Case Design

HVAC Business Owner

Background

A client operated a successful HVAC business for many years. The business generated approximately $300,000 in cash flow and was in a C Corporation. Like many C Corporations we come across, the prior “strategy” was to pay the profit out in W-2 wages to avoid double taxation, while overpaying FICA.

Fortunately, they called one of our managing Directors and Redwood Tax Specialists!

The Plan

The client wanted a five to seven year exit strategy and is extremely conservative and wanted fixed/guaranteed options for any retirement balances. Based on the client’s preferences, cash flow needs, and budget, we designed their custom tax plan:

  • reduced W-2 wages to $80,000 per year with a compensation study, cutting FICA tax in half
  • implemented a retirement plan contributing $200,000 annually, of which 90% was for the owners’ benefit
  • optimized the corporate structure to reduce rates and avoid double taxation
  • Created a retirement savings plan and exit strategy utilizing fixed return and guaranteed options to achieve the retirement goals, while eliminating risk implemented an insurance strategy through the business to make the payments tax-deductible

The Results

Combined Federal & State taxes were reduced from $116,000 per year to $83,026 in 2016,  $45,626 in 2017, and $11,027 in 2018. In only three years, the client’s net worth increased by over $200,000. With zero investment risk, the client has a guaranteed lifetime retirement income benefit in excess of what they previously thought was unreachable. The client is in a position after only three years to retire comfortably, compared to their desired goal of five to seven years that was unreachable under their previous plan, and the client has been taking the opportunity to travel the world with family now that there is a clear path forward.