By Jessica Irving Marschall, CPA, President and CEO, Marschall Accounting Services, LLC
July 14, 2026
Marschall Accounting Services, LLC has spent years delivering sophisticated tax advisory services to clients throughout the country, with a significant concentration of clients in high-tax states such as New York, Illinois, and California. We have now expanded our practice with the specific goal of bringing that same caliber of proactive planning to small businesses throughout the Fredericksburg region. We believe local business owners deserve access to the same advanced tax strategies that large corporations and sophisticated investors have relied upon for decades, and we are convinced the most effective way to deliver those strategies is by partnering with the accountants, bookkeepers, attorneys, and financial advisors who already serve this community so well. Here is why we believe the need is urgent and how we can help.
The K-Shaped Economy Has Come to Main Street
Economists have taken to describing our current environment as a K-shaped economy, an image drawn from the letter itself, in which one arm rises while the other falls. Households and businesses on the upper arm, buoyed by stock portfolios, appreciating real estate, and durable pricing power, have continued to thrive, while those on the lower arm contend with higher prices, tighter credit, and customers who have less to spend. According to U.S. Bank’s economics team, income concentration now sits at a 60-year peak, the share of Americans in the middle class has fallen from 61 percent in 1971 to 51 percent in 2023, and businesses serving lower-income communities are experiencing slower demand at the same time that delinquency rates on auto loans and credit cards continue to climb. Researchers at the Federal Reserve Bank of Minneapolis have fairly cautioned that the underlying data tell a more nuanced story than the headlines suggest, but we do not need a national dataset to recognize the divide when it appears so plainly in our own client files.
Many closely held businesses increasingly find themselves operating on the lower arm of the K. They pay ordinary income tax rates on every dollar of business income while simultaneously facing rising labor costs, higher borrowing costs, inflationary pressure from suppliers, and consumers with less discretionary spending. The solution is rarely to simply work harder. Instead, it requires deliberate tax planning, thoughtful capital allocation, and long-term financial strategy. The seven planning opportunities discussed below are techniques we routinely implement for sophisticated clients across the country, and they are equally applicable to growing businesses here in the Fredericksburg region.
One: Real Estate Portfolio Investing
Real estate remains one of the most effective vehicles for converting heavily taxed ordinary income into long-term, tax-advantaged wealth. Depreciation deductions shelter rental income from tax year after year, cost segregation studies accelerate those deductions into the early years of ownership, and Section 1031 exchanges allow investors to trade into larger properties while deferring gain along the way. A properly prepared cost segregation study further enhances these benefits by identifying building components eligible for shorter recovery periods of five, seven, or fifteen years rather than the standard 27.5-year residential or 39-year commercial recovery periods. This acceleration frequently produces substantial first-year depreciation deductions and can dramatically improve after-tax cash flow. For taxpayers who qualify as real estate professionals, these deductions may also offset other sources of ordinary income. We regularly advise clients whose adjusted gross income would otherwise exceed $1 million and have seen properly planned real estate strategies reduce taxable income by hundreds of thousands of dollars through accelerated depreciation. For business owners, a carefully constructed real estate portfolio can simultaneously reduce current tax liability while building long-term wealth through appreciating assets
Two: Section 351 Transfers and Qualified Small Business Stock
Many local businesses operate as sole proprietorships or LLCs simply because that is how they began, yet for the right business, incorporation can unlock one of the most generous provisions in the tax code. Under Section 351, owners may transfer business assets into a C corporation tax free in exchange for stock, and where the corporation qualifies, that stock may be treated as qualified small business stock under Section 1202, a benefit Congress dramatically expanded in July 2025. For stock issued after July 4, 2025, owners can exclude 50 percent of their gain after a three-year holding period, 75 percent after four years, and 100 percent after five years, with the exclusion cap raised to the greater of $15 million or ten times basis. In plain terms, a founder who builds value inside a qualifying corporation and later sells may pay little or no federal tax on millions of dollars of gain. These planning techniques have long been utilized by sophisticated businesses and investors in major metropolitan markets, yet they are equally available to entrepreneurs building successful companies here in the Fredericksburg region.
We have an arm of our practice that specializes just in this area. Here is a link to articles on this provision:
Three: The S Election: Mechanics and Benefits
For many owners the right structure is not a C corporation at all but an S corporation, a status obtained by filing an election on Form 2553 rather than by forming a new entity. A domestic corporation, or an LLC electing to be taxed as a corporation, qualifies if it has 100 or fewer shareholders, all of them U.S. citizens or residents, and a single class of stock, and the election is generally due by the fifteenth day of the third month of the year it is to take effect, with relief available for late filings. The rewards are considerable. Profits pass through to owners without a corporate level tax, and owners who pay themselves a reasonable salary can take remaining profits as distributions that escape self-employment tax. S corporation income also generally qualifies for the 20 percent qualified business income deduction, now permanent, and For Virginia businesses, the elective Pass-Through Entity Tax (PTET) may provide an additional federal deduction for state income taxes that would otherwise be limited by the federal SALT deduction cap. Whether the election is advantageous depends upon the owners’ individual tax circumstances and should be modeled annually. Choosing between an S election and a C corporation positioned for the QSBS exclusion is a modeling exercise we perform client by client, because the right answer turns on exit plans, profit levels, and reinvestment needs.
Here are our multiple articles on S Corps:
Four: Opportunity Zone Investments
The 2025 tax law also made the Opportunity Zone program permanent. Investors who roll eligible capital gains into a Qualified Opportunity Fund may defer recognition of those gains for the applicable statutory period while potentially receiving additional tax benefits based upon the timing and location of the investment. Investments held for the required long-term holding period may also qualify for the exclusion of post-investment appreciation from federal capital gains tax, making Opportunity Zones one of the most powerful long-term wealth-building tools available under current law. Because revised Opportunity Zone designations become effective beginning January 1, 2027, the current planning window provides investors with an opportunity to evaluate prospective projects, identify qualifying funds, and structure investments strategically before the new designations take effect. Opportunity Zone investments offer the unique combination of tax deferral, long-term tax-free appreciation on qualifying investments, and the opportunity to direct capital toward economically developing communities.
Link to articles on Opportunity Zones: https://marschalltax.com/2025/11/21/opportunity-zones-2-0-a-new-era-of-community-investment-under-the-one-big-beautiful-bill-act/
Five: Retirement Plans Built for Small Business
The simplest strategy is often the most neglected. IRS Publication 560 outlines a menu of employer retirement plans, including SEP IRAs, SIMPLE IRAs, and 401(k) plans, that allow owners to deduct contributions today while building wealth for retirement. For 2026, elective deferrals to a 401(k) can reach $24,500, total defined contribution limits extend to $72,000, and SIMPLE plan deferrals reach $17,000, with additional catch-up contributions available to those 50 and older and enhanced catch-ups at ages 60 to 63. When thoughtfully designed, employer-sponsored retirement plans can simultaneously reduce current income taxes, build long-term retirement assets, and improve employee retention, making them among the most valuable planning tools available to closely held businesses.
Six: Timing Income and Expenses: The Cash Versus Accrual Advantage
Because most small businesses are permitted to use the cash method of accounting, the timing of income and deductions is itself a planning tool. A cash-method business that has enjoyed a strong year can defer revenue by invoicing so that payment arrives after December 31 and can accelerate deductions by prepaying certain expenses before year end, subject to limitations, so that income lands in a year with a lower marginal rate. In a softer year the logic reverses, and collecting receivables before year end while deferring expenses into January positions income to be taxed at today’s lower rates and makes deductions more valuable against tomorrow’s higher income. Accrual-method businesses have their own levers, from the rules governing when income is earned to the treatment of accrued liabilities. None of this changes what a business earns over time; it changes when the tax falls due, and coordinated with your CPA well before December, that timing alone can produce meaningful savings.
Seven: The R&D Credit and the Restored R&D Deduction
Research incentives are no longer reserved for technology giants. A machine shop refining a production process, a contractor developing new building techniques, and a software firm writing code may all qualify, and federal law now offers two distinct benefits. The Section 41 research credit reduces tax liability dollar for dollar, and qualified small businesses can elect to apply it against payroll taxes, a valuable feature for young companies that are not yet profitable. Separately, the 2025 tax law permanently restored the immediate deduction of domestic research expenditures under new Section 174A, reversing the amortization regime that had forced businesses to spread those deductions over five years. The two provisions interact, and claiming them demands discipline, because the redesigned Form 6765 asks for detail at the business component level and the accounting records must capture research costs contemporaneously rather than reconstruct them at year end. When supported by contemporaneous documentation and properly integrated into a company’s accounting system, the research credit and current deduction for qualifying domestic research expenditures remain among the most valuable incentives available under the Internal Revenue Code.
Raising the Standard, Together
We are excited to expand our services throughout the Fredericksburg region. By collaborating with local CPA firms, bookkeepers, financial advisors, attorneys, and other trusted professionals, we can provide specialized tax planning in areas such as entity structuring, S corporation elections, Qualified Small Business Stock planning, Opportunity Zone investments, cost segregation studies, research tax credits, retirement plan design, and advanced income tax planning, while allowing each advisor to continue serving clients in the manner that has earned their trust. Raising the level of sophisticated tax planning available within our community benefits not only individual businesses but also the broader regional economy.
The K-shaped economy is unlikely to reverse itself through market forces alone. However, thoughtful tax strategy, proactive planning, and informed financial decision-making can help small businesses retain more capital, strengthen cash flow, and build long-term wealth. We believe those opportunities should not be reserved for Fortune 500 companies or investors on the coasts. They should be available to every business owner willing to plan ahead, and we look forward to helping make that happen.
Presentation Slides: MAS-K-Shaped-Economy-Presentation.pptx
