| This is not good advice. If you set things up correctly you should set it up as an s-corp to maximize your tax savings. If you have an s-corp, you won’t have to pay self employment tax, which is 15% on all of your profit and all of your salary if you just stay an LLC without an s-corp election. With an s-corp you are advised to pay yourself a reasonable salary as a w2. That salary is the only thing you will need to pay that self employment tax on. That salary should be as low as you can justify. Here is info from the IRS about how to go about calculating that.. https://www.irs.gov/pub/irs-news/fs-08-25.pdf I would imagine you could easily justify $50k-$75k as your salary, but you’d have to put the time in to calculate it. If you were to do this based on $54k a month, you are saving about $90k a year on your taxes. The less you pay yourself a w2 the more you save. If you set up like this, which is the way you will save the most on your taxes, then the amount you can contribute to your retirement account, ie solo 401k for you in this situation is approximately 50% of your w2 income because how much you can contribute is tied to your salary. For a $75,000 salary that max you can contribute is $38,250. Sure feel free to put that into your Solo 401k. But that should be an after thought to saving the 15% self employment tax. By putting money into a 401k it is not tax free only tax deferred, this means you will pay taxes on it eventually. If you think you may make more in retirement than you are now it makes this deal way less sweet. I know I’m planing on making more then. Also, hiring a spouse is again a terrible idea here, because you are going to then pay 15% self employment tax between the two of you. 7.5% each. Sure if you are an LLC and didn’t take your s-corp election then this makes sense. But if you did, hiring your spouse will be an extra 15% tax on his/her salary, since all of your profits won’t have that 15% tax on them. And for what reason.. so you can put it into a tax deferred account you will need to pay taxes on eventually. The very first thing you do when you start to make real profit is to take an s-corp election. There isn’t even an argument to this. Telling the poster to do anything beyond taking a s-corp election first is doing him a huge disservice and costing him around $90k a year. |