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Within the next year or so I'm planning to retire from my 9-6 regimented
white collar job. I'll have sufficient income from a retirement plan my long
term employer has paid into for me. The thought occurs to me I need to fill
the void and since I don't have or want a hobby, I may as well start a hobby
business and add to my retirement.
Since I don't absolutely need the income from it at the moment and wanted to
avoid immediate taxation, I thought the business could contribute all funds
not required to operate the business into an IRA until I found it necessary
to withdraw from it to support myself.
So, the question is, is this legal, can it work, is there a better plan to
shield income from immediate taxes? I haven't a clue about these things, I'm
a Network Administrator/ Computer Tech.
TIA
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"JustMe" <JustMe@nowhere.nul> wrote in message news:<M_SdnTisLoKyk9zcRVn-tQ@comcast.com>...
Within the next year or so I'm planning to retire from my 9-6 regimented
white collar job. I'll have sufficient income from a retirement plan my long
term employer has paid into for me. The thought occurs to me I need to fill
the void and since I don't have or want a hobby, I may as well start a hobby
business and add to my retirement.
Since I don't absolutely need the income from it at the moment and wanted to
avoid immediate taxation, I thought the business could contribute all funds
not required to operate the business into an IRA until I found it necessary
to withdraw from it to support myself.
So, the question is, is this legal, can it work, is there a better plan to
shield income from immediate taxes? I haven't a clue about these things, I'm
a Network Administrator/ Computer Tech.
TIA
You'll get better answers by asking on misc.taxes.moderated.
You can contribute up to the lesser of $3,000 ($3,500 if you're 50 or
over) or 100% of your earned income (which includes your net from
self-employment) annually. If you're married, you can also make a
contribution for your spouse.
Whether your contributions are deductible or not depends on other
factors: your "modified adjusted gross income", filing status, and
whether you're participating in any other pension plan.
If your business is prosperous enough to net considerably more than
you can contribute to an IRA, you may be able to take advantage of
SIMPLE and Keogh plans, which allow greater deferrals.
Remember that any money you get a tax advantage from deferring now
will get taxed at ordinary income rates later. Even if you invest it
in securities that pay tax-favored dividends or earn tax-favored
capital gains, your income from those will also be taxed at ordinary
income rates.
--
Chris Green
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"JustMe" <JustMe@nowhere.nul> wrote in message
news:<M_SdnTisLoKyk9zcRVn-tQ@comcast.com>...
Within the next year or so I'm planning to retire from my 9-6 regimented
white collar job. I'll have sufficient income from a retirement plan my
long
term employer has paid into for me. The thought occurs to me I need to
fill
the void and since I don't have or want a hobby, I may as well start a
hobby
business and add to my retirement.
Since I don't absolutely need the income from it at the moment and
wanted to
avoid immediate taxation, I thought the business could contribute all
funds
not required to operate the business into an IRA until I found it
necessary
to withdraw from it to support myself.
So, the question is, is this legal, can it work, is there a better plan
to
shield income from immediate taxes? I haven't a clue about these things,
I'm
a Network Administrator/ Computer Tech.
TIA
You'll get better answers by asking on misc.taxes.moderated.
You can contribute up to the lesser of $3,000 ($3,500 if you're 50 or
over) or 100% of your earned income (which includes your net from
self-employment) annually. If you're married, you can also make a
contribution for your spouse.
Whether your contributions are deductible or not depends on other
factors: your "modified adjusted gross income", filing status, and
whether you're participating in any other pension plan.
If your business is prosperous enough to net considerably more than
you can contribute to an IRA, you may be able to take advantage of
SIMPLE and Keogh plans, which allow greater deferrals.
Remember that any money you get a tax advantage from deferring now
will get taxed at ordinary income rates later. Even if you invest it
in securities that pay tax-favored dividends or earn tax-favored
capital gains, your income from those will also be taxed at ordinary
income rates.
--
Chris Green
Thanks Chris, I hadn't thought about misc.taxes.moderated. I left a post in
alt.finance.advice also but it's pretty dead over there. I'll give mtm a
shot, too. Actually, what I'm hoping to do is eliminate having the business
earnings appear as income to me entirely. Sort of like the funds my employer
contributes to my retirement accounts now. None of that shows up as income
on my W-2. My employer has a company funded retirement plan but my wife's
employer contributes to some sort of trust fund with the employer as
trustee. None of the funds show up as earnings for her, either although she
gets an annual accounting. I was trying to figure out how to do this as self
employed or maybe setting up a sole proprietorship. Any thoughts there?
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On Fri, 10 Sep 2004 18:06:29 -0700, "JustMe" <JustMe@nowhere.nul>
wrote:
news:<M_SdnTisLoKyk9zcRVn-tQ@comcast.com>...
Within the next year or so I'm planning to retire from my 9-6 regimented
white collar job. I'll have sufficient income from a retirement plan my
long
term employer has paid into for me. The thought occurs to me I need to
fill
the void and since I don't have or want a hobby, I may as well start a
hobby
business and add to my retirement.
Since I don't absolutely need the income from it at the moment and
wanted to
avoid immediate taxation, I thought the business could contribute all
funds
not required to operate the business into an IRA until I found it
necessary
to withdraw from it to support myself.
So, the question is, is this legal, can it work, is there a better plan
to
shield income from immediate taxes? I haven't a clue about these things,
I'm
a Network Administrator/ Computer Tech.
TIA
Thanks Chris, I hadn't thought about misc.taxes.moderated. I left a post in
alt.finance.advice also but it's pretty dead over there. I'll give mtm a
shot, too. Actually, what I'm hoping to do is eliminate having the business
earnings appear as income to me entirely. Sort of like the funds my employer
contributes to my retirement accounts now. None of that shows up as income
on my W-2. My employer has a company funded retirement plan but my wife's
employer contributes to some sort of trust fund with the employer as
trustee. None of the funds show up as earnings for her, either although she
gets an annual accounting. I was trying to figure out how to do this as self
employed or maybe setting up a sole proprietorship. Any thoughts there?
You can contribute all your net from self-employment to an IRA or
SIMPLE, so long as you don't make enough to exceed the limits.
But watch out for self-employment tax. You will owe that even on money
you contribute to the retirement account. The usual ways around
self-employment tax are to incorporate and hire yourself (then you
have to pay payroll taxes, which will cost you more) or to make no
money at your business.
--
Chris Green
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Thanks Chris, I hadn't thought about misc.taxes.moderated. I left a post
in
alt.finance.advice also but it's pretty dead over there. I'll give mtm a
shot, too. Actually, what I'm hoping to do is eliminate having the
business
earnings appear as income to me entirely. Sort of like the funds my
employer
contributes to my retirement accounts now. None of that shows up as
income
on my W-2. My employer has a company funded retirement plan but my wife's
employer contributes to some sort of trust fund with the employer as
trustee. None of the funds show up as earnings for her, either although
she
gets an annual accounting. I was trying to figure out how to do this as
self
employed or maybe setting up a sole proprietorship. Any thoughts there?
You can contribute all your net from self-employment to an IRA or
SIMPLE, so long as you don't make enough to exceed the limits.
But watch out for self-employment tax. You will owe that even on money
you contribute to the retirement account. The usual ways around
self-employment tax are to incorporate and hire yourself (then you
have to pay payroll taxes, which will cost you more) or to make no
money at your business.
--
Chris Green
In this case that probably won't be nearly enough. I'd expect to have
somewhere in the neighborhood of 12,000 to eliminate as income. In my wife's
case, her employer contributes around 5000/yr to her retirement plan and it
doesn't show up as income. How is something like this done? Is there another
type of plan that allows for greater contribution? I'm most concerned with
keeping everything off the W-2. Tax deferral/avoidance is nice bonus but not
my primary consideration.
I left a post in misc.taxes.moderated last night but it hasn't shown up yet.
I'm using a non working reply address and was thinking that might not be
allowed but can't find a FAQ, either.
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On Sat, 11 Sep 2004 07:08:43 -0700, "JustMe" <JustMe@nowhere.nul>
wrote:
Thanks Chris, I hadn't thought about misc.taxes.moderated. I left a post
in
alt.finance.advice also but it's pretty dead over there. I'll give mtm a
shot, too. Actually, what I'm hoping to do is eliminate having the
business
earnings appear as income to me entirely. Sort of like the funds my
employer
contributes to my retirement accounts now. None of that shows up as
income
on my W-2. My employer has a company funded retirement plan but my wife's
employer contributes to some sort of trust fund with the employer as
trustee. None of the funds show up as earnings for her, either although
she
gets an annual accounting. I was trying to figure out how to do this as
self
employed or maybe setting up a sole proprietorship. Any thoughts there?
In this case that probably won't be nearly enough. I'd expect to have
somewhere in the neighborhood of 12,000 to eliminate as income. In my wife's
case, her employer contributes around 5000/yr to her retirement plan and it
doesn't show up as income. How is something like this done? Is there another
type of plan that allows for greater contribution? I'm most concerned with
keeping everything off the W-2. Tax deferral/avoidance is nice bonus but not
my primary consideration.
I left a post in misc.taxes.moderated last night but it hasn't shown up yet.
I'm using a non working reply address and was thinking that might not be
allowed but can't find a FAQ, either.
M.l.m. is moderated, and it takes a few days for posts and responses;
be patient. You don't need a valid reply address.
Note that your wife's company is only putting a rather small fraction
of their salary expense into her or anybody else's retirement plan.
Their situation is so different from yours that you are comparing
apples and oranges.
You can put up to 25% of the business's net (or $30,000, whichever is
less) into a Keogh, and the dollar limits are higher. But the only
plans that let you divert 100% of the net pre-tax into a pension plan
are traditional IRAs and SIMPLEs, and the limits on those are lower.
By the way, you don't issue yourself a W-2 as self-employed unless you
incorporate and pay yourself salary. If you're a sole proprietor, you
use Schedule C and Schedule SE.
And if you and your wife have pension plans at work, be sure you
understand the way participation in these plans affects your income
limits for IRA contributions and the like. If you are fortunate enough
to make more than the limits, you may find that you get no further tax
deferral. This is a high-class problem, IMO.
--
Chris Green
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On Sat, 11 Sep 2004 07:08:43 -0700, "JustMe" <JustMe@nowhere.nul>
wrote:
M.l.m. is moderated, and it takes a few days for posts and responses;
be patient. You don't need a valid reply address.
Note that your wife's company is only putting a rather small fraction
of their salary expense into her or anybody else's retirement plan.
Their situation is so different from yours that you are comparing
apples and oranges.
You can put up to 25% of the business's net (or $30,000, whichever is
less) into a Keogh, and the dollar limits are higher. But the only
plans that let you divert 100% of the net pre-tax into a pension plan
are traditional IRAs and SIMPLEs, and the limits on those are lower.
By the way, you don't issue yourself a W-2 as self-employed unless you
incorporate and pay yourself salary. If you're a sole proprietor, you
use Schedule C and Schedule SE.
And if you and your wife have pension plans at work, be sure you
understand the way participation in these plans affects your income
limits for IRA contributions and the like. If you are fortunate enough
to make more than the limits, you may find that you get no further tax
deferral. This is a high-class problem, IMO.
--
Chris Green
Unfortunately, for me, I have a low-class knowledge of how business systems
work as I've worked for others exclusively. I don't even have friends with
this sort of knowledge. Maybe I need to make up a hobby and join the other
retiree's. Thanks once again for the insight.
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