Author Topic: How can I minimize taxes on profit from a sole proprietorship?  (Read 1535 times)

LifestyleDeflation

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I'm in the midst of expanding my company dramatically. Here's some background info:

-We are a seasonal company, and I'm the only person who works on it outside of May-August. I'm the sole proprietor.
-This year, we'll make around 80k profit.
-I plan on reinvesting 100% of our profits next spring, plus getting an additional loan of 50-100k.
-By the end of next summer, I anticipate profit of approximately 400k, most or all of which which will probably not be reinvested and will probably instead be put into index funds.
-Most of the 400k could be considered long term investments, and would be appropriate to invest in retirement accounts.

Obviously next year's profits are hard to predict, but I'm confident based on my knowledge of the industry that the number is a good ball park estimate, and I'll certainly be adjusting my plan as need be based on how things are going.

So, I'm wondering what are my options to make sure I have as much of my current cash on hand for reinvestment next spring, and my options to minimise taxes on that potentially much larger sum next year.

Thanks so much for you help!

« Last Edit: August 08, 2015, 10:21:13 AM by LifestyleDeflation »

forummm

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Re: How can I minimize taxes on profit from a sole proprietorship?
« Reply #1 on: August 08, 2015, 02:17:57 PM »
With that much profit ($400k) you can max out a solo 401k at $53k/year. So that would help.

LifestyleDeflation

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Re: How can I minimize taxes on profit from a sole proprietorship?
« Reply #2 on: August 08, 2015, 03:44:26 PM »
With that much profit ($400k) you can max out a solo 401k at $53k/year. So that would help.

I was under the impression that I couldn't open a solo 401k because I have employees. It's it an exception because they're seasonal?

forummm

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Re: How can I minimize taxes on profit from a sole proprietorship?
« Reply #3 on: August 08, 2015, 06:33:39 PM »
With that much profit ($400k) you can max out a solo 401k at $53k/year. So that would help.

I was under the impression that I couldn't open a solo 401k because I have employees. It's it an exception because they're seasonal?

Oh, it wasn't clear that you had other employees. I think you can still have one as long as you distribute the employer contribution similarly to everyone. But you probably aren't interested in paying your employees more.

protostache

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Re: How can I minimize taxes on profit from a sole proprietorship?
« Reply #4 on: August 09, 2015, 09:42:35 AM »
Talking to a CPA is probably the best move here. There's quite a few options available with that level of income, and a CPA can help you sort through them and will likely pay for themselves many times over in saved taxes.

Druid

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Re: How can I minimize taxes on profit from a sole proprietorship?
« Reply #5 on: August 09, 2015, 02:52:56 PM »
I would look into becoming an S corporation. If you establish yourself as a S corporation you can give yourself a reasonable salary and take the rest of your income as dividends. You can then reduce your reasonable salary with deductible retirement plans, and collect the rest of your income from dividends taxed at 23.8 percent. I would also look into creating a retirement plan with 100 percent employer matching. You could potentially re negotiate your employees salary based on this new benefit.