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rated:
Currently setup as sole prop making about 100k a year. After deductions i got down to around 75k with a tax bill of 26k.

What am I doing wrong, what can I change and should I get an accountant or continue using TurboTax?

I could have dropped tax bill by 4K with 17k sep deposit but waited till the last second to finish taxes and missed the deadline.

Self-employment tax was around 12k

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It'd be pretty difficult. Not sure how it applies to what you quoted though.

marginoferror (Apr. 28, 2017 @ 7:17a) |

I see it as closer to $40k. Totally reasonable in a low cost of living area -- particularly with a paid off house.

stanolshefski (Apr. 28, 2017 @ 7:45a) |

Check yer math....

I get that this leaves us about $61k. We spend about 45k including health insurance and our house (not... (more)

bluegreenturtle (Apr. 28, 2017 @ 9:06a) |

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rated:
Most of the deductions available to regular people come from retirement plans and payment of taxes (property, state income) or interest (mortgage, student loan). If you had SEP IRA, you can look into a self employed 401k which may allow you to put more in.

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Is the 12k self employment tax included in 26k taxes

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I'd hire an accountant to review your records and return for this year. You can probably get the fee returned in additional tax savings through amended returns. Health care costs? Office? Car write offs? Section 179 depreciations? Entertainment? Meals? Charity? Inventory? Uniforms? Supplies? Literature and subscriptions? There are many others to consider. See what s/he does and then replicate it yourself next year.

Another way to look at it -- the accountant can save you time and money doing what s/he does for a living at a fraction of the time and effort it will take you. You can use the saved time to make more money rather than doing accounting, tax planning, and filing. Also, if you are audited, the pro will usually represent and defend you and save you even more money and stress.

Don't miss the SEP next year.

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How much can you afford to sock away in retirement accounts?

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What about restructuring to a llc taxed as a s-corp? What would that do for me?

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ICMATULKASPRMKY said:   What about restructuring to a llc taxed as a s-corp? What would that do for me?
 


If you can reasonably pay yourself a salary less than your full income, then you can save on payroll/self employment tax by forming an LLC and making the S-Corp election.

The two caveats are:
1) Salary must be in line with your circumstances. (You can look up many discussions of what is "reasonable.")
2) If you want to max out retirement contributions with a SEP or solo 401k, reducing your compensation will likely reduce how much you can contribute. See this great thread: https://www.fatwallet.com/forums/finance/1528227

Also note that an LLC has a bit more overhead associated with it. You have to, or pay someone to, do payroll and prepare a LLC tax return. I'm spending $100 per quarter on payroll and $610 for preparing/filing the corporate return. Also in California you have to pay the larger of $800 or 1.5% of corporate profit (i.e. profit after paying your salary.) Even after all that, I still come out ahead with my LLC instead a sole proprietorship.
It's worth running your numbers and seeing how it would come out.

Oh, and look into a solo 401k, you may be able to contribute more to that than to a SEP.

rated:
ICMATULKASPRMKY said:   Currently setup as sole prop making about 100k a year. After deductions i got down to around 75k with a tax bill of 26k.

What am I doing wrong, what can I change and should I get an accountant or continue using TurboTax

I could have dropped tax bill by 4K with 17k sep deposit but waited till the last second to finish taxes and missed the deadline.

Self-employment tax was around 12k

  
Sep  deposit (if you can afford to move that money aside .. is definitely a must).
Did you look through all possible expenses/deductions?  Specifically most people do well with home office expense (you just need to do certain types of work regularly at that location - like billing/invoice etc).  Basically really need to make sure you don't miss any deduction.  So you're primary place of work is home office - you deduct fraction of all home expenses related to that room ... and now if you your main place of work is home office, if you're gong out to work ..... those are travel expense; i believe you also deduct all your medical premium.   Basically really go through all your expense with a fine comb.

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vadeltachi said:   I'd hire an accountant to review your records and return for this year. You can probably get the fee returned in additional tax savings through amended returns. Health care costs? Office? Car write offs? Section 179 depreciations? Entertainment? Meals? Charity? Inventory? Uniforms? Supplies? Literature and subscriptions? There are many others to consider. See what s/he does and then replicate it yourself next year.

Another way to look at it -- the accountant can save you time and money doing what s/he does for a living at a fraction of the time and effort it will take you. You can use the saved time to make more money rather than doing accounting, tax planning, and filing. Also, if you are audited, the pro will usually represent and defend you and save you even more money and stress.

Don't miss the SEP next year.

  
Cost for looking for/promoting business ... you know the 1 hour meeting you had with a prospect while you were on vacation  ... 
 

rated:
First, go setup a 401K now! If you have no employees, it should give you a little bit more flexibility in the total amount of contributions that you can make. Vanguard is a great provider for individual 401Ks.

Second, always file for an extension. That way you have until October 15th to actually make the retirement contributions.

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An old article from Forbes.com. You can follow many strategies highlighted there.
https://www.forbes.com/sites/ashleaebeling/2013/02/13/how-entrep...

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I am a salaried employee. What are my options to set up an LLC and save on taxes?

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OP, is the 12k self employment tax included in 26k taxes

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The solution to high tax bills is always the same: Make less money.

The most popular option is to put as much as you can afford into tax deferred accounts. Also you could decrease your business revenue (work less) or increase work deductions. (Buy equipment, Attend seminars for your industry, Hire more employees***, or donate to charity.)

*** Keep in mind that SEP % must be the same for all employees. No problem here though. Contributing to Employees accounts will lower your tax bill too!

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bharatiya said:   I am a salaried employee. What are my options to set up an LLC and save on taxes?
  Lots of them, but nothing that would directly apply to OP who is a 1099 employee.

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ICMATULKASPRMKY said:   What about restructuring to a llc taxed as a s-corp? What would that do for me?
  Well, it would certainly reduce your tax because you'll have to pay fees to the state which would generally be deductible. But as I'm sure you know, it doesn't make any sense to spend $100 to save $25 in taxes. In all seriousness, switching to an S-Corp carries with it a much higher administrative burden. Payroll compliance can be a pain. Some states have very high fees (CA has an $800 minimum franchise tax, NYC has very high LLC registration costs, etc.) On top of that, some states don't conform to federal s elections which means if you're taxable in those states you may be taxed as a C corporation.The easiest (in my opinion) way to reduce taxes is the ability to deduct quasi-personal expenses you generally wouldn't be able to deduct if you were an employee. These are things you would've already had to pay anyway, but now they're deductible. Things like home office expenses, business travel, books for your industry, etc. Of course, because these are quasi personal expenses, you should make sure they really do qualify as business expenses.Retirement accounts are another good option, but others have already discussed.

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I got a chance to compare how much I make vs someone living in 3rd world country.

I make twice as much but after fees and taxesessssssss, I actually make less.

PS: Yes, they have medical and dental just like me.

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WorkerAnt said:   I got a chance to compare how much I make vs someone living in 3rd world country.

I make twice as much but after fees and taxesessssssss, I actually make less.

PS: Yes, they have medical and dental just like me.

  post actual numbers

rated:
Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 

rated:
WorkerAnt said:   I got a chance to compare how much I make vs someone living in 3rd world country.

I make twice as much but after fees and taxesessssssss, I actually make less.

PS: Yes, they have medical and dental just like me.

  So why aren't you living there? Also, if it's a third world country I'd imagine their medical and dental isn't "just like [yours]."

rated:
forbin4040 said:   
bharatiya said:   I am a salaried employee. What are my options to set up an LLC and save on taxes?
  Lots of them, but nothing that would directly apply to OP who is a 1099 employee.

  Want me to open up a new thread on this?

rated:
bharatiya said:   
forbin4040 said:   
bharatiya said:   I am a salaried employee. What are my options to set up an LLC and save on taxes?
  Lots of them, but nothing that would directly apply to OP who is a 1099 employee.

  Want me to open up a new thread on this?

  An LLC is about liability. Forming an LLC, in and of itself, doesn't change federal income tax consequences. So, for you, setting up an LLC and not electing a different form of tax treatment would have basically no effect unless maybe you're thinking it could help prove a profit motive and you're otherwise worried about that, but even that difference is questionable.

rated:
rufflesinc said:   OP, is the 12k self employment tax included in 26k taxes
  Yes it is.

rated:
Looks like I really need to dump money into retirement accounts so that I can use it when i'm 70. I do get some tax deductions from my house. Taxes suck! Also, I never pay any quarterly and part of that is why I end up with a tax bill like this. Wonder what a cpa would uncover that might get save me some cash.

rated:
vadeltachi said:   I'd hire an accountant to review your records and return for this year. You can probably get the fee returned in additional tax savings through amended returns. Health care costs? Office? Car write offs? Section 179 depreciations? Entertainment? Meals? Charity? Inventory? Uniforms? Supplies? Literature and subscriptions? There are many others to consider. See what s/he does and then replicate it yourself next year.

Another way to look at it -- the accountant can save you time and money doing what s/he does for a living at a fraction of the time and effort it will take you. You can use the saved time to make more money rather than doing accounting, tax planning, and filing. Also, if you are audited, the pro will usually represent and defend you and save you even more money and stress.

Don't miss the SEP next year.

  plus you can extend your return and contributed to the SEP when you file the return.

rated:
ICMATULKASPRMKY said:   Looks like I really need to dump money into retirement accounts so that I can use it when i'm 70. I do get some tax deductions from my house. Taxes suck! Also, I never pay any quarterly and part of that is why I end up with a tax bill like this. Wonder what a cpa would uncover that might get save me some cash.
  
if you aren't paying quarterly estimates, and therefore, its short from prior year (look up the 100/90% rule or with high earnings, 110/100% requirement) , then you are probably looking at penalties.  If you didn't self access, the IRS might send you a notice.  

rated:
bluegreenturtle said:   Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 

How can you deduct SEP and Trad at the same time? Isn't it one or the other
11 K in trad means two people deducting 5500 each. But if wife's W2 is 2700, how can she deduct 5500?
 

rated:
needdealsnow said:   
bluegreenturtle said:   Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 

How can you deduct SEP and Trad at the same time? Isn't it one or the other
11 K in trad means two people deducting 5500 each. But if wife's W2 is 2700, how can she deduct 5500?

  Nope, you can do both.  It's either trad or roth, but Sep is in addition to either of those.  She had some business income that's in the business total.

rated:
bluegreenturtle said:   Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 



How do you live on 20k a year for a family of four? House, cars, food, trips, gas, schooling, clothes, etc etc etc?

rated:
PHiuR said:   
bluegreenturtle said:   Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 



How do you live on 20k a year for a family of four? House, cars, food, trips, gas, schooling, clothes, etc etc etc?

  It'd be pretty difficult. Not sure how it applies to what you quoted though.

rated:
PHiuR said:   bluegreenturtle said:   Here's what I do, passthrough LLC, similar income.  Note that I am married and have 2 kids. It seems like you are either doing it wrong or need to get married/have kids.

  •  wife's w-2 2700
  • net biz income: 105k
  • cap gains/dividends: ~7500
  • Total income: ~115k.
  • Deduct:HSA 6700
  • Deductible part of self employment tax 7400
  • SEP 19500
  • Self employed health insurance 5400
  • Trad IRA 11000
  • AGI = ~65k
  • -------
  • Standard deduction: 12600
  • Exemption deduction: 16200
  • taxable income: ~37k
  • tax before credits: 3700
  • ------
  • Child tax credit 2k energy tax credit this year $300)
  • Tax = 1400
  • Self employment taxes = ~15k 

Like most people, I barely pay any actual income taxes, but rather a lot of employment taxes. Note: I did actually format this in a readable way, but this is the way it comes out. 

How do you live on 20k a year for a family of four? House, cars, food, trips, gas, schooling, clothes, etc etc etc?

I see it as closer to $40k. Totally reasonable in a low cost of living area -- particularly with a paid off house.

rated:
Check yer math....

I get that this leaves us about $61k. We spend about 45k including health insurance and our house (not paid off yet!) Car payment goes away this summer which makes it about 41k budget. When the house payment goes away it'll be about 30k budget.

When tax time comes around I just shuffle some money over to the IRAs from our taxable accounts if I don't have enough new money. Hasn't happened too many years, but it has happened.

Don't live in a low cost area - actually pretty high - Portland Oregon, and a 15 year mortgage, not a 30. 

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