Tax Advisors – Answer Tax Question

TaxConnections Members are able to connect with a steady stream of prospective clients by answering tax questions. Answering visitors’ tax questions is a great way to begin the conversation. Each Friday we post a question we ask our community members to comment in order to help our site visitors.

How would you advise a client given this scenario? 

We are a married couple and we both have W2 jobs from stable large corporations. Wife also has 1099 income (physician practice + moonlighting). How should we organize her business so that we can maximize tax avoidance while taking our combined situation into account? These numbers are for 2018.

Income From W2/Employer
His Income: $340,000
Her Income: $210,000Income – 1099 (Her is Physician)
Her Private Practice: $100,000 (expected to be $187,200 in 2019)
Her Moonlighting: $100,000 (expected to be $145,000 in 2019)

Income: Employer Match 401k
His: $18,900
Her: $21,000

Self Tax Deferrals:
His 401k contribution from W2 income: $18,500
His NQDC from W2 income: $120,000
Her 401k contribution from W2 income: $18,500
Her 457b from W2 income: $18,500

Tax State: New York City

How should we construct an organization for her 1099 income of around 200,000? Do we do sole proprietorship, S Corp, LLC or C Corp. Our goal is to maximize deferral of taxes from the 1099 income i.e. in addition to 20% towards a SEP IRA, what are the ways we can defer receipt of this income (and potentially invest the deferred compensation).

(a): One idea was to have a sole proprietorship and contribute 20% of $200,000 to SEP IRA, leaving roughly $160,000 of income from 1099. Since she would have already paid maximum FICA from W2, she would only pay 2.9% self employment tax on $160,000 and not the 15.3%. Ofcourse $160k gets added to our Gross income!

(b): Another idea we are discussing/thinking if making a 1 person C-corp. She gets a salary of $165k from C-corp. C-Corp makes 20% contribution as profit to her sep ira of $33k. $2k is the profit of C-corp. Also C-corp offers her a NQDC and entire $165k gets deferred. Will this work? Would the C-corp still need to pay payroll taxes on $165k?

In short, for the $200k (expected to $332k in 2019) 1099 incomn, what is the way you suggest to maximize tax avoidance?

Your comments are welcome below.
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Kat Jennings, TaxConnections, CEO and Founder and Advisory Team provides three areas of services: 1) Internationally recognized, retained executive search services for multinational corporations, public accounting firms, and law firms; 2) Introductions of sellers to buyers of small and medium size accounting firms; and 3) Provide brand building and education services that support and prepare accounting firm owners to buy/sell an accounting practice. We focus on educating the journey to sell a practice and how to increase firm revenue prior to any sale. Our program ensures you start years prior to a sale by learning what is expected of you during the selling process, and introducing firm Partners to cross selling opportunities that are easy to implement and reduce your workload at the same time. We introduce you to value added connections to smartly grow revenue in your accounting practice.

Kat Jennings has been retained by organizations worldwide to locate tax professionals with highly specialized tax knowledge and expertise. She has a thorough understanding of the tax business community, with a proven record of stellar performances matching professionals with organizations. Bringing two parties together to work successfully is the art of understanding personalities, cultural fit, expectations by both parties, flexible or inflexible work environments, understanding what drives and motivates each party, and revolves around the personality and ethics of each executive team.

Kat is a widely recognized expert in high level, tax executive search, as well as connecting buyers and sellers of accounting firms. TaxConnections provides and educates small to medium size accounting firms owners and Partners how to prepare and sell their firms so they can build a succession plan for their retirement. With larger firms seeking to acquire smaller accounting practices, there is a real need to help firm owners prepare to be acquired. Most firm owners are unaware they are not ready to sell when they decide to retire. TaxConnections educates firm owners’ what they need to do years in advance of selling an accounting firm practice.
Senior tax executives expect the utmost privacy when being introduced to multinational organizations about a new tax opportunity under consideration. Having said that, companies searching for a new head of tax expecting tax executive candidates to submit their resume through a resume portal, will never see a full slate of outstanding tax executives available due to a candidates’ desire for greater privacy. This is why privacy focused Uber Tax Recruiters consistently outperform in-house recruiters on tax executive searches.

We offer our clients a Performance Retainer Agreement arrangement so their HR department can still recruit and compete with the tax candidates we present on Head of Tax searches. The client pays us a partial fee upfront, and if they find a candidate they deem better than we introduce to them, we forfeit the final fee. Most of the time, they love and prefer our private introductions to tax executive candidates better than what they source through their own resume portals.

When we represent selling/buying small to medium-sized firms, firm owners/partners also demand greater privacy when considering the sale of their practice. TaxConnections provides a safe place to discuss their business needs, elevate their practices’ online reputation, and increase revenue through new streams of business development by outsourcing work and partnering with other firms. Over three decades, we have worked tirelessly to build relationships between firm owners most organizations rarely have access to in the world of tax. There are numerous possibilities you may never have considered previously to bolster the value of your practice and service offerings.

As a globally recognized consultant to multinational organizations, accounting firms, and law firms searching for tax expertise, Kat has been retained by public accounting firms, law firms, and corporations worldwide including Apple Computer, AC Neilson, Accenture, Agilent Technologies, Allergan, Alza, American Express, American Media, Aon, Baker & McKenzie, Barclays Bank, Bechtel, Cargill, Carl Zieuss Vision, Century Aluminum, Chevron, Clorox, Citigroup, Commercials Metals, Constellation Energy, Countrywide, Del Monte, Deloitte Touche, DFS, DLA Piper, E&J Gallo Winery, Electronic Arts, Ernst &Young, Fox Entertainment, Fremont Investments, General Electric,General Motors, Herbalife, Hewlett Packard, Hyatt, Intel, Jones Lang LaSalle, Kimco Realty, KLA Tencor, Koch Industries, KPMG, Levi Strauss, Liberty Mutual, LKQ, Loews, Logitech, Lucas Film, Maersk, McKesson, Nalco, Newell Rubbermaid, Nissan, Oracle, Orbitax, Pacific Gas & Electric, PwC, QAD, SAIC, SanDisk, Sanmina, Sempra Energy, SONY, Synopsys, Ticketmaster, Trimble Navigation, Toyota, Univar, Wal-Mart, Wells Fargo, Vertex, Yahoo, Xilinx, and many more not listed here.
Contact Kat at 858,999.0053 Office/858.232.4415 Cell or to request a private consultation regarding the sale of your practice, adding top talent to your organization, or merging your practice with another firm owner with a book of business. The possibilities are endless; if you have a dream of a new vision for your professional life; we will scout opportunities throughout the market to make it happen.

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