- [ ] Self-employed health insurance (100%)
- [ ] SEP/SIMPLE/Solo 401k contributions
- [ ] 1/2 of self-employment tax
- [ ] Student loan interest (up to $2,500)
- [ ] HSA contributions

Best Practices

Year-Round

• Track all expenses in real-time
• Maintain separate business accounts
• Save 25-30% for taxes
• Make quarterly payments
• Keep receipts (digital backup)
• Monitor portfolio for tax-loss harvesting opportunities (especially in market downturns)
• Track wash sale windows across all accounts (brokerage, IRA, spouse)
• Prioritize harvesting short-term losses over long-term (higher tax benefit)

Annually

• Review entity structure
• Maximize retirement contributions
• Implement year-end strategies
• Reconcile 1099s received
• File on time or extend
• Execute tax-loss harvesting before December settlement cutoff (mid-December)
• Review capital gains/losses and plan offsets before year-end
• Consider replacement securities before selling (avoid unintended wash sales)

Documentation

• Keep 7 years of records
• Contemporaneous mileage log
• Written home office policy
• Detailed expense categorization
• Contractor agreements on file

Common Pitfalls to Avoid

• Missing estimated payments: Penalties add up quickly
• Commingling funds: Keep business and personal separate
• Ignoring state taxes: State rules differ significantly
• Aggressive deductions: Red flags invite audits
• Missing documentation: No receipt = no deduction
• Late S-Corp election: Must file within 75 days
• Incorrect contractor classification: Misclassification penalties are severe
• Ignoring nexus issues: Multi-state operations create complexity
• Wash sale violations: Repurchasing substantially identical securities within 30 days disallows the loss
• Missing TLH opportunities: Market downturns are prime harvesting windows—don't wait until year-end
• Cross-account wash sales: IRA and spouse purchases count—track all accounts

Disclaimer

This skill provides educational tax information only. Tax law is complex and varies by jurisdiction. Always:

• Consult a qualified CPA or tax attorney for specific advice
• Verify current tax rates and limits (they change annually)
• Consider your complete financial picture
• File accurately and on time