The Challenge
Founder Sarah Lin operated two S-corps — one for design services and another for furniture procurement. The design entity routinely posted losses while the procurement arm remained profitable. Because both were on the cash basis, the firm recognized client pre-payments as income long before projects were completed, inflating taxable income and straining liquidity.
At the same time, Sarah faced $270,000 in business and tax debt from prior years and had no reliable view of her true profitability. The mismatch also disqualified part of her income from the Qualified Business Income (QBI) deduction, leaving thousands of dollars on the table.
She needed a smarter structure — one that would reflect reality, reduce her immediate tax burden, and strengthen her long-term financial position.
The Gelt Approach
Gelt’s team ran detailed financial models and developed an integrated strategy focused on timing, structure, and compliance.
1. Accounting Method Optimization
- Recommended switching to the accrual method so revenue is recognized as projects are delivered, not when deposits arrive.
- Modeled side-by-side cash vs. accrual projections showing a 6–9 month deferral of taxable income and more than $30K in annual savings.
- Identified opportunities to maintain a “paper loss” in the design entity while sustaining healthy cash flow.
2. QBI Deduction Alignment
- Advised shifting W-2 compensation from the design entity to the procurement company to qualify for the 20% QBI deduction, with legitimate inter-company agreements supporting the change.
- Ensured the plan met IRS requirements for service separation and wage reasonableness.
3. Personal Tax Planning
- Evaluated filing-status scenarios revealing $5K–$15K potential annual savings if marital status changed.
- Recommended Roth IRA contributions for tax-free growth.
- Recovered missed charitable and itemized deductions and reviewed health-insurance impacts of payroll adjustments.
Results & Impact
With the new plan, Arden Design Collective is positioned to capture significant tax advantages while gaining transparency across both entities.
Projected Outcomes:
- Over $30,000 in annual tax savings through accounting-method and QBI optimization
- Improved cash flow and timing via deferred income recognition
- Accurate reporting and entity visibility for strategic planning
- Long-term compliance and growth readiness across both S-corps
Conclusions
Multi-entity businesses can unlock five-figure savings by coordinating accounting and payroll structures, while accrual accounting gives project-based firms greater control over tax timing and cash flow, and proactive planning aligns business and personal strategies for long-term wealth building.
I always thought taxes were something to survive. Gelt showed me they can be a strategic advantage. I finally understand how my businesses fit together
— Sarah Lin, Founder, Arden Design Collective
Disclaimer: This case study is based on a real client engagement. Certain names, locations, and identifying details have been changed to protect client confidentiality. The challenges, strategies, and outcomes described reflect actual facts. Show more
This material is provided for informational and educational purposes only. It does not constitute, and should not be relied upon as, tax, legal, or accounting advice. Each individual’s circumstances are unique, and readers should consult their own qualified professional advisors before making any decisions.
To comply with U.S. Treasury Department regulations (Circular 230), we inform you that any tax information contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
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