Situation
Sarah, the founder and president of Altura Strategy Group, has spent the past 15 years growing her California-based consulting firm into a nationally recognized leader in strategic advisory services. Her firm generates $3,200,000 million annually in K-1 income through long-term engagements, performance-based contracts, and executive-level advisory work.
As a high-income California resident, Sarah faces a combined federal and state tax rate of 50.3% (37% federal, 13.3% California), resulting in an annual tax liability of $1,609,900 million. Although she has built a $2,800,000 million retirement portfolio, she’s become increasingly concerned that her annual tax burden is limiting her ability to reinvest in her business, expand her portfolio, and accelerate her timeline toward retirement.
Sarah consulted her financial advisor to explore strategies that could provide greater tax efficiency and financial flexibility during her peak earning years. She was introduced to Wilson Hand’s Partnership Special Allocation (PSA) program.
Solution
After a comprehensive review of her situation, Sarah’s advisor collaborated with the Wilson Hand team to explore advanced tax mitigation strategies tailored to high-income business owners.
As they review the specifics of this program, Sarah learns that she will become a 99% controlling member of a series LLC. The funds she contributes to the LC are used for the capital contribution, legal fees, expenses, and startup costs.
By leveraging the PSA program, Sarah will gain access to a professionally managed investment structure which creates a 15-year window to defer any matched income allocations—giving her greater flexibility and financial control during her peak earning years.
Result
Sarah decides to do a capital contribution of $385,00 and will pay $100,000 for legal fees and startup costs.
The results were both immediate and strategic. Sarah was allocated $3,200,000 in ordinary business losses in year 1, that fully offset her $3,200,000 in K-1 income. This reduced her net taxable income to zero for the year—effectively eliminating her $1,609,900 tax liability, allowing her to retain 100% of her business earnings.
Rather than losing nearly half of her earnings to taxes this strategy freed up those funds to grow her business, build her portfolio, and accelerate retirement contributions. With no tax outflows in year 1, Sarah reinvested aggressively — allowing her to expand Altura Strategy Group and build additional retirement security.
