Small business hide the (tax) sausage?

[brewer12345]

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.

 

[SumDay]

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.

 

[JDARNELL]

We have a s corp and have a keogh set up.

JDarnell

 

[Texas Proud]

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 )

 

[daylatedollarshort]

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?

 

[GrayHare]

There's always Kick the Can: push as much income into 2014 as possible.

 

[FUEGO]

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".

 

[brewer12345]

set up your own DB pension plan?

The Fido rep mentioned that, but it would require bigger ducats than she will bring in.

 

[daylatedollarshort]

You can still be a spouse co-owner and have a Solo 401K -

https://www.fidelity.com/retirement-ira/small-business/self-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.

 

[eridanus]

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.

 

[brewer12345]

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.

 

[Animorph]

Sounds like you're holding her back. Time to retire.

 

[brewer12345]

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.

 

[FUEGO]

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!

 

[REWahoo]

Hey, watch it! I still post here!

Don't get your panties in a wad. It was some other jackass.

 

[FUEGO]

Don't get your panties in a wad. It was some other jackass.

I'm not wearing any panties.

 

[nphx]

First class refundable tickets to Asia for that trip you plan on taking but may cancel in 2014.

 

[brewer12345]

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.

 

[samclem]

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!

 

[brewer12345]

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.

 

[donheff]

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.

I don't understand this unless the ideas require a lot of negative energy or are one time things that could be put off until other income generators drop off. DW and I were in the top bracket for many years and simply saved the extra dollars. That is how we ERd. DW could have slacked off and earned less but that would have been like cutting off her nose to spite the tax man.

 

[brewer12345]

I don't understand this unless the ideas require a lot of negative energy or are one time things that could be put off until other income generators drop off. DW and I were in the top bracket for many years and simply saved the extra dollars. That is how we ERd. DW could have slacked off and earned less but that would have been like cutting off her nose to spite the tax man.

Nothing comes for free. The extra revenue would demand more of DW's time and energy. When we cut the net in half, it is not worth it.

 

[ERD50]

J

Starting in 2014: People are keeping an eye on the "Small Business Health Care Tax Credit." .... 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!

The SBHCTC is a very interesting angle.

Yes, that could push a lot of people into starting a small business or contract work, something they could turn a profit on, just to get the discount?

Would this also encourage a business with 50 employees to hire self-employed contractors? They stay under the 51 count, and the self-employed can get a deal on their subsidy?

-ERD50

 

[ERD50]

Nothing comes for free. The extra revenue would demand more of DW's time and energy. When we cut the net in half, it is not worth it.

So you hit your own personal inflection point on the 'Laffer Curve'?

-ERD50

 

[brewer12345]

Yes, that could push a lot of people into starting a small business or contract work, something they could turn a profit on, just to get the discount?

Would this also encourage a business with 50 employees to hire self-employed contractors? They stay under the 51 count, and the self-employed can get a deal on their subsidy?

-ERD50

I think the economy in the US has been moving increasingly toward contractors/entrepreneurs for some time. I think that contract work is viewed far more positively and is more common among the 20-something set. What has been missing in a lot of cases is access to stuff like healthcare. While there are plenty of shortcomings in the healthcare reform bill (which have been extensively decried here and elsewhere), there is also a set of reforms that make it far easier and more feasible for people to be contractors or entrepreneurs. I think that this is the economic silver lining to the reform law. I've always thought of myself as being a contractor that just has one client at a time and I would long ago have welcomed the opportunity to strike out on my own, but the structure of the market and the way healthcare insurance work have strongly mitigated against doing so. The reforms come at just the right time for me - I am heartily sick of full time cube work, have accumulated enough capital to possibly downshift, and watching DW's success is giving me a it more courage to strike out on my own and have more balance in my life. I will be putting in some more time to vest in retirement benefits at the end of the year and watch hhow the reforms play out, but if things look OK I am increasingly ready to jump. I don't think I would have felt the ability to do so without what looks to be guaranteed access to healthcare insurance.