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      08-01-2014, 11:43 AM   #1
adobeee
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Wink Tax Optimization Strategies

Hi all,

I plan to make a decent chunk of money by year-end and wanted to ask the forum if anyone has strategies on reducing tax dollars as greatly as possible. For example, setting up a business to expense things would reduce taxable income but what happens if I'm employed through W-2 through my employer?

I will visit a CPA, but anyone who has experience or any thoughts would be appreciated.

Thanks in advance.
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      08-01-2014, 12:55 PM   #2
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Get the majority of the chunk of change in cash and then don't report it?

aka the Asian tax reduction method
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      08-01-2014, 01:33 PM   #3
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Quote:
Originally Posted by Joekerr View Post
Get the majority of the chunk of change in cash and then don't report it?

aka the Asian tax reduction method
Unfortunately I work at an investment bank and bonuses are taxed and not paid in cash as an industry norm...

So my real question was how can I lower my taxes if I work for someone else, but have a business entity set up for myself to lower my overall tax burden?

Thanks man and sorry if I wasn't clear in my original post.
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      08-01-2014, 03:29 PM   #4
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It's doubtful that you can create a legitimate business and create enough expenses to offset the tax consequence by a meaningful amount between now and 12-31-14. Not impossible, but if you're asking how to do it on this forum, you probably don't already have a plan. Talk to your CPA and do it quickly. But don't get your hopes up.

You'd have to set up an S-corp or LLC that flows though to your personal tax return. That business would have to be legitimate and you'd have to create legitimate expenses to offset the taxes. But you can't create expenses without spending money.

If your "business" was say.... selling real-estate on the side while you were employed, you could create an LLC called Adobee Real-Estate, LLC. Everything you purchase for open houses; catering food, signs, cleaning services, etc.. are expenses. Your marketing, printing, fuel, etc.. are also expenses. You could also have Adobee Real-Estate LLC lease you a car there by making your vehicle an expense. Which all sounds great because you need a vehicle and fuel anyway. But... a business without revenue isn't a business, and the IRS doesn't like them. Don't mistake business without revenue for businesses with losses, big difference in IRS eyes.

Long story short, everyone gotta pay taxes. You can do things to pay less, but having an LLC or S-corps isn't a magic tax sucking device. You can do anything you want, but doing it without penalty and interest is a whole other story.
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      08-01-2014, 03:31 PM   #5
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Ha ha - I can't really help you, I'm Canadian and don't know American tax law.

Maybe if your employer hired your company (which in turn agreed to make you available), the funds would flow to your company and taxed at corporate rates? But I'm not sure that your employer would wish to make special exemptions for you.

Good luck. Just remember - on the bright side you are making money - you are still in a win position. I get that you want to give as little as possible to the government though - they will only spend it stupidly without a care as to whether it benefits taxpayers or not.
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      08-01-2014, 03:58 PM   #6
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+1 to Mr.Tonka, on the money as usual.

Honestly, one thing you might look into is some IRA and 401k type things that offset against your gross income. See if you can setup and maximize the 401k if they offer one, which would be around $17k. Maybe you're already doing that, I don't know.

Then as you plan, talk with the CPA about similar additional options. I am no expert so I don't know specifics of what other type of tax-deferred accounts there are, how many you can open and what the maximums are. Some also have income limits, such as Roth IRA (which are not tax deferred but still great), meaning above a certain threshold income, you cannot contribute to one.

A business with little to no income and huge expenses by an owner with a large W2 income is one of the classic definitions of a Red Flag for the IRS.
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      08-04-2014, 08:37 AM   #7
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Donations. Make them to my (wink wink) not for profit company that feeds my need for whores, coke and fast cars. I can provide a kickback with escort services. Getting screwed by Crystal sure beats getting screwed by the gov.
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      08-04-2014, 09:18 AM   #8
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Since you get a W-2 your employer will already withhold taxes, so I don't think there is much you can really do. And I thought most I-banks don't pay bonuses until spring, not before year-end??? Is yours is cash or deferred comp? (another common trick).
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      08-04-2014, 11:12 AM   #9
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As a W-2 salaried employee there is not much you can do. But making enough money where taxes are that significant is generally a good problem to have.
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      08-04-2014, 11:36 AM   #10
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I recently stumbled upon this article on supplemental income -

Quote:

Supplemental Wages and Payroll

Supplemental wages are compensation paid to an employee in addition to regular wages and include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards and prizes, back pay, retroactive wage increases, and payments for non-deductible moving expenses.

Option 1: Supplemental wages paid at the same time as regular wages

If you pay supplemental wages concurrently with wages for a payroll period and you do not specify the amount of each, you must combine the supplemental wages with the wages paid for the payroll period and withhold as if the total were a single wage payment.

If you specifically indicate the amount of each payment, you may withhold at a flat 25% on the portion of the payment representing supplemental wages. Beginning in 2005, once annual compensation reaches $1,000,000, supplemental payments must be taxed at the highest bracket rate, 35%.

Option 2: Supplemental wages paid separately from regular wages

If federal income tax has not been withheld from regular wages, the supplemental wage payment must be added to the regular wages for the previous payroll period (in the same calendar year) or to the wages to be paid for the current payroll period. Then you should figure the tax as if the total amount were a single wage payment for the payroll period.

If federal income tax has been withheld from the employee's regular wages you may either combine the supplemental payment with the regular wages and withhold as if they were a single wage payment after subtracting the amount already withheld from the regular wage payment or withhold a flat 25% of the supplemental wages.

Option 3: Supplemental wages paid with no connection to regular wages

If a supplemental wage payment is made without any possibility of tying it to a regular payroll period in a calendar year, you must treat the payment as a regular wage payment and withhold accordingly.
Of particular interest is the ability, in some cases, to withhold a "flat fee of 25%" on supplemental wages.

Let's say hypothetically you have a salaried job that puts you in, say, the 33% marginal tax bracket. You have a W2, your employer withholds the appropriate federal income tax, social security (up to the ~110k limit), etc. from your paycheck each month. But let's say in addition to that you also are sought after by independent companies outside of your salaried position who pay you hourly throughout the year for certain services. Does that count as supplemental income, and even if it does, does that qualify under "supplemental income that has no connection to regular wages?" If all of this supplemental income is being taxed, regularly, at 33% to $400k, then 35% on the next 50k, then 39.6% on any income above $450k, paying a flat 25% rate is extremely desirable. What determines whether one's situation falls under "option 2" versus "option 3?" I don't quite understand what the following means: "If a supplemental wage payment is made without any possibility of tying it to a regular payroll period in a calendar year..."

What does "tying" mean in that context?

Anyways, that's something to consider for the OP.
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