[dalke]

Oddly enough, I am a small business with no regular income. (Self-employed. Was an LLC in the US. Now an AB in Sweden.)

Regarding the "You made a million dollars thanks to your hard work" - first, that's misdirection. Don't make the mistake and think that working hard is all that was needed for $1M; many more people work much harder than I do, and make even less. $1 million also requires a non-trivial amount of good fortune. It means I did not get a heart attack, did not get into a car accident, didn't become depressed or burnt out from working too hard, etc. It means I guessed right about where the market was going, and how to reach customers.

Regarding the question of how to handle tax on $1M if I am uncertain about the following years.

First, I can live for 5 years on $100K/year, so 50% tax still leaves a huge amount. My business is little more than me and a few computers, plus conference and customer travel.

Second, quoting http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29... :

> If you will regularly need to keep a substantial amount of profits in your LLC (called "retained earnings"), you might benefit from electing corporate taxation. Any LLC can choose to be treated like a corporation for tax purposes by filing IRS Form 8832, Entity Classification Election, and checking the corporate tax treatment box on the form.

Third, I would look into setting up a Delaware C Corp.

What's wrong with any of these three options?

[montbonnot]

I went over these options when I incorporated. Nevada, Delaware and Wyoming. Unfortunately, I'm the only member of my LLC and my office is my house. For a software company selling online it is not recommended to incorporate in a foreign state with these conditions. Usually more than 5 members and at least a physical office located in Delaware for instance. Otherwise the tax burden can become overwhelming and my tax liability may actually increase because I'd be viewed as a foreign entity operating in these states. It's easy on paper but when you start digging it's not that easy.

Filing as a C-Corp? :) I'd be taxed twice. The LLC would have to pay income tax on its earnings then I'd have to pay taxes during the distribution to all the members (myself). This will be viewed as income tax. Definitely not. Though, filing as an S-Corp would take away the annoying/abusive self-employed tax of %15. Problem, again, the IRS... they hate S-Corps and they will make sure I fail to comply. My problem with filling as an S-Corp is that the LLC wouldn't pay self employment tax but the member would have to. So if I make $1 million, I withdraw $1 million (which is the goal), I'd pay the full self employment tax anyway. Does it make sense?

Last but not least, regarding your 1st point it all depends on your goals. I'm not rich and I'm still alive. Obviously I already know I can survive with $100 k/y not a problem. Now, majority of the people are looking for security first, then comfort and finally, they want to become rich. I personally want to become rich first. Then I'll be looking for comfort then security last. I'm looking for freedom, that's my main goal. We have different goals so we can't argue with each other on that specific point unfortunately. I view taxes as an obstacle... some don't which is fine.

[joshuanomed]

I think you need better tax advice.

An LLC only pays taxes if it has elected to be treated as a C corp by the IRS, otherwise income & losses pass through to the members.

An C or S corp only makes sense as a sole-proprietor if you have substantial other assets to protect, or expect to accept investments from non–individuals.

You need far better tax advice than you're getting, wherever you're getting it from.

If your goal is to pay absolutely no taxes, then that's not going to happen if you want to rely on the systems those taxes pay for in the US.

If your goal is to legitimately reduce taxes and spread income over multiple years, there's legal ways to do so which a proper tax advisor can guide you through.

[montbonnot]

We're saying the exact same thing. "Income passes through the members" = members pay income taxes = federal + states + self employment tax = +%50 if your income is $1 million. You can eventually avoid the self employment tax filing as an S-corp.

"that's not going to happen if you want to rely on the systems those taxes pay for in the US.". That's what I'm saying, there's no way around it besides the republicans tax reform.

"spread income over multiple years". That's what someone mentioned already.

Am I still not informed? Should I need better tax advise?

[joshuanomed]

Yes, you need better tax advice.

Waiting for Republican "tax reform" is like watching Lucy hold the football for Charlie Brown. If you are holding off managing your business cash flow until this "tax reform" is set in motion…you are going to be waiting a very, very long time.

[dalke]

Are you seriously planning to make $1 million in one year, with the expectation that you would make no income for the following 5 years? That is a very uncommon scenario. I expect you may need to consult a CPA or someone else with specialized knowledge on how to do this most cost effectively.

You say "it's not that easy", but that's besides the point. If you think you can save 10% of $1M than that $100K can buy you a lot of CPA time to make the problem become easy.

"if I make $1 million, I withdraw $1 million (which is the goal),"

Ahh, you want the fantasy of not paying taxes at all. Why should the state limit your liability in exchange for nothing?

If you really have flood/drought income, then talk to a CPA about how to spread your personal tax liability across multiple years. You can't be the first with these problems. Eg, low income people have to deal with capital gains from selling a house.

In that vein, you said nothing about my second point, on retained earnings.

[montbonnot]

retaining earnings is a solution. And you're right I didn't mention it. Another solution is less taxes which sounds more reasonable to me. As I said at the beginning of this thread, Republicans seem to understand the problem and have a proper solution to it in order to avoid making other people richer trying to work around the legal system (e.g. CPA).

[dalke]

And as I said, "40% tax? Sounds about right. So long as there are good social services."