04 - Tax Planning Strategies

• File as an S-Corporation (S-Corp)

  • Saves thousands on self-employment taxes (Social Security & Medicare).

  • It bifurcates your income: a portion is a reasonable W-2 salary (on which you pay self-employment tax), and the rest is distributed as profits (which is exempt from self-employment tax).

• Calculate Optimal W-2 Salary with a CPA

  • Ensures you maximize tax savings while preserving other deductions.

  • A salary that's too low can unintentionally reduce your Qualified Business Income (QBI) deduction and limit retirement contributions. You need a tax professional to find the sweet spot.

• Set up a Solo 401(k)

  • Provides an immediate up to $70,000 tax deduction (for 2023, based on contribution limits).

  • This private, one-person plan lets you invest as you like, and the growth is tax-deferred. It's the foundation for advanced strategies like the Mega Backdoor Roth IRA.

• Pair the Solo 401(k) with a Defined Benefit Plan

  • Offers a potential tax deduction of $150,000 to $300,000.

  • A Defined Benefit or "Cash Balance Plan" is a more aggressive retirement vehicle that works backward from a target retirement balance (e.g., $3.3 million), allowing for much higher deductible contributions now.

• Hire Your Spouse

  • Can double your retirement plan contributions for the household.

  • By paying your spouse a reasonable W-2 salary, they get their own contribution bucket (e.g., a $70,000 Solo 401(k) and/or a Cash Balance Plan), significantly increasing your total household tax deduction.

• Pay State Taxes Through Your Business Entity

  • Makes your entire state tax bill fully deductible at the federal level

  • if you pay state income taxes on your personal return, the federal SALT (State and Local Tax) cap limits your deduction to $10,000. Paying it through the business (if structured correctly) allows you to deduct the full amount.

• Track All Big Deductible Expenses

  • Maximizes your deductions for business-related spending.

  • Key areas to deduct: Home Office (from your mortgage), Travel to/from conferences, and pre-paying big software/subscription expenses before year-end.