Self employed and best approaches

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Topic Author
Applesa
Posts: 11
Joined: Fri Apr 03, 2020 7:09 pm

Self employed and best approaches

Post by Applesa »

Hi all - not posted here much but after the crap year time to ask for advice . Due to downtown in biz and schooling for our kids we sold our house ( terrible timing in October 2020)
We now have $1m in the bank doing nothing - which is part of the picture
The more important piece is trying to get a proper handle on structure of my day to day business in California and how to afford living here

My best year was approx 600k ( pre deductions) in self employed earning which is also around the time I setup an s Corp LLC

Accountant said do a w2 for $250k and max the sep at $50k which reading here seems a crap ideas vs solo 401k - this was 2017 and 2018

Anyway going forward I am looking at qbi,solo 401k, HSA or not ( our family premium is around $2k per month), looking at private schools ( and setting my agi) , and. Hopefully buying a new home. Seems most advisors want to focus on the cash I have and where to invest my 401k vs the actual structure that makes the most sense . Any thoughts appreciated. My wife works very little so she could be on the payroll, 401 etc - accountant always said it doesn’t matter
Topic Author
Applesa
Posts: 11
Joined: Fri Apr 03, 2020 7:09 pm

Re: Self employed and best approaches

Post by Applesa »

Just bumping in case there is any fresh eyes, or even tell me how I should change my post/ thoughts
Pete3
Posts: 266
Joined: Thu Jul 01, 2010 12:10 pm

Re: Self employed and best approaches

Post by Pete3 »

Not really sure I understand the question or your situation completely

I'm 1099 contractor, sole prop, max out my solo 401k, do my own taxes. For me solo 401k was a better choice than SEP IRA which I believe I couldn't max out at my income level (its been years since I switched from SEP IRA to solo 401k)

At various points I've looked into the benefits of incorporating, paying myself a salary to reduce the part of my income subject to SSI/Medicare and I always come away with the determination that cost/benefit/risk just isn't there for me.
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8foot7
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Joined: Mon Jan 05, 2015 6:29 pm

Re: Self employed and best approaches

Post by 8foot7 »

What is your question?
Topic Author
Applesa
Posts: 11
Joined: Fri Apr 03, 2020 7:09 pm

Re: Self employed and best approaches

Post by Applesa »

8foot7 wrote: Tue Aug 31, 2021 12:29 pm What is your question?
Lets assume self employed earns $400K, outgoings for house around around $6-$8K a month plus another $10K on other stuff (inc $2K month on health insurance).
What are the main items to check off:
- Solo 401K max it out?
- Wife, she earns very little writing, been told put her on my books then someone else aid don't bother. Seems at a min missed out 401K for her
- HSA or non HSA for the family, we are generally healthy though occasionally I try and look into an unresolved issues and rack up bills but then go no-where.
- Do i keep my existing S-Corp or get rid of it due to the QBI introduction seems to make it less valuable.
- How much do I pay myself on w2? One accountant said higher ($250K plus) to max out the Sep IRA but this now seems to have been a crap idea vs Solo 401K and a lower salary.
- Car expenses, my accountant never said I should be paying out of my biz account vs just leaving the payments (lease and loan) from my personal account, more of an issue when applying for mortgages and explaining it's biz use from personal account (maybe more annoying than anything)
- Ensuring I am capturing all benefits like child support which are associated with income and back to the "what do I pay myself"
- College saving plans, ideally paying for private school for my 3 kids in Los Angeles = $150K a year, but if my AGI is right then maybe we get a lower cost for private and it makes sense. I also found out (and again finance people never mentioned) that you can use college savings for intl schools like the UK etc.
- Roth, seems if I have anything left I just do this.

I am trying to work out what items I should be focusing on monthly/ yearly as it seems currently I am ending up in the woulda/coulda/shoulda situation when I do my tax returns in April or find out I got crap advise regardless of if I pay $12K a year to accountants or $3K (yes correct numbers)

Sort of tired of being sold which vanguard account to put the cash in and they take a cut. To me I want to start with the actual book keeping side that makes sense. I got a bit from here and can probably keep plugging away but my business and just day to day work means little time left.
Pete3 wrote: Tue Aug 31, 2021 12:24 pm

At various points I've looked into the benefits of incorporating, paying myself a salary to reduce the part of my income subject to SSI/Medicare and I always come away with the determination that cost/benefit/risk just isn't there for me.
It seemed to be around $400K and upwards when I changed to S Corp in 2017/18 vs keeping as sole, but maybe that was wrong.
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