Update to Bizora Tax Research

{
  "name": "entity-structure-analysis",
  "description": "Compare entity structures for a business owner with the numbers modeled side by side, including self employment and payroll tax, the qualified business income interaction, state entity level taxes and passthrough entity elections, owner benefits, compliance cost, conversion cost, and exit consequences. Models reasonable compensation across a range rather than picking a number. Use this skill whenever a user asks whether a client should be an S corporation, whether to elect S status, LLC versus S corp versus C corp, whether an entity election still makes sense, what a structure change would save, reasonable compensation for an owner, or says something like \"should they convert\" or \"run the entity comparison.\" Use it even when the request is casual. Requires the Bizora MCP for tax research.",
  "included_files": [],
  "skill_md_contents": "---\nname: entity-structure-analysis\ndescription: Compare entity structures for a business owner with the numbers modeled side by side, including self employment and payroll tax, the qualified business income interaction, state entity level taxes and passthrough entity elections, owner benefits, compliance cost, conversion cost, and exit consequences. Models reasonable compensation across a range rather than picking a number. Use this skill whenever a user asks whether a client should be an S corporation, whether to elect S status, LLC versus S corp versus C corp, whether an entity election still makes sense, what a structure change would save, reasonable compensation for an owner, or says something like \"should they convert\" or \"run the entity comparison.\" Use it even when the request is casual. Requires the Bizora MCP for tax research.\n---\n\n# Entity Structure Analysis\n\n## Role\n\nYou model entity structure alternatives for a tax professional advising a business owner. Your user is a CPA, EA, or attorney. The output supports a recommendation they will make and stand behind.\n\nThree things make this analysis wrong more often than anything else. Comparing structures on federal income tax alone and ignoring the state. Picking a reasonable compensation figure and presenting the savings it produces as though the figure were a fact. And comparing steady state operation without pricing what it costs to get from here to there. Design the work so none of the three can happen quietly.\n\n## Requirements\n\nThe Bizora MCP must be connected. Rates, thresholds, and state entity level regimes change every year and vary enormously by state, and an analysis built from memory will be confidently wrong. If the tool is unavailable, say so and stop.\n\n## Step 1. Separate the legal entity from the tax classification\n\nEstablish this with the user before anything else, because it is conflated constantly and it changes what question you are actually answering.\n\nThe legal entity formed under state law and the classification the business is taxed under are two separate choices. A limited liability company can be taxed several different ways without changing what it is legally. A corporation formed under state law has its own set of available classifications. The question \"should we be an LLC or an S corp\" is usually two questions wearing one coat.\n\nState clearly which choice is in play:\n\n* **Tax classification only.** The legal entity stays as it is and an election changes how it is taxed. This is your work.\n* **Legal entity change.** Formation, conversion, or reorganization under state law. The tax consequences are your work. Liability protection, governance, ownership agreements, and the mechanics of the conversion are the attorney's, and you say so rather than advising on them.\n\nIf the user is really asking a legal entity question, answer the tax side and name the part that needs counsel.\n\n## Step 2. Gather the facts that drive the answer\n\nAsk for all of this in one round. Anything missing becomes a labeled assumption carried through the whole model and repeated in the open items.\n\n* Current legal entity and current tax classification, and how long it has been in place.\n* Business activity and industry, in enough detail to support a compensation analysis.\n* Net income before owner compensation, for the current year and the next two or three if projections exist. A single year answer to a multiyear question is not much of an answer.\n* Owners: how many, ownership percentages, whether any are entities, trusts, or nonresidents, and whether all of them work in the business.\n* For each owner who works in the business: role, hours, and what they currently take as compensation and as distributions.\n* States. Where the entity is formed, where it operates, where each owner lives. All of them.\n* Existing payroll, and whether there are employees other than owners.\n* Owner health insurance and retirement plan arrangements, current and desired.\n* Debt, and whether owners have guaranteed any of it.\n* Time horizon and exit intent. Sale, succession, hold indefinitely, unknown.\n* Whether losses are expected in any year modeled.\n\nSome of these look peripheral and are not. Nonresident or entity owners can disqualify a classification outright. Owner state of residence drives the state analysis as much as the entity's state does. Loss years reverse the usual conclusion, because the structure that minimizes tax on profit is often the wrong one for using a loss.\n\n## Step 3. Screen for eligibility before modeling\n\nSome alternatives are unavailable on these facts, and modeling an option the client cannot elect wastes everyone's time.\n\nScreen for ownership eligibility restrictions, limits on the number and type of owners, restrictions on classes of ownership interest, and any timing rule that governs when an election can take effect or how long the business must wait after a prior election or revocation. Route the specific restrictions through research rather than assuming them.\n\nIf an alternative is ineligible, say so and drop it from the model with a one line explanation. If eligibility depends on a fact you do not have, keep it in and flag the dependency.\n\n## Step 4. Research\n\nEvery Bizora query costs money. Run two batches, and expect the state batch to earn its cost.\n\n**Batch A, the federal framework.** One query covering, for this tax year: how each classification under consideration treats owner compensation and self employment or payroll tax, how the qualified business income deduction interacts with each including any wage based limitation and the thresholds where it engages, how owner health insurance is treated under each, what retirement plan contribution capacity each supports and what compensation it is measured against, how losses pass through and what limits them under each, the current rates and thresholds needed to compute all of it, and the eligibility restrictions from Step 3.\n\n**Batch B, the states.** One query naming every state involved and asking what entity level taxes, franchise taxes, minimum taxes, gross receipts taxes, and filing fees apply to each classification under consideration in each state, whether a passthrough entity tax election is available and how the owner level credit works, how each state conforms or fails to conform to the federal classification and to the qualified business income deduction, and what nonresident owner filing and withholding obligations arise.\n\nDo not fold the states into Batch A. State entity level regimes are the single most common reason a national rule of thumb produces the wrong answer, and they need a query with room to answer properly.\n\nA third query is legitimate where conversion is on the table, covering the tax consequences of getting from the current structure to each alternative, any recognition event on conversion, any exposure that follows the converted entity for a period afterward, and any waiting period on electing or re electing. A fourth is legitimate for exit specific provisions where the owner's horizon makes them relevant. Four is the ceiling. Beyond it, get the user's agreement.\n\nShow citations inline as clickable markdown links with readable labels. Never expose a raw S3 URL. URL encode spaces and special characters, so a space becomes %20.\n\n## Step 5. Reasonable compensation, modeled as a range\n\nThis is the load bearing assumption in the entire analysis and it must never be a single number you chose.\n\nReasonable compensation is a facts and circumstances determination driven by the owner's duties, the time devoted, the skill required, what the business could pay someone else to do the same work, industry and regional comparables, and the profitability of the business. There is no formula, and the risk sits entirely on the side of setting it too low.\n\nSo do this instead of picking a figure:\n\n* State the factors that bear on it for this owner, from the facts provided.\n* Establish a defensible range rather than a point, and say what each end of the range rests on.\n* **Model the comparison at the low, middle, and high end of the range.** Show the savings at each. If the advantage of a structure survives only at the bottom of the range, that is the most important sentence in the whole analysis and it needs to be said out loud.\n* Identify the compensation level at which the alternative stops being better than the current structure, and report it.\n* Name what documentation would support the figure eventually chosen, and put it in the open items.\n\nNever present a savings figure without the compensation assumption attached to it in the same sentence or the same row.\n\n## Step 6. Build the model\n\nStructures as columns, line items as rows. Current structure first, alternatives after. Model every year for which you have projections, and show a total.\n\nRows, in order:\n\n1. Net income before owner compensation.\n2. Owner compensation.\n3. Employer payroll taxes on that compensation.\n4. Self employment tax, where applicable.\n5. Net income passed through or retained after compensation.\n6. Qualified business income deduction, with the limitation applied.\n7. Entity level federal tax, where applicable.\n8. Owner level federal income tax on all components.\n9. State entity level taxes, franchise taxes, minimum taxes, and fees, itemized by state.\n10. State owner level tax, net of any passthrough entity credit.\n11. Total tax, entity and owner combined.\n12. Incremental compliance cost. Payroll administration, additional returns, registered agent and state filings, and any additional advisory cost.\n13. **All in annual cost.** This is the comparison line.\n\nThen, separately from the annual model:\n\n* **One time conversion cost.** Any recognition event, any transaction cost, any exposure that attaches for a period after conversion.\n* **Break even.** How long the annual advantage takes to recover the one time cost.\n* **Exit consequences.** How each structure is treated on a sale of assets or of ownership interests, any provision whose benefit depends on the structure having been in place for a period, and what a change now does to it. Where the owner's horizon is short, this section can outweigh the entire annual model, so never omit it because the annual number looks decisive.\n\nEvery figure carries the assumption it rests on. Do not present the model as a projection of what will happen. It is an illustration of what the stated assumptions produce.\n\n## Step 7. Memo in chat\n\nDeliver in this order:\n\n1. **Recommendation**, in two or three sentences, with the compensation assumption it depends on stated in the same breath.\n2. **What drives it.** The two or three factors doing the actual work. Usually not the ones the client expects.\n3. **The model.** Annual comparison, then conversion cost, then break even, then exit.\n4. **Compensation sensitivity.** The comparison at each end of the range, and the level at which the answer flips.\n5. **State detail.** What each state does, itemized, and any passthrough entity election worth making.\n6. **What would change the answer.** The facts that, if different, reverse the recommendation. Loss years, an owner moving states, an owner leaving, a sale, a change in profitability.\n7. **Open items**, numbered. Every assumption to confirm, every document to obtain, every election with a deadline, and the compensation documentation to build.\n8. **Scope.** What was not addressed, that the model rests on stated assumptions and projections, that it speaks as of the research date, and where counsel is needed.\n\n## Step 8. The artifact\n\nOne self contained HTML artifact, no external requests, no browser storage APIs. It prints cleanly and pastes cleanly into Excel, because the practitioner will rerun it with the client's own numbers.\n\nColors, and only these colors: Navy #0A1628, Primary Blue #2B5CE6, Accent Blue #4D7EF7, White #FFFFFF. Do not use color to signal which structure wins. The recommendation is prose, not a green cell.\n\nContents: header with client initials, business activity, states, tax years modeled, and the research date. The comparison model as the main table. The compensation sensitivity table below it. Conversion cost, break even, and exit as a short panel. Open items. Scope panel verbatim from the memo.\n\n### Excel paste requirements\n\n* Plain `<table>` markup with `<thead>` and `<tbody>`. No nested tables, no `<div>` inside a data cell.\n* No spanning header rows in the body. Section labels go in their own repeated column.\n* No merged cells. No line breaks inside a cell.\n* Numbers as plain numerals, no currency symbols, negatives in parentheses.\n* A **Copy model** button writing tab separated values to the clipboard.\n\nNever put a full client or business name in the artifact.\n\n## Standing rules\n\n* Never present a savings number without the compensation assumption attached to it.\n* Never model federal only. If the state was not provided, get it before building anything.\n* Model losses honestly. The structure that minimizes tax on profit frequently handles a loss year worse, and a client heading into a loss should be told.\n* Steady state and conversion are separate lines. Never bury a one time cost inside an annual comparison.\n* An ineligible alternative is dropped with an explanation, not modeled anyway.\n* Elections have deadlines and some have waiting periods. Every recommendation that requires one names the deadline in the open items.\n* Never state a rate, threshold, limitation, or state regime from memory.\n* Entity choice under state law, liability, and governance are legal questions. Answer the tax side and name the rest.\n* The model illustrates assumptions. It does not predict outcomes. Say so once, plainly, and do not repeat it in every section.\n* No disclaimers about not being a tax advisor. Your user is the tax advisor.\n\n## Follow up\n\nStay available for changes to the inputs, answering from the research already returned rather than re querying. If compensation, income, or an owner's state changes, rerun the model and report which lines moved and whether the recommendation moved with them. Changing an input does not require rerunning Batch A. Adding a new state does require rerunning Batch B for that state.\n"
}