Fermion
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Hi guys,
I have been toying around with tax scenarios and it looks like if we had $11,000 as additional earned income for 2017, we would have gotten back $1200 MORE in tax refund. Kind of wack but it stems from being able to max out two IRA and receive the saver's credit.
If we replaced $11,000 of our short term capital gains with that $11,000 in earned income, we would have over $3,400 MORE in tax refund (saver's credit + reducing ACA MAGI).
So this got me thinking about ways to generate earned income from investing and ways to reduce our MAGI from active short term trading.
Filing as trader status doesn't do it, even if you could qualify. It is not earned income.
Maybe creating a C corporation might do it. The corporation would pay tax on net profit and we would pay tax on distributions of that profit. If we did not have distributions though, then essentially there would be no double tax. What would be the benefit then? Well, the corporation could hire one or both of us to do the accounting, manage investments, create a web page, and write a monthly news letter. Our salary from the corporation would be earned income and we would pay SS tax on it but also be able to contribute to a IRA or maybe even some form of 401K plan. After deductions, the corporation would pay tax on net capital gains and reinvest the money left over, continuing the process.
It sounds very crazy I know and might not be worth the hassle, so right now is just a thought experiment. On the other hand, saving $3400 in tax (or more like $2000 or so after paying SS) plus being able to sock away money in a retirement account could be interesting.
Thoughts?
I have been toying around with tax scenarios and it looks like if we had $11,000 as additional earned income for 2017, we would have gotten back $1200 MORE in tax refund. Kind of wack but it stems from being able to max out two IRA and receive the saver's credit.
If we replaced $11,000 of our short term capital gains with that $11,000 in earned income, we would have over $3,400 MORE in tax refund (saver's credit + reducing ACA MAGI).
So this got me thinking about ways to generate earned income from investing and ways to reduce our MAGI from active short term trading.
Filing as trader status doesn't do it, even if you could qualify. It is not earned income.
Maybe creating a C corporation might do it. The corporation would pay tax on net profit and we would pay tax on distributions of that profit. If we did not have distributions though, then essentially there would be no double tax. What would be the benefit then? Well, the corporation could hire one or both of us to do the accounting, manage investments, create a web page, and write a monthly news letter. Our salary from the corporation would be earned income and we would pay SS tax on it but also be able to contribute to a IRA or maybe even some form of 401K plan. After deductions, the corporation would pay tax on net capital gains and reinvest the money left over, continuing the process.
It sounds very crazy I know and might not be worth the hassle, so right now is just a thought experiment. On the other hand, saving $3400 in tax (or more like $2000 or so after paying SS) plus being able to sock away money in a retirement account could be interesting.
Thoughts?