SARAH CHEN – PROFESSIONAL TAX STRUCTURE OPTIMIZATION

• INVESTOR PROFILE ANALYSIS:
• Current Income: $180,000 personal + $85,000 rental = $265,000 total
• Tax Bracket: ____% marginal federal + ____% state = ____% combined
• Current Tax Burden: $_____ annually (estimated)
• Properties: 4 units across TX and AZ, $1.56M portfolio value
• Growth Target: 12-15 properties in 5 years
• Key Challenge: ________________________________
• CURRENT STRUCTURE PROBLEMS:
• Personal Ownership Issues:
• – All rental income taxed as ordinary income
• – Self-employment tax exposure: $_____ annually
• – No liability protection between properties
• – Personal assets at risk from property liabilities
• – Limited tax optimization opportunities
• – ________________________________
• Multi-State Complications:
• – Texas filing requirements: ________________________________
• – Arizona filing requirements: ________________________________
• – State tax implications: ________________________________
• – Legal compliance across states: ________________________________
• RECOMMENDED ENTITY STRUCTURE:
• Primary Structure Recommendation: ________________________________
• Tier 1 – Operating Company:
• Entity Type: _____ (S-Corp election)
• Purpose: Property management and consulting business
• Tax Treatment: S-Corp pass-through with payroll tax optimization
• Reasonable Salary: $_____ annually
• Distribution Income: $_____ annually (no SE tax)
• Annual Tax Savings: $_____ in self-employment tax
• Tier 2 – Master Holding Entity:
• Entity Type: _____ LLC
• Purpose: Central ownership and control of property LLCs
• Tax Election: ________________________________
• Management: ________________________________
• Benefits: ________________________________
• Tier 3 – Property Entities:
• Austin Properties LLC: Duplex + SFH
• – Annual Income: $_____ ($3,200 + $2,800 x 12)
• – Liability Protection: ________________________________
• – Tax Treatment: ________________________________
• Phoenix Properties LLC: SFH + Duplex
• – Annual Income: $_____ ($2,400 + $3,100 x 12)
• – Arizona Registration: ________________________________
• – Tax Treatment: ________________________________
• Future Expansion LLCs: State-specific entities as portfolio grows
• – Structure: ________________________________
• – Naming Convention: ________________________________
• – Management: ________________________________
• ENTITY STRUCTURE JUSTIFICATION:
• Why This Structure Works:
• 1. Tax Optimization: ________________________________
• 2. Asset Protection: ________________________________
• 3. Operational Efficiency: ________________________________
• 4. Growth Scalability: ________________________________
• 5. Professional Credibility: ________________________________
• Alternative Structures Considered:
• Option A: Single LLC with S-Corp Election
• – Pros: ________________________________
• – Cons: ________________________________
• – Why Rejected: ________________________________
• Option B: Traditional Corporation
• – Pros: ________________________________
• – Cons: ________________________________
• – Why Rejected: ________________________________
• TAX OPTIMIZATION STRATEGY:
• Income Tax Minimization:
• Current Tax Situation:
• – Personal Income: $180,000 (W-2 equivalent)
• – Rental Income: $85,000 net
• – Combined Tax Rate: ____% (federal + state)
• – Annual Tax Burden: $_____ (current)
• Optimized Tax Structure:
• – S-Corp Salary: $_____ (reasonable compensation)
• – S-Corp Distributions: $_____ (no SE tax)
• – Rental Income: $_____ (pass-through)
• – Tax Savings: $_____ annually
• Self-Employment Tax Optimization:
• Current SE Tax: ___% x $_____ = $_____ annually
• Optimized SE Tax: ___% x $_____ = $_____ annually
• SE Tax Savings: $_____ annually
• 5-Year Savings: $_____ total
• Depreciation Strategy:
• Standard Depreciation: $_____ annually across portfolio
• Cost Segregation Opportunities:
• – Austin Duplex: $_____ additional first-year depreciation
• – Phoenix Duplex: $_____ additional first-year depreciation
• – Professional Cost: $_____ per study
• – Net Tax Benefit: $_____ first year
• Business Expense Optimization:
• Property Management Company Expenses:
• – Vehicle: $_____ annually (business use %)
• – Home Office: $_____ annually
• – Professional Development: $_____ annually
• – Technology/Software: $_____ annually
• – Professional Services: $_____ annually
• – Total Business Deductions: $_____ annually
• RETIREMENT ACCOUNT INTEGRATION:
• Self-Directed IRA Strategy:
• Current IRA Balance: $150,000
• Investment Strategy: ________________________________
• Target Property Type: ________________________________
• Expected Purchase Price: $_____ – $_____ range
• Financing Strategy: ________________________________
• Prohibited Transaction Compliance: ________________________________
• Solo 401(k) Setup:
• Qualifying Income: Property management business
• Annual Contribution Limit: $_____ (2025 limits)
• Employee Contribution: $_____ (salary deferral)
• Employer Contribution: $_____ (25% of compensation)
• Total Annual Funding: $_____ potential
• Loan Feature: Up to $_____ available for investments
• Roth Conversion Planning:
• Current Traditional IRA: $150,000
• Conversion Strategy: ________________________________
• – Year 1: Convert $_____ (manage tax bracket)
• – Year 2: Convert $_____ (continued strategy)
• – Year 3: Convert $_____ (completion)
• Conversion Tax Cost: $_____ total
• Long-term Tax Benefit: ________________________________
• PROPERTY MANAGEMENT BUSINESS STRUCTURE:
• Business Entity: Sarah Chen Property Management LLC (S-Corp election)
• Services Offered:
• – Property management for own portfolio
• – Third-party property management
• – Real estate consulting
• – Investment property sourcing
• Revenue Streams:
• Management Fees: ___% of gross rent = $_____ annually
• Consulting Income: $_____ annually (estimated)
• Third-Party Management: $_____ annually (growth target)
• Total Business Income: $_____ annually
• Reasonable Compensation Analysis:
• Market Rate Research: $_____ – $_____ for similar roles
• Recommended Salary: $_____ annually
• Justification Factors:
• – Experience level: ________________________________
• – Responsibilities: ________________________________
• – Market comparables: ________________________________
• – Growth trajectory: ________________________________
• Operational Separation Strategy:
• Investment Income: Flows to holding company
• Management Income: Earned by operating company
• Expense Allocation: ________________________________
• Professional Documentation: ________________________________
• MULTI-STATE COMPLIANCE STRATEGY:
• Texas Requirements:
• – Entity Registration: ________________________________
• – Annual Filings: ________________________________
• – Tax Obligations: ________________________________
• – Professional Requirements: ________________________________
• Arizona Requirements:
• – Foreign Entity Registration: ________________________________
• – Property Management Licensing: ________________________________
• – Tax Filings: ________________________________
• – Compliance Monitoring: ________________________________
• Future State Expansion:
• – Entity Formation Strategy: ________________________________
• – Registration Requirements: ________________________________
• – Tax Compliance: ________________________________
• – Professional Licensing: ________________________________
• IMPLEMENTATION TIMELINE:
• Phase 1 – Professional Team Assembly (Month 1):
• Week 1: Interview and select qualified CPA with real estate expertise
• Week 2: Interview and select real estate attorney for entity formation
• Week 3: Interview and select self-directed IRA custodian
• Week 4: Coordinate initial planning meeting with full team
• Phase 2 – Entity Formation (Months 2-3):
• Month 2:
• – Form property management LLC with S-Corp election
• – Create operating agreements and corporate documentation
• – Open business bank accounts and establish accounting systems
• – Register for applicable business licenses
• Month 3:
• – Form holding company LLC
• – Form property-specific LLCs
• – Create management agreements between entities
• – Establish inter-company documentation
• Phase 3 – Property Transfers (Months 4-5):
• Month 4:
• – Prepare property transfer documentation
• – Coordinate with mortgage lenders (due-on-sale considerations)
• – Update insurance policies and liability coverage
• – Prepare transfer tax analysis
• Month 5:
• – Execute property transfers to appropriate LLCs
• – Update all property records and documentation
• – Establish property management operations
• – Begin new tax accounting systems
• Phase 4 – Retirement Account Integration (Month 6):
• – Establish Solo 401(k) plan with qualified administrator
• – Begin self-directed IRA investment analysis
• – Implement Roth conversion strategy
• – Coordinate retirement account compliance procedures
• PROFESSIONAL TEAM REQUIREMENTS:
• Required CPA Qualifications:
• – Real estate tax specialization
• – Entity taxation expertise
• – Multi-state tax experience
• – Self-directed retirement account knowledge
• – Estimated Annual Cost: $_____ – $_____
• Required Attorney Qualifications:
• – Real estate law specialization
• – Entity formation and governance
• – Multi-state practice capability
• – Asset protection expertise
• – Estimated Setup Cost: $_____ – $_____
• Self-Directed IRA Custodian:
• – Real estate investment specialization
• – Compliance and administration services
• – Technology platform and reporting
• – Annual Fees: $_____ – $_____
• COST-BENEFIT ANALYSIS:
• Implementation Costs:
• Professional Setup Fees:
• – Attorney fees (entity formation): $_____
• – CPA setup and consulting: $_____
• – State registration and filing fees: $_____
• – Initial documentation and agreements: $_____
• – Total Setup Investment: $_____
• Annual Ongoing Costs:
• – CPA and tax preparation: $_____
• – Legal maintenance and updates: $_____
• – State registration and compliance: $_____
• – Custodian and administration fees: $_____
• – Total Annual Operating Cost: $_____
• Annual Tax Savings:
• – Self-employment tax reduction: $_____
• – Income tax optimization: $_____
• – Enhanced depreciation benefits: $_____
• – Business expense optimization: $_____
• – Total Annual Tax Savings: $_____
• Net Annual Benefit:
• Total Annual Savings: $_____
• Less: Annual Operating Costs: $_____
• Net Annual Benefit: $_____
• ROI on Setup Investment: ____% annually
• Payback Period: _____ months
• 5-Year Financial Impact:
• Cumulative Tax Savings: $_____
• Less: Total Costs (setup + 5 years operating): $_____
• Net 5-Year Benefit: $_____
• Additional Investment Capacity: $_____
• RISK ASSESSMENT & MITIGATION:
• Tax Compliance Risks:
• Risk: Reasonable compensation challenges
• Mitigation: ________________________________
• Monitoring: ________________________________
• Risk: Multi-state compliance failures
• Mitigation: ________________________________
• Monitoring: ________________________________
• Risk: Self-directed IRA prohibited transactions
• Mitigation: ________________________________
• Monitoring: ________________________________
• Operational Risks:
• Risk: Entity maintenance and documentation
• Mitigation: ________________________________
• Monitoring: ________________________________
• Risk: Inter-company pricing and agreements
• Mitigation: ________________________________
• Monitoring: ________________________________
• Market Risks:
• Risk: Tax law changes affecting structure
• Mitigation: ________________________________
• Monitoring: ________________________________
• Risk: State law changes affecting compliance
• Mitigation: ________________________________
• Monitoring: ________________________________
• ONGOING MONITORING & ADJUSTMENT:
• Quarterly Reviews:
• – Financial performance analysis
• – Tax compliance verification
• – Entity maintenance checklist
• – Professional consultation updates
• Annual Strategic Reviews:
• – Structure optimization opportunities
• – Tax law change impacts
• – Growth planning and entity expansion
• – Professional team performance evaluation
• Trigger Events for Structure Review:
• – Significant income changes (±25%)
• – Major tax law modifications
• – Geographic expansion to new states
• – Portfolio size milestones (10, 15, 20+ properties)
• – Life changes (marriage, retirement planning)
• IMMEDIATE NEXT STEPS:
• Week 1 Action Items:
• 1. Schedule consultations with 3 qualified CPAs
• 2. Research and contact 3 real estate attorneys
• 3. Request proposals from self-directed IRA custodians
• 4. ________________________________
• Week 2 Action Items:
• 1. Complete professional interviews and selection
• 2. Gather all current financial and tax documentation
• 3. Schedule initial planning meeting with chosen team
• 4. ________________________________
• Month 1 Deliverables:
• – Professional team assembled and engaged
• – Detailed implementation plan finalized
• – Initial legal and tax structure documented
• – Timeline and budget confirmed
• SUCCESS METRICS:
• Financial Metrics:
• – Annual tax savings achieved: Target $_____ minimum
• – Compliance costs managed: Under $_____ annually
• – ROI on structure investment: Target ____% minimum
• – Additional investment capacity: $_____ annually
• Operational Metrics:
• – 100% compliance with all tax filings
• – Zero compliance violations or penalties
• – Professional team satisfaction: 90%+ ratings
• – Structure scalability: Ready for 15+ properties
• Strategic Metrics:
• – Enhanced professional credibility
• – Improved lending relationships
• – Asset protection implementation
• – Retirement planning integration
• PROFESSIONAL DISCLAIMERS:
• Tax Advice Disclaimer:
• This analysis is educational only and not tax advice. All recommendations require verification with qualified tax professionals based on current 2025 tax laws and individual circumstances.
• Legal Advice Disclaimer:
• Entity structure recommendations require legal review and formation by qualified attorneys. Asset protection and liability considerations vary by state and individual situation.
• Professional Consultation Required:
• Implementation of any tax optimization strategy requires coordination between qualified CPA, real estate attorney, and specialized custodian services.
• LESSONS LEARNED FOR FUTURE PROJECTS:
• Key Insights:
• – ________________________________
• – ________________________________
• – ________________________________
• Improvement Opportunities:
• – ________________________________
• – ________________________________
• – ________________________________
• Replication Strategy:
• – ________________________________
• – ________________________________
• – ________________________________