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!
I don’t think you need to increase your expenses at all. All you need to do is to elect to be taxed as a C corporation.
You need an accountant but generally speaking it would be to increase expenses.
That could mean buying stuff for your business or even potentially contributing to things that lower MAGI like IRA’s and 401k’s.
The other option is simply to turn away work to keep your income down.
Quit milking your disability and be successful
Not legal advice but something to look into:
An s corp is a pass through entity, so all profits will pass through to your tax return regardless how you structure payments. Look into C Corp. C coros pay tax at the corporate level, but only payments made to share holders (salary, dividends, etc) are reported on the shareholders tax return. Idk how that will apply to your situation, but it’s something to look into
Spouse and kids? Simple IRA can knock $16,500 per right now. SEP can knock out even more.
Or just put your spouse on payroll and knock out half the income.
I put my wife, kids and parents on my payroll
Ask your accountant, not reddit. Asking the internet is the functional equivalent of getting a lion to babysit a newborn Zebra.
Somebody else mentioned making donations to a charity that you control. That is one of many “loopholes” what wealthy people take advantage of to not pay taxes. In a nutshell, you create a non-profit organization like “SpiritedEngineering Foundation” where you manage the fund. Your LLC then “donates” to that charity, which becomes a deduction and in turn minimizes your pass-through income. You then can use the funds in the foundation to pay for certain expenses like meals, traveling, cars, etc. Another loophole is to buy art or other investments from your LLC. I used to work for millionaires and they would share these tidbits with me once in a while. Obviously nothing you should do without the use of experts such as tax advisors, wealth management, tax attorneys, CPA, etc
It depends partly on how you want the business to go and and partly on how it actually goes. You can convert into a C corporation, where you have more control over how much comes in to you as income or dividends, and how much is kept in the business as retained earnings or R&D investment funds or internal asset management accounts and the like.
Definitely get a solid bookkeeper or accountant with appropriate experience to guide you here. This is a touchy situation that needs more than just Internet advice.
Can you not just incorporate (C Corp I guess) and pay yourself a reasonable salary?
Would your restrictions count non financial benefits, like health insurance, a company car, etc as income?
If you are in the USA you should pay yourself right at the poverty line so you are eligible for the maximum health insurance subsidiary through the market place.
You have a few options. One is to keep reinvesting profits to keep your taxable income down. The other is to form a C corp, and not pay any dividends. That way profits aren’t flowing to you at an individual level.
You want to keep your low W2 and convert to a C Corp. An S corp is a flow through entity meaning it’s like a sole proprietor, it’s money = your money. Other options
- SEP IRA: 25% of biz income up to $66k
- self directed 401k
- more write offs, lots of things can be write offs
- hire children / spouse This is of course for informational purposes only and is not intended to be personal financial or legal advice
The only vehicles to achieve something like what you say you want are
- S corp: the profit will still pass through and increase your income, but s corp profit is not subject to payroll tax (SS/FICA)
- Use an IRA to stash the profit in a tax advantaged way
You’d need to use a C corp if you want to profit to stay in the company, but C corps pay 21% federal plus state income in many states, so that won’t work.
S corp then get sep or simple IRA
If you are in the USA…I’m a S-Corporation. Any profits from the business became part of my income. I do know C- Corporations became their own taxable entities. You can leave the money in there until you sell or close. With some creative accounting you should be ok. But please ask an accountant. Don’t take advice from Reddit even tho I’ve had my business for 22 years