Entity + Compensation Design
Ownership, compensation and retirement planning are usually decided one at a time, by different people, at different points in the year. We model them as a single system, because that is closer to how the tax bill actually gets calculated.
One system, not three separate decisions
Most business owners set ownership, compensation and retirement decisions at different times, for different reasons, often with different advisors involved in each. The entity gets set up when the business starts. Compensation gets set once a year, often just to clear a payroll deadline. A retirement plan gets added later, if at all. Each decision is reasonable on its own. Together, they rarely add up to the most efficient structure available.
We treat entity structure, compensation and retirement planning as one model. The split between salary and distribution affects payroll tax, qualified business income treatment, and how much can be contributed to a retirement plan. The entity type, S corporation, C corporation, partnership, or a combination across multiple entities, changes which of those levers are even available. Reviewing these pieces together, instead of one at a time, is usually where the largest and most durable planning opportunity sits.
Where this shows up
Signals that a review is overdue.
This work tends to matter most for owners who have grown past a simple structure: multiple entities under common ownership, a mix of active and passive income, compensation that has not been revisited since the business was smaller, or a retirement plan that has never been reviewed against current income levels. See how these pieces came together in an actual engagement.
- S corporation owners setting reasonable compensation without a documented basis for the number
- Multiple related entities with inconsistent compensation or ownership treatment across them
- Owners with no qualified retirement plan, or a plan that has not kept pace with income
- Businesses considering a change in entity type ahead of a sale, expansion or new partner
How we model it
Alternatives, projected forward, before you commit.
We start with the entity structure and prior returns, then layer in current compensation, ownership percentages and any existing retirement plan. From there we build alternatives: a different salary-to-distribution split, a different entity election, a retirement plan design suited to the income level, or a restructuring across entities where more than one is involved. Each alternative is projected forward so the owner can see the tax effect, the cash required, and any nontax tradeoffs before committing to a change. This is the same modeling discipline behind every step of the Iron Bridge process.
Why timing matters
Options disappear once the year closes.
Waiting until a return is being prepared removes most of the available options. Reviewing the structure earlier in the year, while there is still time to make a change, is what keeps these decisions from becoming fixed by default.
As with any strategy discussed here, deduction and tax treatment depends on individual facts and current law, and should be reviewed with the tax and legal professionals responsible for your return.
Where this connects.
Start with the numbers
The first review is free. We will look at your current situation, identify the areas worth modeling, and tell you whether there appears to be a meaningful planning opportunity.