Taxes and LLC's

[Maverick74]

I just read this in a magazine (SFO), it said you can set up a profit sharing plan in your LLC and contribute 40k a year or 25% of your income, whichever is less and write it off as an expense. And if your married, you can make your wife a partner and contribute 40k a year or 25% of your income to her as well. That's 80k a year in tax savings! Is anybody doing this?

Then on top of that you can set up a 401k plan for yourself and contribute up to 13k a year in this plan. You can also deduct all your long term health care costs up to 10k a year as well. But something I am kind of confused about, for those of you that have the Feb issue of SFO on page 52, it has this guy that set up an LLC and directs 200k a year into a defined direct benefit plan tax free. How is this possible?

Would love to hear everyone's ideas and thoughts concerning these tax benefits.

 

[traderstatus]

You have it almost right... The $13,000 401K + $27,000 profit sharing = $40,000 total. Not a $53,000 total.

Using the LLC taxed as a partnership, the members can deduct 100% of their health care INSURANCE. And then with the new HSA which is effective in 2004 we can expect to see new and different offerings out there.

Using the LLC taxed as a c-corporation, the members can deduct up to 100% of their health care COSTS.

How is it possible to have a $200,000 definded benefit contribution? By being very close to retirement age and having a high earned income that will support that level of retirement plan contribution.

 

[Maverick74]

Quote from traderstatus:

You have it almost right... The $13,000 401K + $27,000 profit sharing = $40,000 total. Not a $53,000 total.

Using the LLC taxed as a partnership, the members can deduct 100% of their health care INSURANCE. And then with the new HSA which is effective in 2004 we can expect to see new and different offerings out there.

Using the LLC taxed as a c-corporation, the members can deduct up to 100% of their health care COSTS.

How is it possible to have a $200,000 definded benefit contribution? By being very close to retirement age and having a high earned income that will support that level of retirement plan contribution.

But if you are married you can make your wife a partner too right and contribute 40k to her benefit plan as well right for a total of 80k?

Now this money can be invested and it grows tax free right until you withdraw the money?

 

[funky]

Quote from Maverick74:

That's 80k a year in tax savings! Is anybody doing this?

your math is a bit off!

you get to sock away 40k per person, which means you 'save' the difference between the roi on the 40k invested before and after taxes. make sense? you are not really saving money unless you are able to grow it tax-free at the same rate or better than you would normally.

and i believe its done by using a corporation, not an llc. and you will have to pay payroll taxes too since earned income is the way you pay into the pension fund (401k, IRA, whatever)...

the best way to 'save' lots of taxes is to move offshore and trade. 80k per person + housing (foreign earned income exemption and foreign housing exclusion) is no joke -- and THAT you can start trading with or use now, instead of when you are old and dead.

 

[trader42]

Quote from traderstatus:

Using the LLC taxed as a c-corporation, the members can deduct up to 100% of their health care COSTS.

Is it any different if the LLC is taxed as an s-corp?

And how about a corporation (taxed as s-corp)?

Thanks