Tier One: Structural — the Risk Is Clerical

These are elections and paperwork. Nothing here draws an examiner’s interest when done correctly, and every failure mode is a missed form, a missed date, or a missing document.

S-corporation split

(section “Reasonable Compensation and the Break-Even Point”) Cuts self-employment tax on profit above a reasonable salary. Goes wrong through an indefensibly low salary — the IRS’s standard reclassification target. Mitigate with compensation data documented before filing, not after the notice.

PTET election

(section “The Pass-Through Entity Tax”) Restores the full federal deduction for state tax above the SALT cap. Goes wrong by missing a state deadline — California’s June 15 prepayment above all. Calendar it in January.

QBI wage lever

(section “The Qualified Business Income Deduction”) The S-corporation salary feeds the 50%-of-wages limb that unlocks IRC §199A above the thresholds. Goes wrong when an oversized salary shrinks the very income the deduction applies to — set it inside the reasonable-compensation range and model both directions.

Retirement stack

(section “Retirement Plans for the Self-Employed”) Solo 401(k), then a cash balance plan above roughly $500,000 of stable profit. Goes wrong through the controlled-group rules (section ““No Employees” Is a Legal Conclusion, Not a Headcount”) and the IRC §404(a)(7) 6% coordination limit — both checked before adoption, cheaply, by the right TPA.

Accountable plan

(section “Operational Deductions and Family Employment”) Tax-free reimbursement of owner-paid expenses. Goes wrong by not existing in writing before the reimbursements. One document.

Owner health coverage

(section “Operational Deductions and Family Employment”) The 2%-shareholder W-2 two-step in an S-corporation, or the spousal §105 plan in a sole proprietorship. Goes wrong through payroll setup and sham employment respectively — one line of payroll configuration, and real timesheets.

Year-end timing

(section “Operational Deductions and Family Employment”) Cash-basis income deferral and the 12-month prepay rule. Goes wrong almost never; the only discipline is not deferring income into a year whose bracket turns out higher.

Equipment expensing

(section “Rent and depreciation on equipment and machinery (Section 179)”) IRC §179, bonus depreciation, and the 6,000-pound vehicle line. Goes wrong by buying things in order to buy deductions — a deduction is worth your marginal rate, never a hundred cents on the dollar.

Hiring your children

(section “Operational Deductions and Family Employment”) Deductible wages, the child’s standard deduction, payroll-tax exemptions, and a funded Roth. Goes wrong through fake work and missing records — pay market rates for real work and keep the timesheets.