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It's that time again. I don't have much to spend my money on so I'm going to pay quite a bill this year. I always feel unprepared. Anyone got a good strategy? Buy a SUV?
When you've got them by the balls, their hearts and minds will follow.
The only decent one I've found is to have your corporation set up a Defined Benefit Pension Plan, there are firms that specialize in administrating them and they will set one up for you, you can put up to $200,000 a year (by some complex formula that I don't understand you can apparently get up to about $225,000). The plans are designed to include employees and are governed by strict ERISA law but you can be the only beneficiary and don't have to start drawing money out and paying taxes on it until you are 80 years old. These things are complex and discuss it with your CPA, you can't put anymore away than you have paid yourself during the year, but saving taxes on $200,000 a year is worth it, and all self-employed people should have a pension plan anyway.
"The only communists left in the world are in American Universities."
I'm pretty sure we have the pension plans well funded but I never heard of the plan you are referring too. The issue with these plans is that I need to offer it to every employee of the business. So that's been done, not sure if I want to do more.
This year is unique as I don't have much to invest in. So unless there is another way to shelter it, I'm screwed. I toyed with buying a warehouse property, but I don't know if I could close in time.
By the way, my wife used to be pissed at me spending so much money in December, now after hearing what we owe, she wants me to go out and spend it. That's women for you.
When you've got them by the balls, their hearts and minds will follow.
I'm pretty sure we have the pension plans well funded but I never heard of the plan you are referring too. The issue with these plans is that I need to offer it to every employee of the business. So that's been done, not sure if I want to do more.
I don't know the details and don't feel like looking through my 3" plan binder but all I've ever had on my plan is myself, of course my employees were union and I paid into their union plan. I don't look at it as a pension plan as much as a way to defer income taxes until such time in the future when I'm in a lower tax bracket. You can direct the money into income producing real estate, including buying and selling but it gets tricky.
No way I'd want a Portugee wife pissed at me.
"The only communists left in the world are in American Universities."
There are no good strategies. Dick, I believe you have to start withdrawals at 70-1/2, not 80.
Allan:
You are confusing a 401k with a Defined Benefit Pension Trust, a 401k is 70½, a Defined Benefit Pension Trust is 80, I called my Administrator recently to ask when I have to start distributing since I will be 80 next year, I also wanted to know how much I'll have to start distributing, they can't tell me until next year when they'll have an actuary determine the amount (I guess my life expectancy is factored in), but they surprised me by saying that I didn't have to make the first distribution until sometime in 2016, so I think that it only has to be started within one year after your 80th birthday. I don't really want to retire but if I keep working I'll be in the situation of distributing taxable income while I am paying in contributions to avoid taxes, one will cancel out the other.
Another big difference is that it's much easier to self direct investments in a 401k, people do it all the time, but a Defined Benefit Pension Plan is designed to handle other people's money so you have to abide by ERISA regulations. I actually looked for an attorney specializing in ERISA law, even large law firms kept referring me up the chain until I connected with a $750 an hour Los Angles firm, I was thinking of investing in collectables, he asked what kind of collectables? I said art as an example, he asked me where I was going to store it? I said add an art gallery on my home, he said you can't do that because looking at the art is enjoying it, even if you put it in storage you have to keep it packaged so nobody can see it. I stayed in the stock market which is keeping me awake nights with it's current volatility.
"The only communists left in the world are in American Universities."
Someone told me to buy high end whisky and scotch and that it is a fantastic investment. I may look into that, I drink 2 fingers of Bourbon every night, I can't remember the last time I missed that.
I sometimes wonder if collectibles is the way to go, whiskey, muscle cars, etc. The only attraction of the stock market to me is the relative "hands off" aspect. You don't need to mow lawns, fix roofs and change out water heaters.
The point of the Thread was how to avoid taxes, this will be the first year I take a considerable about of money out of my business vs reinvesting it back in.
It hurts.
When you've got them by the balls, their hearts and minds will follow.
The point of the Thread was how to avoid taxes, this will be the first year I take a considerable about of money out of my business vs reinvesting it back in.
It hurts.
My point is that the only way that I know to avoid them is to put them into a pension trust, you can avoid paying $200,000+ in taxes this year and defer the taxes until you are 80 years old. Another way is to take the $500,000 home sale tax exclusion, yet another is have lots of kids and write them off, problem is you will make the environmentalists very mad.
Originally posted by IRS
Effective Jan. 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000. For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2014, by 1.0178.¹
I see it's the multiplier, last year I put in $204,000 and that multiplier gave me the $210,000 maximum, I just do what my CPA and the plan administrator tell me to do.
The point of the Thread was how to avoid taxes, this will be the first year I take a considerable about of money out of my business vs reinvesting it back in.
It hurts.
When you are talking earned income as a W-2 employee or as self employed, ordinary income can be taxed 40% +. And there really isn't a way to avoid high tax rates.
I believe if you know 'before' the year end, anything you invest in then (like marketing, new equipment, etc) is basically a savings of whatever your tax % would be come this time of year.
while I don't like to pay in any more than I have to I do enjoy the benefits that my taxes get me. Things like fire truck and police cars and the people that are in them, streets that you can drive down, street lights, schools and such. Here we pay a tax for our local zoo and musuems and most are free. Now I could complain that I have not been to the zoo in maybe 15 years but I have also not had a fire and need a fire truck to show up at my house in the 40 years I have lived here. But I pay it anyway.
That being said I do try to limit how much I pay because we are allowed to do so. If I buy a new truck that I drive to work I can deduct that. If I have a job where I am driving my new truck to work but am not a business owner I cannot deduct it. Same goes for my tools. If my neighbor buys a table saw he does not get a deduction but if I buy one and use it on the job I get to deduct it. I try to keep an idea of what I can do to limit it within reason but am not going to buy a new table saw just to save $50 if the old table saw is fine.
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