Self employed, first (barely) 6-fig year, what to do by end of year?

[FIence!]

Hi all,
I am looking for tips from people who have been there on driving down AGI/MAGI by the end of the year. Income was higher than expected this year, so this is the first year dealing with an over 100k income while being a sole proprietor. (Haha, "dealing with," Mustachian People Problems, right?) My goal is to get that income down "on paper" as low as possible in order to lower my tax bill, and if at all possible trigger ACA subsidies or Saver's Credit.

The details:
-Married, filing joint, no dependents
-Sole prop gross income from one spouse will likely be 120-ish k (other spouses sched. c income mostly mitigated by expenses this year, so let's just consider the one income) Biz equipment purchases of about 3k, as well as home office deduction, etc.
-Just signed up for a solo 401(k) through vanguard
-Have been buying ACA insurance all year. When signed up, thought we'd qualify for some subsidies, so there will be a pay back amount when taxes are filed as I am assuming there is NO way we can drive our MAGI down to 50% of what it is now. But if anyone has any strategies... The total premium spend for the year otherwise will be about $9,000.

Are there any big moves I can make by the end of the year to lower taxable income other than shoveling the max into that solo 401(k), as well as having the 5.5k max in both spouses traditional IRAs?

I assume it is too late in the year to file as an S Corp and have it make any difference for this year, but am looking into that for next year.

[walkwalkwalk]

Can your spouse realize a loss with her business? Any more equipment for your business needing to be purchased? Capital losses to realize? Do you have a rental that has a loss? Can you contribute to an HSA (i.e. are you covered by a high deductible health plan)? 1/2 the Self employment taxes will be deducted to get to AGI. You should be able to do employer contributions for your solo401k. The ACA plan should count as self employed health (the amount not covered by net premium tax credits). Did you pay any student loan interest?

It doesn't help AGI, but the qualified business income deduction (it is deducted from taxable income) may reduce the amount you owe, depending on what your trade or business is.

This is does not constitute tax advice, seek a professional. These are just ideas that would need to be verified.

[Much Fishing to Do]

The Solo 401k was always the huge one for me hands down.  At ~$120k you can put in the $18.5k + ~24k = ~42.5k.  And then the IRAs even more... That huge solo deduction will make sure you stay down the 12% bracket.  So much so that you may want to consider making some of that 401k contribution a Roth kind depending upon how you envision your future earnings, in the 12% bracket that can be a interestingly difficult determination.

Once down in that 12% bracket you've knocked out a lot of damage on the fed income tx side and most of the tax burden for an SE really becomes your payroll tax now (with these numbers and doing the solo 401k your fed tx may now be down to like 5k but your payroll tax is looking like $18k at 15.3% of 120k).  There may be some large payroll tax savings in electing to file as an S corp and being able to legitimately state a salary significantly lower than the $120k, but that can get complicated (you have to factor in all kinds of things like even the fact you are obviously lowering your final SS benefit by doing this) so spend some serious time working thru it or consulting a cpa.  But don't just assume its too late for 2018, there are many many Late S corp election possibilities and I'm certain its possible to still file (all of) 2018 as an S corp if you do it right.

This was about everything I ever found that made any huge differences.  Once the income got high enough that even all this didnt keep me in low brackets I started building a Donor advised Fund from which I'll make all my charitable contributions in FIRE (when my income will be so low a charitable contribution wont be worth anything to me then).

There are other little things I found here and there but thats all the big ones that seemed legit to me.

[cchrissyy]

Put as much as possible into that solo 401k

Research deductible business expenses and make sure you're not overlooking anything. I'm not saying spend any more money this year. I'm saying review what you already spent for any reason it would be deductible that you might not already have been aware of. 

Good luck!

[LightStache]

The Solo 401k was always the huge one for me hands down.  At ~$120k you can put in the $18.5k + ~24k = ~42.5k.  And then the IRAs even more... That huge solo deduction will make sure you stay down the 12% bracket.  So much so that you may want to consider making some of that 401k contribution a Roth kind depending upon how you envision your future earnings, in the 12% bracket that can be a interestingly difficult determination.

Once down in that 12% bracket you've knocked out a lot of damage on the fed income tx side and most of the tax burden for an SE really becomes your payroll tax now (with these numbers and doing the solo 401k your fed tx may now be down to like 5k but your payroll tax is looking like $18k at 15.3% of 120k).  There may be some large payroll tax savings in electing to file as an S corp and being able to legitimately state a salary significantly lower than the $120k, but that can get complicated (you have to factor in all kinds of things like even the fact you are obviously lowering your final SS benefit by doing this) so spend some serious time working thru it or consulting a cpa.  But don't just assume its too late for 2018, there are many many Late S corp election possibilities and I'm certain its possible to still file (all of) 2018 as an S corp if you do it right.

This was about everything I ever found that made any huge differences.  Once the income got high enough that even all this didnt keep me in low brackets I started building a Donor advised Fund from which I'll make all my charitable contributions in FIRE (when my income will be so low a charitable contribution wont be worth anything to me then).

There are other little things I found here and there but thats all the big ones that seemed legit to me.

I second this approach, which will probably get you down to full ACA subsidies. Also consider a cash balance pension plan because contributions aren't subject to FICA, but they do cost $ to operate. Read more at https://www.whitecoatinvestor.com/cash-balance-plans-another-retirement-plan-for-professionals/

[FIence!]

Thanks so much everyone!

But don't just assume its too late for 2018, there are many many Late S corp election possibilities and I'm certain its possible to still file (all of) 2018 as an S corp if you do it right.

I will have to look into that, that would be excellent if it could still happen this month. I was under the impression that S-corp status started the day of filing and could never be retroactive. Fingers crossed, as this could also help deduct the health insurance costs of nearly 10k from SE tax!

[DavidAnnArbor]

If your wife works for the business that earns you the Schedule C income then you both can deduct as employee and employer to the solo 401k plan, in effect doubling that contribution.