Defer profits from new business

Da Nag

Recycles dryer sheets
Oct 15, 2005
I'm about 3 years away from ER. Once I leave my day job, I'll have a 3.5 year delay until my pension kicks in. While I have some funds set aside to get me through this window, relying completely on them would mean a very frugal lifestyle while waiting on the pension. So, I'm interested in starting a consulting business now, and building it slowly while I'm still working. I've no significant startup or ongoing costs, and have clients lined up, so it would be profitable immediately.

What I'd like to do - defer taking any profits as income from the consulting business until I ER. Not only will I be in the lowest federal tax bracket then, but I'll be in a state with a significantly smaller tax burden as well (personal and business.)

I realize this is a pretty general question, but I've no idea if such a things is even possible. If so, any general pointers/resources anyone can provide that I can research? If not, any suggestions on how to reduce the tax hit I'll take now, while being in a high federal/state tax bracket?
1. Talk to a CPA

2. I would think you could set up a corp and keep profits in the business until you want to take the money as income or a dividend. For your needs, an "S" corp would probably make more sense.
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