111–120 of 143 posts
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What's expensive about running a SEP IRA? Are you referring to the fact you have to contribute to an employee's IRA as well as your own?
I had to jump through hoops and pay a specialized firm to administer. Maybe it no longer applies?
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Sadly, many charities are borderline fraudulent. Always ask what their administration fee is. I remember getting a call on Memorial Day asking for donations to veterans. I asked what the administration fee was and he said 90%. I said, "No, I mean what do you take to process these payments and make the calls?" He repeated, "90%." I was floored. Anyway, to answer the OP's question, you need to save at least some of it.…
Administration fee is less important than overall impact, which I assume is what people who worry about overhead actually care about. There are plenty of evaluators that skip worrying about overhead and get to them meat of the issue, how much does this charity help per dollar.
Are you a solo owner? You need to take an s-corp election and you do not need to pay yourself that type of salary. At most you should pay yourself $54,000 a year. The reason is money that goes through an s-corp you don’t pay self employment taxes on. Salary you do. That is 15%. You wouldn’t need to pay yourself more than $54,000 without the government getting upset. Right now, based on $54,000 a month you are losing…
If you have it as an LLC, any profits will pass through to you through your schedule C, and you will be taxed at regular income tax rates. Your accountant will help. But tax optimization can REALLY matter, and as a small business you have massive opportunities to very legally and ethically optimize your business and tax. Top of mind, what you should really consider is: a) setting up a 401K under the business to shelt…
If you have an s-corp, you won’t have to pay self employment tax, which is 15% on all of your profit and all of your salary if you just stay an LLC without an s-corp election.
With an s-corp you are advised to pay yourself a reasonable salary as a w2. That salary is the only thing you will need to pay that self employment tax on. That salary should be as low as you can justify. Here is info from the IRS about how to go about calculating that.. https://www.irs.gov/pub/irs-news/fs-08-25.pdf
I would imagine you could easily justify $50k-$75k as your salary, but you’d have to put the time in to calculate it.
If you were to do this based on $54k a month, you are saving about $90k a year on your taxes. The less you pay yourself a w2 the more you save.
If you set up like this, which is the way you will save the most on your taxes, then the amount you can contribute to your retirement account, ie solo 401k for you in this situation is approximately 50% of your w2 income because how much you can contribute is tied to your salary. For a $75,000 salary that max you can contribute is $38,250. Sure feel free to put that into your Solo 401k.
But that should be an after thought to saving the 15% self employment tax.
By putting money into a 401k it is not tax free only tax deferred, this means you will pay taxes on it eventually. If you think you may make more in retirement than you are now it makes this deal way less sweet. I know I’m planing on making more then.
Also, hiring a spouse is again a terrible idea here, because you are going to then pay 15% self employment tax between the two of you. 7.5% each.
Sure if you are an LLC and didn’t take your s-corp election then this makes sense. But if you did, hiring your spouse will be an extra 15% tax on his/her salary, since all of your profits won’t have that 15% tax on them.
And for what reason.. so you can put it into a tax deferred account you will need to pay taxes on eventually.
The very first thing you do when you start to make real profit is to take an s-corp election. There isn’t even an argument to this.
Telling the poster to do anything beyond taking a s-corp election first is doing him a huge disservice and costing him around $90k a year.
If you have it as an LLC, any profits will pass through to you through your schedule C, and you will be taxed at regular income tax rates. Your accountant will help. But tax optimization can REALLY matter, and as a small business you have massive opportunities to very legally and ethically optimize your business and tax. Top of mind, what you should really consider is: a) setting up a 401K under the business to shelt…
This is not good advice. If you set things up correctly you should set it up as an s-corp to maximize your tax savings. If you have an s-corp, you won’t have to pay self employment tax, which is 15% on all of your profit and all of your salary if you just stay an LLC without an s-corp election. With an s-corp you are advised to pay yourself a reasonable salary as a w2. That salary is the only thing you will need to p…
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Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.
Search Mega Backdoor Roth [1] 1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...
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I don't think the spirit of the question was "how do I avoid paying taxes", but more along the lines of "what the hell do I do with all this money I don't need?". I would suggest giving it to charity, OP. My mother always said even poor folks should be giving at least 15% of their income to charity, but if you have more than you need, no reason not to increase that number.
Sadly, many charities are borderline fraudulent. Always ask what their administration fee is. I remember getting a call on Memorial Day asking for donations to veterans. I asked what the administration fee was and he said 90%. I said, "No, I mean what do you take to process these payments and make the calls?" He repeated, "90%." I was floored. Anyway, to answer the OP's question, you need to save at least some of it.…
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