HELP Need Some Tax Planning Advice

[kgarv]

Good morning all. This is my 1st post. Have some questions regarding my situation. Im a health broker who gets paid by my general agent by way of 1099. I work from home so I dont have mileage, gas etc to deduct. Right now, all of my comp is going directly to me in my name so I am trying to determine a better way to handle my upcoming tax situation next year as I'm tracking to have a helluva tax bill.

Spoke with agency and they said that I could do a S corp for example but I would have to get the corp licensed in each of the 28 states that I currently have in my own name which would be a pain in the ass. I also was advised to set up an SEP where I can funnel quite a bit of income into that to avoid some tax pain as well. Long story short independent 1099 agent looking to do some tax planning to lower upcoming tax obligation. ANY quality feedback based on what some of you are doing is really appreciated.

KGarv

 

[Josh]

Find a good CPA. Last year I paid $2k to have my taxes done and it was worth every penny.

Good news is also bad news, there really isn't a lot of tax planning that can be done. You should have been saving for this to begin with so what it sounds like might be happening is that you have been ignoring a debt (taxes) and the bill is about to come due. Good news is you have until April to get your money together so if you keep making money and aggressively save it won't hurt anywhere as near as bad as it would if you were thinking about this in March.

 

[DHK]

Hmm.... the pain of planning ahead vs the pain of paying taxes.

Tough one.

If you start now, all those expenses are tax-deductible this year and you can enjoy the benefits of that planning now and for next year.

 

[pfg1]

Spoke with agency and they said that I could do a S corp for example but I would have to get the corp licensed in each of the 28 states that I currently have in my own name which would be a pain in the ass.

That is not correct. Your business can be an S-corp, the income can be paid to you personally as 1099 income. You would be the one licensed, not your business. I've done that for years. Now all that said, just being an s-corp doesn't save taxes in and of itself.

If you are making good money, yes... you can defer some of it to a qualified plan to help the tax bill today. There are also other options.

You need a good accountant.

 

[MW Agent]

That is not correct. Your business can be an S-corp, the income can be paid to you personally as 1099 income. You would be the one licensed, not your business. I've done that for years. Now all that said, just being an s-corp doesn't save taxes in and of itself.

If you are making good money, yes... you can defer some of it to a qualified plan to help the tax bill today. There are also other options.

You need a good accountant.

That would make me nervous doing it that way. There is a clear doctrine of income needing to be paid to the corp itself. The penalties can be severe doing it differently:

Here is the case, not sure if you can read it without a subscription:
Tax Reduction Letter - Assignment of Personal Commissions to His Corporation Crushes Insurance Agent

 

[VolAgent]

That would make me nervous doing it that way. There is a clear doctrine of income needing to be paid to the corp itself. The penalties can be severe doing it differently:

Here is the case, not sure if you can read it without a subscription:
Tax Reduction Letter - Assignment of Personal Commissions to His Corporation Crushes Insurance Agent

You have to log in to view the article, but that is quite right.

As an S-Corp, its losses and profits pass-through to the owners. So if it has a loss based upon its income and expenses, it can be used to offset personal income. Trying to get income back into the business can mess you up at tax time as well as allow someone to pierce the corporate veil.

As always, consult a legal or tax advisor.

 

[MW Agent]

You have to log in to view the article, but that is quite right.

As an S-Corp, its losses and profits pass-through to the owners. So if it has a loss based upon its income and expenses, it can be used to offset personal income. Trying to get income back into the business can mess you up at tax time as well as allow someone to pierce the corporate veil.

As always, consult a legal or tax advisor.

The gist of the case was a Banker's agent was paid out a 1099 in his name. He assigned the income to his corporation and split his income between W-2/K-1 and paid the corresponding payroll taxes on the W-2 income. After many of years of doing it this way, the IRS caught up to him. The court ruled that because the 1099 was in his name, he could not assign it to the corp.

He had to pay all the back taxes and penalties. The make it even worse, he did not get credit for the payroll taxes he paid through his corporation on his W-2 income as the IRS viewed it as completely separate! There was an investment advisor with LPL that recently got tagged for this as well since the B/D paid him out in his name (by law) and he assigned it to his corporation.

Many people do it this way, many accountants say it's fine, but the law and rulings have made it clear on the courts & IRS position on it. To each their own.

 

[bpenn9]

The gist of the case was a Banker's agent was paid out a 1099 in his name. He assigned the income to his corporation and split his income between W-2/K-1 and paid the corresponding payroll taxes on the W-2 income. After many of years of doing it this way, the IRS caught up to him. The court ruled that because the 1099 was in his name, he could not assign it to the corp.

He had to pay all the back taxes and penalties. The make it even worse, he did not get credit for the payroll taxes he paid through his corporation on his W-2 income as the IRS viewed it as completely separate! There was an investment advisor with LPL that recently got tagged for this as well since the B/D paid him out in his name (by law) and he assigned it to his corporation.

Many people do it this way, many accountants say it's fine, but the law and rulings have made it clear on the courts & IRS position on it. To each their own.

The article also said he ignored his 1099 income. If his accountant put them on his personal and made a note about the income being picked up by his corporate return would that have made a difference? Not an accountant here but did run this by an accountant, I am just a insurance agent.

 

[MW Agent]

The article also said he ignored his 1099 income. If his accountant put them on his personal and made a note about the income being picked up by his corporate return would that have made a difference? Not an accountant here but did run this by an accountant, I am just a insurance agent.

Here is a very recent case from 2016, the LPL broker/Mass Mutual agent didn't ignore the 1099 income. It didn't matter in the court's decision against the broker, they ruled that the income could not be assigned to the corporation since the 1099 was taxed to the agent's social security number.

http://www.ustaxcourt.gov/USTCInOP/OpinionViewer.aspx?ID=11057