$700k Tax Bill

[v1nce]

2023 will be the year to start putting a strategy in place to reduce my tax bill if at all possible. I'm wondering if there are others who may provide advice on strategies to help reduce my tax bill. Here are the high level details:

• All income is derived from an S-Corp. 100% active income. I have $0 in passive income.
• 1 employee which is me
• solo 401k is maxed out each year
• R+D tax credit was used in 2019. No activities would allow for the R+D tax credit to be used this year
• Max contributions to 529
• No assets in the business like real estate that can provide depreciation.

I'm not really interested in starting another job where I become a landlord that may require large chunks of my time.

I have spoken with local CPA's and accountants, but most ideas were very small results that don't move the needle. Here are some examples:

1. Buy a car for the business. This will require keeping a log book and I probably couldn't meet the 50% business use requirement.
2. Buy a commercial building
3. Put children on payroll

I feel like there is a lot of talk about tax strategies, but when you dive into the details most strategies fizzle out.

I'm looking for big some big ideas from people with real experience.

[CordMcNally]

https://forum.whitecoatinvestor.com/tax-reduction/370747-large-tax-burden-help

[The White Coat Investor]

2023 will be the year to start putting a strategy in place to reduce my tax bill if at all possible. I'm wondering if there are others who may provide advice on strategies to help reduce my tax bill. Here are the high level details:

• All income is derived from an S-Corp. 100% active income. I have $0 in passive income.
• 1 employee which is me
• solo 401k is maxed out each year
• R+D tax credit was used in 2019. No activities would allow for the R+D tax credit to be used this year
• Max contributions to 529
• No assets in the business like real estate that can provide depreciation.

I'm not really interested in starting another job where I become a landlord that may require large chunks of my time.

I have spoken with local CPA's and accountants, but most ideas were very small results that don't move the needle. Here are some examples:

1. Buy a car for the business. This will require keeping a log book and I probably couldn't meet the 50% business use requirement.
2. Buy a commercial building
3. Put children on payroll

I feel like there is a lot of talk about tax strategies, but when you dive into the details most strategies fizzle out.

I'm looking for big some big ideas from people with real experience.

Cash balance plan and HSA.

Smaller salary from the S Corp if it can be justified.

Move to a tax free state.

That's it given your parameters. Congrats on such a high income.

[Marko-ER]

Puerto Rico for 6 months + 1 day a year, set yourself as an S-corp with capital gains distributions (starting after 1 year) and dividends as main income stream? I am not sure why this is not pursued more routinely with telemedicine and Puerto Rico being part of the US??

I guess that might be challenging both logistically and from tax-planning perspective. So perhaps an alternative is to use the so-called "Elon method" that's been advocated by friend of WCI Jaspreet Singh of minority mindset -- set up your LLC and a setup to build up equity in it, then borrow against it to finance your life instead of issuing yourself a salary.

[familydocPA]

Congrats, great problem to have!

[CordMcNally]

Puerto Rico for 6 months + 1 day a year, set yourself as an S-corp with capital gains distributions (starting after 1 year) and dividends as main income stream? I am not sure why this is not pursued more routinely with telemedicine and Puerto Rico being part of the US??

Probably because nobody wants to live in Puerto Rico for 6 months + 1 day.

[SeattleCPA]

2023 will be the year to start putting a strategy in place to reduce my tax bill if at all possible. I'm wondering if there are others who may provide advice on strategies to help reduce my tax bill. Here are the high level details:

• All income is derived from an S-Corp. 100% active income. I have $0 in passive income.
• 1 employee which is me
• solo 401k is maxed out each year
• R+D tax credit was used in 2019. No activities would allow for the R+D tax credit to be used this year
• Max contributions to 529
• No assets in the business like real estate that can provide depreciation.

I'm not really interested in starting another job where I become a landlord that may require large chunks of my time.

I have spoken with local CPA's and accountants, but most ideas were very small results that don't move the needle. Here are some examples:

1. Buy a car for the business. This will require keeping a log book and I probably couldn't meet the 50% business use requirement.
2. Buy a commercial building
3. Put children on payroll

I feel like there is a lot of talk about tax strategies, but when you dive into the details most strategies fizzle out.

I'm looking for big some big ideas from people with real experience.

It's maybe you who I've been corresponding with via email? In any case, I don't think strategies fizzle out really, do they? But agree there's no easy way to save big on taxes.

E.g., real estate does work well. But it's complicated. One advantage you have is, you have business income. That can be sheltered with business losses.

Example: You take $1M of your roughly $2M of earnings. Go borrow $3M via mortgage. Buy a $4M beach house. Do short-term rentals and absolutely make sure interval is 7 days or less. If you use cost segregation you can maybe write off $1M first year. (Probably less though.) In any event you shelter $370K of tax.

The material participation standard for above is probably "only" more than a 100 hours between you and your spouse.

The three big practical problems: First, and most important, is a STR a good investment? Maybe not. Maybe so.

Second, you and your spouse are going to need to put some hours in. Not much. But a few.

Third, you need to be okay with the leverage and the $3M of 6% debt.

But I don't think that idea fizzles. It's just not costless or riskless.

P.S. Like an IRA or 401(k), when you liquidate the investment you may have taxes. Hopefully at that point, again like an IRA or 401(k), your marginal rate is lower? And then there are other ways to eliminate or reduce or delay the taxes. E.g., the step-up in basis. Or converting the property to personal use.

[wideopenspaces]

Open a DAF :-)

[nephron]

Hire whoever was doing Donald Trump's taxes.

[VentAlarm]

Have more kids? I mean, maybe just be happy about it? It’s 20x my tax bill. I would LOVE to have a tax bill that high.

[TXDoc21]

It won’t help you for this past year, but work less? That will lower taxes nicely for 2023.

[G]

WCI summarized well. Cash balance plan and moving to no tax state would be high yield. Assume you are doing profit sharing?

Not that it will help your tax bill, but I'm curious how you have "$0 in passive income"...with a tax bill of 700k, I would assume you made over $1.5M...what did you do with your money that there was literally no interest/cap gains/dividends?

[v1nce]

Not that it will help your tax bill, but I'm curious how you have "$0 in passive income"...with a tax bill of 700k, I would assume you made over $1.5M...what did you do with your money that there was literally no interest/cap gains/dividends?

Paid taxes + purchased new primary residence with cash.

[v1nce]

I wanted to share an update for those who may be following this thread and may be in a similar situation.

Ask your tax preparer if your state allows for the S-Corp to pay the state taxes directly. I was able to pay the state taxes directly from my S-Corp instead of from my personal bank account. I had to pay the full state tax rate without any deductions. The state tax payments paid from my business reduced my business income resulting in a federal tax savings of $25k after netting the higher tax payment to the state.

I have yet to receive any real wisdom on strategies that really move the needle on tax mitigation without getting leveraged in real estate.

I am always open to ideas or thoughts on where to research more.

[Random1]

I have yet to receive any real wisdom on strategies that really move the needle on tax mitigation without getting leveraged in real estate

I am not sure what you do or by what you mean , get leveraged in real estate , but buying your own office building and renting it to your self might make sense. This way you have an easy tenet and get some tax breaks along the way. If you don't want to be leveraged in real estate - pay cash for the building and just use the depreciation . Pay your self the maximal amount of rent, take a small salary to manage the real estate business and give yourself a nice quaterly dividend from the real estate. Now you can pay your self smaller salaries and collect more of profits in dividends.