Client Profile
| Industry | Quick-Service Restaurant Franchise (7 locations) |
| Combined Revenue | $9,400,000 |
| Entity Type | 7 Operating LLCs + C-Corp Management Company |
| State | Florida |
| Key Metric | 120+ employees, 3 owned buildings |
| Annual Tax Savings | $134,000 |
The Problem
This franchise owner operated seven quick-service restaurant locations generating $9.4 million in combined revenue. All seven locations were in a single LLC with no subsidiary structure. The owner employed over 120 workers (many tipped) and owned the real estate at three locations. Combined net income was approximately $840,000.
No cost segregation studies had been performed. The FICA tip credit had never been claimed. WOTC screening was not part of the hiring process. The owner had only a basic 401(k) despite being 57 years old.
AE Tax Strategy
1. C-Corp Management Company Under IRC §11(b)
We formed a C-Corp management company that retained approximately $200,000 annually at the 21% rate versus the owner's 37% rate. Rate arbitrage savings: $32,000.
2. Defined Benefit Plan Under IRC §401(a) and §404(a)(7)
The actuarially determined contribution was $178,000. Combined with the 401(k), total contributions exceeded $201,500. Tax savings: $38,000.
3. FICA Tip Credit Under IRC §45B
With approximately 80 tipped employees, the annual credit totaled $38,000. We also filed amended returns for three prior years.
4. WOTC and Cost Segregation Under IRC §51 and §168
Of 48 new hires, 18 qualified for WOTC, generating $26,000 in credits. Cost segregation on the three owned buildings reclassified $720,000 to accelerated periods.
Before & After Comparison
| Tax Category | Before | After | Savings |
|---|---|---|---|
| C-Corp Rate Arbitrage | $74,000 | $42,000 | $32,000 |
| Defined Benefit Plan | $8,700 | $46,700 | $38,000 |
| FICA Tip Credit | $0 | $38,000 | $38,000 |
| WOTC + Cost Seg | $8,400 | $34,400 | $26,000 |
| Total | $91,100 | $161,100* | $134,000 |
*After column reflects total tax benefit value.
Key Takeaways
- Multi-location franchise owners benefit from a centralized management company that consolidates tax planning and creates rate arbitrage.
- The FICA tip credit should be claimed annually by every employer with tipped workers.
- WOTC screening integrated into the hiring process generates $1,200 to $9,600 per qualifying new hire.
- Cost segregation on owned restaurant buildings typically reclassifies 25-35% of building basis to accelerated recovery periods.