$700k Tax Bill

[afan]

I do not have any other tax saving suggestions. Just glad that no one has brought up and the OP has not run into any people pushing abusive tax shelters.

[v1nce]

What would you suggest?

[SeattleCPA]

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.

I dropped out of this thread because it was tax season. Didn't see or read it again until now. But Random1? Your idea works really well. And maybe even easier and better than one thinks at first. A taxpayer can make an election to group a building they own 100% of and rent to a another trade or business they own 100% of. This grouping then lets them use depreciation on building to shelter income in trade or business.

You'd have to use cost segregation to get big deductions on the first year's return. Especially if you weren't using leverage. Also one needs to always be careful one isn't letting tax tail wag the dog. But, again, self-rentals can work really well.

[SeattleCPA]

This assumes you need a place to work. You are going to pay rent to some one else otherwise. Have your business pay $180000/year in rent, which lowers your income. Have your real estate business pay you a salary of 50k per year and then 130k per year of dividends.

The non-dividend distributions made by S corporations are tax-free as long as they do not exceed the stock basis of each stockholder. If this occurs, the excess amount is subject to long-term capital gains. Distributions made to S corp shareholders are not subject to Medicare and Social Security taxes (FICA).

This is the best way I can explain it , you may want to talk to an accountant

So to be clear. v1nce doesn't need to pay himself a salary on the real estate business. He just needs to make a grouping election.

And also, to clear up an accounting point, you could but wouldn't need to depreciate the building over 39 years. Instead you could do a cost segregation and depreciate some huge amount the first year. E.g., maybe $390K. And then maybe $10K of depreciation the next 39 years.

[SeattleCPA]

My S-corp is NOT a specified service business. My accountant filed Form 8995-a which limits the tax deduction to w-2 wages only. Line 4 of the 8995-a form is where I get killed: Multiply line 2 by 20% (0.20). If your taxable income is $170,050 or less ($340,100 if married filing jointly), skip lines 4 through 12 and enter the amount from line 3 on line 13

You want to make sure your salary is reasonable. But if your Section 199A deduction gets limited due to your W-2 wages? You want to consider adjusting your wages.

FWIW, the optima is when W-2 wages equal to 28.5714% of the pre--W-2 wages profit. E.g., with $2M of profits, you should have your W-2 wages at roughly $570K. If that's still reasonable.

E.g., with $2M of profits prior to paying $570K, you get a 199A deduction equal to lesser of 50% of $570K, which is $285K... or 20% of $1,430,000, which roughly $285K.

[medman2k1]

I would add that Im a 7 figure earner(1099/S-corp) 500k+ tax payer. I have been very disappointed with the cash balance plan that I have. I shut it down and will have made a total of 4 years of contributions. The upfront fees are high, the ongoing maintenance fees are high. The financial person who is running it has me in bond/treasury funds with 1.5% fees PLUS he is charging 1.25% AUM fees. It’s absolutely sickening how much these people charge you for this plan. Imagine 1M in a plan with all those fees? I dont think the tax deferral is worth it especially when they cap you at 6% before those fees. So I would say unless you want to get taken advantage of just steer clear of a cash balance plan. Perhaps I just just got a bad deal but i suspect this is a common theme amongst those who sell.administer these plans.

[jacoavlu]

I would add that Im a 7 figure earner(1099/S-corp) 500k+ tax payer. I have been very disappointed with the cash balance plan that I have. I shut it down and will have made a total of 4 years of contributions. The upfront fees are high, the ongoing maintenance fees are high. The financial person who is running it has me in bond/treasury funds with 1.5% fees PLUS he is charging 1.25% AUM fees. It’s absolutely sickening how much these people charge you for this plan. Imagine 1M in a plan with all those fees? I dont think the tax deferral is worth it especially when they cap you at 6% before those fees. So I would say unless you want to get taken advantage of just steer clear of a cash balance plan. Perhaps I just just got a bad deal but i suspect this is a common theme amongst those who sell.administer these plans.

you got a bad deal

no aum fees, investment fees. Should only be a fixed admin fee like 3-5k.

[Turf Doc]

I would add that Im a 7 figure earner(1099/S-corp) 500k+ tax payer. I have been very disappointed with the cash balance plan that I have. I shut it down and will have made a total of 4 years of contributions. The upfront fees are high, the ongoing maintenance fees are high. The financial person who is running it has me in bond/treasury funds with 1.5% fees PLUS he is charging 1.25% AUM fees. It’s absolutely sickening how much these people charge you for this plan. Imagine 1M in a plan with all those fees? I dont think the tax deferral is worth it especially when they cap you at 6% before those fees. So I would say unless you want to get taken advantage of just steer clear of a cash balance plan. Perhaps I just just got a bad deal but i suspect this is a common theme amongst those who sell.administer these plans.

Did you not realize this was insanely expensive when you set up the plan?

You should message litovskyassetmanagement. I'm sure he would be able to help you with a significantly better and cheaper plan

[medman2k1]

Did you not realize this was insanely expensive when you set up the plan?

You should message litovskyassetmanagement. I'm sure he would be able to help you with a significantly better and cheaper plan

I was aware of the upfront cost. Not the fees assessed by the funds/ETF’s nor that there was a AUM fee. I accept responsibility for that, I wanted to shut it down as soon as I discovered the fees. However my CPA advised me that openeing and closing a cash balance plan in the same year( or even short of 3 years) is a red flag. I was told that I was still getting the substantial tax deduction. I was busy, still am busy so I just let it ride for the 3 years. Fortunately its only around 600k in it and will be shut down before end of the year.

Im firing both my CPA and the cash balance plan this year both cost me in excess of 30k/year. Im moving on despite the massive disruption this causes me.

I reached out to litovskyassetmanagement before I started the initial CBP but he was not interested in dealing with small/solo docs like me, or atleast thats what he told me at the time.

In my experience it’s very hard to get competent, reasonable priced help at the 7 figure plus level. And Im the opposite of frugal! Everyone just salivates and tries to get their pound of flesh from you. Hopefully things go smoother. Im actively looking for a new CPA to help me, atleast for 2024.

And the the grind continues………

[v1nce]

In my experience it’s very hard to get competent, reasonable priced help at the 7 figure plus level. And Im the opposite of frugal! Everyone just salivates and tries to get their pound of flesh from you. Hopefully things go smoother. Im actively looking for a new CPA to help me, atleast for 2024.

And the the grind continues………

I know what you mean!!! I feel like there is another level of CPA that I have not been able to find or access.

[Hank]

It might be worthwhile to look at a Schwab personal defined benefit plan, especially if you don’t have employees.

[v1nce]

Thank you for the suggestion to look into a defined benefit plan, but my w-2 income wouldn't support opening one up as a large percentage of my w-2 income is covered by the solo 401k. I would have to really increase my weekly hours to receive more w-2 income to justify starting a defined benefit plan.

[jfoxcpacfp]

I reached out to litovskyassetmanagement before I started the initial CBP but he was not interested in dealing with small/solo docs like me, or atleast thats what he told me at the time.

I have what I believe is a good referral for you but you’ll need to pm me. Reasonable costs, knows their stuff, I have (as always) no financial affiliation.

[medman2k1]

I have what I believe is a good referral for you but you’ll need to pm me. Reasonable costs, knows their stuff, I have (as always) no financial affiliation.

Thank you so much for the offer but honestly Im so jaded that Im going to hold off for a year or 2 before I make that level of commitment again. Also Im probably not the right candidate for a cash balance plan. Im 46 yo and have had this for the past 4 years. Im looking for high growth equities, and taking more risk because I have a few more years ahead of me. I think a better candidate is one who is 5 years or so away from retirement and wants to be conservative. The fact that Im holding bonds/treasuries is sickening to me. And Im capped at 6% MAX(before fees) is not good. So my advice to anyone considering these plans, be in the conservative arc of your investment strategy.

I usually save ~500k/yr so to lose 30% of that to ultra conservative investments as early now mid 40’s doc is not the way to go.

[Turf Doc]

Thank you so much for the offer but honestly Im so jaded that Im going to hold off for a year or 2 before I make that level of commitment again. Also Im probably not the right candidate for a cash balance plan. Im 46 yo and have had this for the past 4 years. Im looking for high growth equities, and taking more risk because I have a few more years ahead of me. I think a better candidate is one who is 5 years or so away from retirement and wants to be conservative. The fact that Im holding bonds/treasuries is sickening to me. And Im capped at 6% MAX(before fees) is not good. So my advice to anyone considering these plans, be in the conservative arc of your investment strategy.

I usually save ~500k/yr so to lose 30% of that to ultra conservative investments as early now mid 40’s doc is not the way to go.

I feel like you're not accounting for the up-front tax deferral and the fact that the time you are getting 6% may be not very long when you consider the ability to roll it back into a 401k at your desired asset allocation after around 5 years. If it was in perpetuity at 6% i would agree with you, but its not