Not sure if this is the best subreddit to ask so feel free to direct me to a different sub if appropriate.

I worked as a public employee and I had a real bad workplace accident which forced me to retire and now I collect my disability pension benefits. To supplement my pension income, I started a consulting business under a Single Member LLC.

The rules of my pension are that if I make more than what my former position’s base salary, it’s deducted from my pension benefits. For example (not real figures), if the salary of my former job was $100k/yr and my current pension is $50k, I’m only allowed to make an additional $50k. If I make more than an additional $50k, then my pension benefits will be adjusted so that I’ll only make $100k. If I earn more than $100k/yr , then I’ll forfeit all pension benefits. This restriction expires on my 50th birthday which was the pension plan’s earliest retirement age.

I didn’t anticipate making this much money and I really don’t want to “work for free” so I’ll admit it’s a good problem to have.

Can I pay myself as a W-2 employee and file my company’s taxes as an S-Corp? If I file my LLC’s taxes as an S Corp, will the LLC still show on my personal income like it did when I filed as a sole proprietor?

That way I can control my personal income and just invest the rest of the companies profits until I turn 50 which is about 15 years away.

Thanks!

  • Zealousideal-Milk907@alien.topBEnglish
    1·
    1 year ago

    You have to check what the pension plan actually says. You say ‘if I make more than my former position’s salary’. What does that mean? W2 income or your tax return (AGI)? I highly doubt that they mean the AGI as this includes a spouses income and any other income such as business income and capital gains.

    With that said the only thing you have to do is to pay yourself $50k in W2 income and that’s it. The rest is profit in your LLC and gets reported on form 1040 schedule C. This is not W2 income, it’s profit from a business.

    Then your worry is to reduce tax liability. You can do it as others said with contributions to retirement vehicles, paying yourself health insurance, long term insurance, contribute to a HSA, invest in your business to grow. If all is said and done you can see if the gray zone is for you. Buy an expensive car, buy an office real estate, lots of meals with clients, educational trips,… but be careful the saved taxes are not worth prison time.

    Or create a second LLC and pay yourself another $50k in W2 income so none of your ‘jobs’ make more than your previous salary. They only come together on your tax return as separate W2.

    BTW, how would your previous employer know how much you make? Do you have to provide a W2 at the end of the year or how does that work? Maybe you should provide the exact wording and then we can help you better.