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Small business hide the (tax) sausage?
Old 02-19-2013, 02:43 PM   #1
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Small business hide the (tax) sausage?

DW's sole proprietorship is on track so far this year to net more than we can shelter in a solo 401k. Up to this point, I have not worried much about sheltering earnings because she was nowhere near the solo k limit. However, of she goes over the limit every dollar she earns is taxed at our marginal combined rate, which approximates 50%. For those of you with experience with this stuff, are there any low cost/complexity ways to shelter more taxable income without taking an aggressive tax posture? We do not qualify for the home office deduction, so that is out. I have to determine whether our MAGI is at a limit that would preclude deductible contributions to a traditional IRA, but I suspect that it is too high for that. Other ideas?

DW has additional revenue-generating ideas, but I told her that if she has to give up 50% of what she would earn she might as well hold off.
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Old 02-19-2013, 02:53 PM   #2
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Not much help here, but I feel your pain. We're setting up a SEP for DH's consulting business. as we're over the limit for an IRA contribution. First world problems....

It was a good thing I forgot to put on mascara when I went to see our tax guy yesterday, because I'd have cried it all off.
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Old 02-19-2013, 03:22 PM   #3
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We have a s corp and have a keogh set up.

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Old 02-19-2013, 03:31 PM   #4
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Well, you can increase expenses to reduce profits...

I will volunteer to be a paid employee who does nothing....






(Didn't think it would work )
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Old 02-19-2013, 03:37 PM   #5
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Can you become a co-owner of your wife's business? Even if you max out your 401K at work you may be able to deduct the profit sharing part.

Or if she can step up to a small business 401K (not solo) possibly you, your kids, parents or other family members could become employees with salaries as business deductions and 401ks.

Can your wife make a nondeductible IRA contribution and then convert that to a Roth IRA?

Is your wife maxing out her allowable business expenses - such as business travel, mileage, home Internet, health insurance premiums, work related courses, and business phone?
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Old 02-19-2013, 04:00 PM   #6
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There's always Kick the Can: push as much income into 2014 as possible.
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Old 02-19-2013, 04:03 PM   #7
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set up your own DB pension plan?

Edit: nevermind, just saw it was a sole proprietorship.

Increase expenses by spending money on professional fees to figure out how to avoid paying taxes?

Buy a pallet of new ipads and expense them, then let them "fall off the back of the truck" on craigslist? Nevermind, that would be an aggressive tax stance, or as the federal prosecutor might call it, "tax fraud".
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Old 02-19-2013, 04:10 PM   #8
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set up your own DB pension plan?
The Fido rep mentioned that, but it would require bigger ducats than she will bring in.
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Old 02-19-2013, 04:17 PM   #9
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You can still be a spouse co-owner and have a Solo 401K -

https://www.fidelity.com/retirement-...-employed-401k

You would get the up to 25% profit sharing contribution deduction for you even if you max out your own 401K at your full time job.
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Old 02-19-2013, 04:23 PM   #10
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1) Upgrade the laptop and take a Section 179 on it.

2) She can keep the solo 401k and hire you to send invoices and perform other misc tasks. Spouses are the one exception to the "solo" part of a solo 401k. This would give you the profit sharing portion of the contributions (20/25%), assuming you're making 401k contributions at your day job.

3) Charitable contributions? It could drop you below the $173k Roth IRA max income limit at least.
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Old 02-19-2013, 04:27 PM   #11
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1) Upgrade the laptop and take a Section 179 on it.

2) She can keep the solo 401k and hire you to send invoices and perform other misc tasks. Spouses are the one exception to the "solo" part of a solo 401k. This would give you the profit sharing portion of the contributions (20/25%), assuming you're making 401k contributions at your day job.

3) Charitable contributions? It could drop you below the $173k IRA contribution limit.
Yeah, we did the sec 179 laptop dance last year. Don't need a new laptop.

The hiring of me is a possibility, but I have employment related ethics disclosures/restrictions that woulld make it at least "sticky" if not outright problematic.

The limit for making deductible contributions to a traditional IRA is different from that for a Roth contribution. For married filing jointly you cannot make a dollar deductible when MAGI hits $115k for 2013.
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Old 02-19-2013, 09:32 PM   #12
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Sounds like you're holding her back. Time to retire.
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Old 02-19-2013, 09:43 PM   #13
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Sounds like you're holding her back. Time to retire.
There used to be a jackass posting here who espoused the philosophy that a working wife is better than a pumping oil well. Me bailing is in the plan, but I would also expect to generate some income.
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Old 02-19-2013, 09:52 PM   #14
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There used to be a jackass posting here who espoused the philosophy that a working wife is better than a pumping oil well. Me bailing is in the plan, but I would also expect to generate some income.

Hey, watch it! I still post here!
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Old 02-19-2013, 09:54 PM   #15
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Hey, watch it! I still post here!
Don't get your panties in a wad. It was some other jackass.
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Old 02-19-2013, 09:57 PM   #16
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Don't get your panties in a wad. It was some other jackass.
I'm not wearing any panties.
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Old 02-19-2013, 10:01 PM   #17
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First class refundable tickets to Asia for that trip you plan on taking but may cancel in 2014.
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Old 02-19-2013, 10:03 PM   #18
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First class refundable tickets to Asia for that trip you plan on taking but may cancel in 2014.
Again, not interested in an aggressive tax posture.
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Old 02-19-2013, 10:33 PM   #19
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Just to mention it: Catchup of $5500 for her if she's over 50.

Starting in 2014: People are keeping an eye on the "Small Business Health Care Tax Credit." I haven't found out if self-employed folks are eligible, based on the IRS 3-step test it looks like they could be. It won't be a factor if the person is covered by other health insurance, but this gimme might let a self-employed person who makes less than $50K from the business get a tax credit for up to 50% of the cost of health insurance (even if they have lots of other income from other sources and thus can't get the subsidy for low-income folks.) Cha-ching!
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Old 02-19-2013, 11:15 PM   #20
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Just to mention it: Catchup of $5500 for her if she's over 50.

Starting in 2014: People are keeping an eye on the "Small Business Health Care Tax Credit." I haven't found out if self-employed folks are eligible, based on the IRS 3-step test it looks like they could be. It won't be a factor if the person is covered by other health insurance, but this gimme might let a self-employed person who makes less than $50K from the business get a tax credit for up to 50% of the cost of health insurance (even if they have lots of other income from other sources and thus can't get the subsidy for low-income folks.) Cha-ching!
We are both 39 and MAGI is too high for deductible IRAs, so that is out.

The SBHCTC is a very interesting angle. I am planning to stay in the cube for another 18 months or so in order to see how Obamacare shakes out. It appears to contain a lot of goodies and may make it easier for me to transition to ESR. That would also solve our tax issues.
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