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On the subsidy cliff...evaluating options
Old 11-13-2017, 07:01 PM   #1
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On the subsidy cliff...evaluating options

I work at home as a subcontractor - with two clients. One has turned out to be much more income than I anticipated which is great. Iím on ďthe teamĒ and looks like itís going to last.
This year I am near the subsidy cliff and looking at ways a self employed person can lower magi. I have a good bit in taxable accounts and canít stem the flow from those really but it does enable me to put all of my earnings in Ira or purchase equipment.

Ideas:
- Usual home business deductions
- Ira contribution
- Purchase software/new computer
- sell stock that has losses to offset gains
- annuitize money in taxable account?
The last one I do not get. Is money put into an annuity considered deferred?

Iím not an annuity fan at this time but I want to prepare for a big December just in case!

Iím meeting with my accountant this week to do some math and also plan for next year but I thought this group would prob be more creative!
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Old 11-13-2017, 08:36 PM   #2
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Look into a SEP IRA - you can put something like 25% of your earnings in it subject to absolute contribution limits.

Mutual fund distributions are the big wild card here. I have some active funds that I have had for decades (hence, lots of Cap gains) that are very erratic with their distributions - they can vary from under 2% to almost 5% of NAV. I am trying to sell and buy index funds while managing the amount of cap gains taxes I pay.

I assume you don't have an HSA compliant health insurance plan.
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Old 11-13-2017, 08:47 PM   #3
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Would a self employed 401K have higher contribution limits? I'm not sure of all the latest rules but here is a chart from Fidelity comparing the limits for different small business retirement options:

https://www.fidelity.com/retirement-.../compare-plans
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Old 11-13-2017, 09:00 PM   #4
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I would look harder at business deductions. Ask a good tax accountant.
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Old 11-13-2017, 09:03 PM   #5
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I assume you don't have an HSA compliant health insurance plan.

Nope! But that is something I will be considering for next year as I see another big project on the horizon.

I wonder if the limits for sep iras sre higher for the over 55 crowd?
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Old 11-13-2017, 11:15 PM   #6
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I would look harder at business deductions. Ask a good tax accountant.


Iíll do that. I asked my accountant if my home office was still deductible if I had a grand piano in it. He said ďsure! Subtract the area of the piano!Ē Lol. I think he is on board.
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Old 11-14-2017, 03:16 AM   #7
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Two things. Are you taking business trips instead of vacations? If not ask tax expert to explain the min. requirements. Good way to exchange personal costs for business costs.

Do you have a 2nd home? If so, and you conduct any business there, that might be eligible for home office deductions also.

I assume the cost of your HI is a business deduction.

For the long term, consider investing in rental real estate. That, and business deductions are the two best "reducers" I know of once IRA/SEP and HSA's are filled.
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Old 11-14-2017, 07:27 AM   #8
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Would your clients work with you to defer some income into next year? They can accrue the expense this year and pay in January. Of course, then you have that income in 2018. But being over the cliff every other year is better than being over the cliff every year.

Maybe limit the number of hours you work each year?
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Old 11-14-2017, 08:15 AM   #9
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Do you have hobbies that could generate revenue that could be turn into a business and have expenses greater than revenue for a couple years? Do you need new office furniture?
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Old 11-14-2017, 09:20 AM   #10
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Do you have a 2nd home? If so, and you conduct any business there, that might be eligible for home office deductions also.



I assume the cost of your HI is a business deduction.



No business trips. No second home.

Itís my understanding that you canít take a deduction for subsidized plans. If I do fall off the cliff, I can then reimburse for the full amount and deduct the health insurance which would be at least 1/2 my earned income. The subsidy has more value to be than a deduction.

I had a fsa at my former job that I left in January. You canít have a fsa and a hsa in the same year. Next year I am pretty sure an hsa is in the cards

As fun as it would be to have the ďplease donít pay meĒ talk with my multimillionaire clients Iím going to make that a last resort! But yes, I will get a drop dead number from my accountant tomorrow, or as close as we can estimate.
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Old 11-14-2017, 09:21 AM   #11
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Do you have hobbies that could generate revenue that could be turn into a business and have expenses greater than revenue for a couple years? Do you need new office furniture?


There is a $800 program Iíd like to have and a backup computer would be smart to have... so that might help a lot. I did buy a desk on facebook now that you mention it!
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Old 11-14-2017, 10:14 AM   #12
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Originally Posted by spncity View Post
Would your clients work with you to defer some income into next year? They can accrue the expense this year and pay in January. Of course, then you have that income in 2018. But being over the cliff every other year is better than being over the cliff every year.

Maybe limit the number of hours you work each year?
+1 See if your clients can wait until January 2018 to pay you for some 2017 services. Then in 2018 you can set up retirement plans that allow you to defer more income.
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Old 11-14-2017, 10:51 AM   #13
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Right, if you bill them, be slow in getting the invoice to them.
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Old 11-14-2017, 10:57 AM   #14
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Do you have other family members to insure? Look into the rules for small group plans in your state. You might be able hire your spouse "to help" you run the business and you could get a group plan that would be fully deductibles.

This would most certainly be cheaper then losing your subsidy of course this idea is for 2018 if you think you will continue to make good money.
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Old 11-14-2017, 11:14 AM   #15
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No business trips. No second home.

It’s my understanding that you can’t take a deduction for subsidized plans. If I do fall off the cliff, I can then reimburse for the full amount and deduct the health insurance which would be at least 1/2 my earned income. The subsidy has more value to be than a deduction.
You can take the Self Employed Health Insurance deduction for subsidized Marketplace plans. My son is self employed and last year his tax software guided him through the calculation and came up with the amount for Line 29.

The IRS has a very complicated, multilevel worksheet-
Self-Employed Health Insurance Deduction and PTC
See Page 52 here -
https://www.irs.gov/pub/irs-pdf/p974.pdf

Instead, the tax program software made it easier. I think TurboTax handles this and FreeTaxUSA.com had useful info on how to do the calculation.

I saved this link a few years ago while searching for info on how different tax software handled the calcualtion -
https://thefinancebuff.com/tax-softw...ax-credit.html

Research this for yourself and see if it applies to your situation.
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Old 11-14-2017, 06:30 PM   #16
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Thanks sue j! I had no idea. Sounds like a job for my
Accountant.

As far as other members, itís just me and my minor child. We both received survivor benefits this year. Hers will continue for two more years. If I were more adept at frugal living she could easily qualify for peachcare (free or nearly) i enjoy my work and do not have enough savings to begin taking withdrawals.
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