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Updated over 6 years ago on . Most recent reply

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7
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Tyler L.
  • Philadelphia, PA
1
Votes |
7
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Need advise for corporate structure for 2018 / solo 401k!

Tyler L.
  • Philadelphia, PA
Posted

Hi all!

I need some advise on how to best structure my business in 2018. I am currently an acquisitions manager for a wholesaler and started in this field only this year after a lifetime of interest in the real estate business. I wish I would have done this when I was 20, but better late than never as they say! Anyway, I have done far better this first year then I ever could have imagined. For 2017 I have been acting as a sole proprietor and will be served 1099. I have made $97k gross for year, plus another $35k or so I am deferring. Note I also plan on purchasing some small scale real estates (vacant lots etc) in my solo 401k for 2018. The 401k was just set up last week. 

For 2018 I have set up an LLC to run my income through and set a goal of $250k gross income. I figured the LLC will give me more structure (mentally and financially) and of course more flexibility regarding how I am taxed. One thing I have been considering is electing to be taxed as an s-corp to save on my SE taxes. Upon researching further though I found that there is increased costs associated with electing s-corp. Also, if I elect I could possibly reduce the amount I can contribute for my solo 401k on the profit-sharing contributions side as I can only base that on the salary side of the s-corp not my full gross. So I am at the point that I am saying is the amount I will save for s-corp status so low that it doesn't make sense to go through the hassle.

Below are some questions:

- Am I on the right track with running everything through my LLC for 2018, or just stay a sole proprietor?

- If LLC is the right course does it make sense for me to elect to be taxed as an s-corp considering my situation? And if so when is the deadline I can elect by?

- Is it possible to buy real estate options contracts as investments (IE my commission for a deal, bought as an investment) into my solo 401k within the roth section? 

Please let me know your thoughts and or if I am missing anything that might be helpful to my situation, thanks!

Most Popular Reply

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Dmitriy Fomichenko
#1 New Member Introductions Contributor
  • Solo 401k Expert
  • Anaheim Hills, CA
6,239
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17,848
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Dmitriy Fomichenko
#1 New Member Introductions Contributor
  • Solo 401k Expert
  • Anaheim Hills, CA
Replied

Tyler,

Based on your income expectations for 2018 you will benefit from the LLC taxed as an S-corp. As as result you should be able to shelter 65%+ of your income from self-employment taxes since you are only required to pay yourself reasonable salary and the rest you can take as distribution - thus avoiding SE taxes.

You are correct that the profit sharing contributions made by your company will be limited to 25% of your earnings (wages you pay to yourself), but the tax savings as a result of the election will compensate for the possible lower PS contribution. 

All of the investments you make with your Solo 401k must be "arms length", you (or any entity that you own) can not be part of the transaction and you are not allowed to receive any personal benefit from your 401k.

*** I am not a CPA and this is not a tax advice. You should consult with a CPA regarding your specific situation. 

  • Dmitriy Fomichenko
  • (949) 228-9393
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