Is my accountant correct ?

[Saving in Austin]

I make about $200K in an LLC. My "salary" is $75K per year and the rest reported as profit.

This avoids paying extra Social Security taxes according to my accountant.

Each year I max out a SEP IRA for $ 18,750 (25% of $75K).

I also max out an individual IRA.

Am I missing anything ?

I guess a mega back door Roth isn't available to me.

Are there any other retirement contributions I can make ?

[neo von retorch]

Hopefully an accountant will chip in, but... I feel like that's a little odd.

For comparison, let's say I make roughly $160k in a single owner LLC.

I pay Self-employment tax on ALL of that.

I choose a Solo 401(k) instead of a SEP IRA. I cannot contribute to a separate IRA. I am able to put $18,500 in as Employee Contributions, and 20% of the net profits in as Profit Share. $160k - S.E. tax ($24,480) * 25% = $33,880. The combined total allowed is $55k, so I can put all of that in for a total of $52,380.

After the above deductions (plus health insurance premiums) I might only pay income tax on ~$85-90k.

What I declare as my salary vs profit is irrelevant because me and my LLC are one and the same. While I file a schedule E to get business deductions, in the end, the net business income is my taxable individual income.

[Saving in Austin]

I'm only paying self-employment taxes on the $75K.

I am paying income taxes on the profits.

I have never been quite sure if we are doing it correctly.

[Wile E. Coyote]

I'm only paying self-employment taxes on the $75K.

I am paying income taxes on the profits.

I have never been quite sure if we are doing it correctly.

It sounds like you have filed an election to treat your LLC as an S Corporation for federal income tax purposes, which is acceptable.  In that case, you would only pay SE tax on "reasonable compensation" and the rest is not subject to SE tax.  Whether $75K is reasonable compensation depends on your facts.

You will want to consider the impact of the "pass-through" deduction of Section 199A as the result can be different for a single member LLC and an S corporation (the resaonable compensation pad to you as an S corporation shareholder does not qualify for the "pass-through" deduction.   It's a bit of a math game.

You should consider a solo 401(k) as well.

[dandarc]

At the very least, if you did an individual 401K instead of the SEP, you can add $18.5K for the employee side.

"I also max out an individual IRA." Are you not over the income limit to deduct your IRA? Is it a Roth IRA? 200K income + traditional IRA doesn't usually compute.

[Saving in Austin]

It is usually a non-deductible IRA depending on my final income numbers.

And yes, it is a S corp filing.

Thanks for everybody's input.

I will show this thread to my accountant.

[secondcor521]

Are there any other retirement contributions I can make ?

Some people use an HSA as a retirement account.  I'm sure if you google it you'll find articles on how to do it.

[Saving in Austin]

Thanks. I have contributed to an HSA in the past but I am now using Liberty Health Share and I'm  not eligible for additional contributions.

[wannabfrugal]

I'm only paying self-employment taxes on the $75K.

I am paying income taxes on the profits.

I have never been quite sure if we are doing it correctly.

It sounds like you have filed an election to treat your LLC as an S Corporation for federal income tax purposes, which is acceptable.  In that case, you would only pay SE tax on "reasonable compensation" and the rest is not subject to SE tax.  Whether $75K is reasonable compensation depends on your facts.

You will want to consider the impact of the "pass-through" deduction of Section 199A as the result can be different for a single member LLC and an S corporation (the resaonable compensation pad to you as an S corporation shareholder does not qualify for the "pass-through" deduction.   It's a bit of a math game.

You should consider a solo 401(k) as well.

Seconding the above.  It is a math game.  If you increased wages, you could increase SEP contribution but you pay SE taxes on the increased compensation and as discussed above, wages don't qualify for 199A...  You have a lot of moving parts, I'd recommend modeling it out.