Bay area real estate agent business owner and tech employee couple receive significant tax guidance as assets grow
Overview
Our case study will review a single-owner S-Corporation providing services as a real estate agent in San Francisco, California. The entity has no employees other than the owner and spouse. Given the exceptional real estate talents of this individual and property values of the marketplace, the owner is highly successful. At this point in time, the couple’s primary asset was this corporation. The non-owner spouse also maintained a highly compensated position with a technology company local to the area. The couple’s financial advisor assisted them in implementing a basic solo 401k plan with a profit-sharing component. Their books and records were poorly maintained by a large online bookkeeping conglomerate. Not only were the financial statements inaccurate, but the couple also struggled to obtain timely reports. This was frustrating to witness as the accounting was simplistic by nature.
Given the relationship between their financial advisor and soon to be CPA, the advisor suggested they reach out to us. The couple had just received a notice of deficiency from the IRS assessing additional tax of $97,000 and had made federal and California balance due payments of $275,000 and $89,000, respectively, with their individual income tax returns. Our initial conversation relayed their frustrations of possibly paying more tax than legally required and finding a different kind of CPA relationship that offered insight throughout the year.
Identified and applied missed deductions, resulting in annual tax savings of
$25,000
with little effort.
This isn’t extraordinary, but it covered our
fees and then sum.
Missed
Deductions
Approach
Rood & Dinis conducted a thorough analysis of the couple’s financial situation, identifying missed tax savings opportunities and eventually implementing necessary accounting improvements. Our immediate goal was to effectively address the $97,000 IRS deficiency, which we successfully abated in full. After reviewing the couple’s individual and corporate returns, we started with minimal compliance services but quickly identified opportunities for immediate tax benefits and smoother quarterly estimated tax payments. The lack of accurate financial statements from their previous bookkeeping service led us to take over their bookkeeping 18 months into our engagement. This change allowed us to provide timely, bank-ready financial statements.
In addition to rectifying the tax deficiency, we uncovered missed deductions, resulting in annual tax savings of about $25,000. When the couple purchased four rental properties, we leveraged our understanding of their industry to maximize first-year deductions of roughly $65,000 per rental, ultimately reducing their tax liabilities by approximately $120,000. Our comprehensive approach, including monthly accounting, quarterly projections, proactive tax planning, enhanced communication and financial management, met the couple’s needs for ongoing support and strategic guidance as their assets continued to grow.
Rental Property
Tax Strategy
After purchasing four rental properties, our firm helped the couple leverage passive activity loss rules to accelerate $65,000 in deductions per property,
ultimately reducing tax liabilities by approximately
$120,000.
After taking over bookkeeping, Rood & Dinis provided accurate monthly, bank-ready financial statements, significantly
improving financial management.
Bookkeeping
Overhaul
IRS Tax
Assessment
Resolved entire
$97,000
IRS tax assessment.
OVERALL IMPACT
- The transition to a hands-on CPA firm led to significant financial improvements, including tax savings and better accounting practices.
- The manufacturing company benefited from increased support and communication, allowing the owner to make more informed decisions and ensuring more effective financial management throughout the year.