Reducing taxable income, what’s the best way?

13 Replies

What is the best way to reduce your personal taxable income? I am self employed and receive K1’s from a flipping business and rental properties as well as a W2 and K1 from my transportation business. Any advice would be great! Thanks, Mayer

@Mayer M., as a licensed financial adviser I would need to look at your complete financial picture to properly advise you on the best steps to take to reduce your tax liability. Whoever you work with make sure they consider your personal and business finances. Please send me a private message if you would like to discuss further. 

Regards,

@Mayer M.

The first thing you've got to do is to establish Solo 401k (aka Individual 401k). It is designed for self-employed people and small business owners without full time employees and allow contributions up to $55,000 for 2018!

You are not required to have it with brokerage and have have it set up as "self-directed" version, meaning that your investment options will not be limited to the stock market and you can invest in what you know and understand best (i.e. real estate). Most popular investment options include private lending, single family rentals, multi-family syndications, tax-liens and note funds. Some of those options may require "accredited investor" status (or sophisticated investor). 

@Dmitriy Fomichenko Thanks Dimitri! I have full time employees and partners in my transportation business which is an S Corp. my flipping and rentals are in LLCs. Can I still do a solo 401k? And do all the contributions have to be done by 12/31?

@Bill Hampton , IRA age 50+ catch-up is $6,000/year (not $5,500). This stays the same in 2019 (although normal contribution goes up by $500 to $19,000 as you stated).

The trade off is what will your situation look like later?  Pre-tax plans can be great, but if your ultimate plan is to have higher income, more assets, etc., down the road, and if you think tax rates/brackets could increase, what does that say about potential taxation on some of those sources in the future?  Just something to think about. 

@Mayer M.

The best thing for you is to speak with your accountant  about your personal options. If you don't have one, reach out to accountants on BP. It would not be wise to take a recommendation based on the generic advise on the forum. Your full financial position  has to be accessed in order to give you advise.

Perhaps people like @Michael Plaks , @Brandon Hall , @Lance Lvovsky can assist you.

@Alina Trigub Thanks for the mention. As mentioned, you should speak to your CPA about this. Running projections and having an understanding of your total financial picture is how a CPA can best advise you here. I would look at your “picture” with a holistic view and run various projections and analysis to determine what would best benefit you.