Income from business- can it legally avoid being taxed

amother

Wed, Apr 28 2021, 8:28 am

So with all the lovely Biden administration plans, such as tax credits, childcare etc for middle income earners, I don't want to go over the $150,000 threshold.
We have a business that generates income (we are still repaying the loan we took and the assets we sold to start the business, but we are junior partners and the other partner already made more money than we invested. So I think I heard that now we need to pay taxes on it).
If we don't use that income and invest it, is there any way to avoid taxes on it, to avoid it being considered income? Is there any place we can put it, or other legal loopholes?
Maybe I should leave work to stay under the threshold...

amother

Blue

Wed, Apr 28 2021, 8:39 am

Not sure this answers your question but I found this interesting. In essence its about reducing your taxable income. I don't think this extends to business income tho. Best ask a CPA

March 2021-WSJ
Didn’t Qualify for the Stimulus Check? Here’s How You Might Change That.
The difference between a full stimulus payment and no stimulus payment is as little as $10,000 of adjusted gross income

Derek Tharp (@DerekTharp) is an assistant professor of finance at the University of Southern Maine and the founder of Conscious Capital. He blogs at Kitces.com.
Americans will be getting a third round of stimulus checks, with a notable caveat that significantly fewer households will be receiving stimulus payments this time around. It has been estimated that nine million households that previously received stimulus payments will not receive stimulus under this round.
Under the legislation signed by President Biden, the phaseout ranges are for adjusted gross income of $150,000-$160,000 for married couples filing jointly, $112,500-$120,000 for head of household filers, and $75,000-$80,000 for single filers. This lower maximum income cap and the correspondingly narrower phaseout ranges mean that you can go from a full stimulus payment to no stimulus payment with as little as an additional $10,000 of adjusted gross income.
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There are two primary strategies: First, you may want to consider delaying filing your 2020 taxes to preserve your portion or all of your stimulus payment if your adjusted gross income was lower in 2019 than 2020, since your most recent tax return on file with the IRS will be used to determine your income for eligibility purposes.
Furthermore, people who receive a stimulus payment based on their 2019 income don’t have to pay it back later, even if they wouldn’t be eligible based on their 2020 or 2021 income.
Second, taxpayers may want to look for opportunities to reduce their 2020 adjusted gross income. Unfortunately, there aren’t many strategies for reducing your 2020 AGI in 2021, but a contribution to a health savings account remains one viable option. Eligible taxpayers have through April 15, 2021 to make a 2020 HSA contribution.
Third, taxpayers who do not qualify for their full stimulus payments based on 2019 or 2020 income may want to explore opportunities to reduce their 2021 adjusted gross income. Because the stimulus payments are actually 2021 tax credits that are paid in advance, a taxpayer whose 2021 income qualifies for the tax credit will still be trued up when they file their 2021 taxes. This opens the door to a wider array of strategies for reducing adjusted gross income prior to the end of 2021, such as pretax contributions to employer-sponsored retirement plans, tax-loss harvesting, qualified charitable distributions (QCDs) and others.
Because the newest round of stimulus now provides $1,400 in stimulus for each taxpayer and each dependent, planning opportunities related to maximizing stimulus benefits may be particularly large for bigger families.
For example, suppose a husband and wife with four dependents has an 2020 adjusted gross income of $157,000. Also assume that they are eligible for an HSA but have not contributed anything to their HSA for 2020. This family could receive an additional $5,880 in stimulus by contributing $7,000 to an HSA for 2020. Furthermore, if their 2019 adjusted gross income was $150,000 or lower, then they could preserve their full $8,400 in stimulus ($1,400 x 6) by delaying filing of their 2020 taxes. And if their income was too high in 2019 and 2020, they could explore opportunities to reduce their 2021 adjusted gross income to qualify for all or a portion of their $8,400 stimulus.
Taxpayers should note that adjusted gross income is the key metric here. This value can be found on Line 8b of your 2019 IRS Form 1040 or Line 11 of your 2020 IRS Form 1040. This number may be smaller than what many think of as their total income since it is adjusted to account for factors like retirement-plan contributions, HSA contributions, alimony, self-employment tax and other things.
So, for those taxpayers who find themselves within the phaseout range, the condensing of the phaseout range heightens the benefits of any strategies that can be employed to reduce one’s adjusted gross income below the phaseout ranges.

amother

Burgundy

Wed, Apr 28 2021, 9:05 am

amother [ OP ] wrote:

A financial advisor would be your best bet.

amother

Mauve

Wed, Apr 28 2021, 9:14 am

I'm not a CPA but I'm studying accounting.... there are definitely ways to do this legally. I'm not sure if making an S Corp qualifies, but please speak to an accountant. They can help you do this completely legally.

amother

Oak

Wed, Apr 28 2021, 9:19 am

I’m not in the US, I’m in Canada. We take our money legally without if being personal income. I’m sure there are ways to do it in the states as well.

amother

Crimson

Wed, Apr 28 2021, 10:02 am

amother [ Mauve ] wrote:

This, you need an accountant because you may need to restructure your business. But yes, if you invest it back into the business and you set things up right then it won't be taxable income.

amother

Salmon

Wed, Apr 28 2021, 10:38 am

This is a very personal question. You need someone who has knowledge of l all the specifics of your business and what the rest of your tax return looks like. Best person to answer this question is your accountant.

amother

Emerald

Wed, Apr 28 2021, 10:49 am

You can use personal expenses for business.
Like Car expenses, 1/3 of your rent if you work from home, supplies like orders from Amazon or Target etc.

hodeez

Wed, Apr 28 2021, 11:00 am

You need a good accountant who can find the legal means for you to get the most in tax savings.

gande

Wed, Apr 28 2021, 11:05 am

You can put it in a c corp whoch doesnt affect your income but not sure how to take out the profits. That what we were advised to do.

amother

Salmon

Wed, Apr 28 2021, 12:06 pm

gande wrote:

You can put it in a c corp whoch doesnt affect your income but not sure how to take out the profits. That what we were advised to do.

your income will be taxed again when you take the profits out.

amother

Wed, Apr 28 2021, 12:08 pm

amother [ Emerald ] wrote:

You can use personal expenses for business.
Like Car expenses, 1/3 of your rent if you work from home, supplies like orders from Amazon or Target etc.

It's a very exact science. As I learned from the recent guilty plea of a council member.

amother

Salmon

Wed, Apr 28 2021, 12:09 pm

amother [ OP ] wrote:

It's a very exact science. As I learned from the recent guilty plea of a council member.

It really depends on your situation. Please don’t take tax advice from this forum. Ppl are telling you what they did. Doesn’t mean it’s helpful to you and doesn’t mean it’s legal.

hodeez

Wed, Apr 28 2021, 12:15 pm

My husband is an EA, he does free tax consultations, sounds like you would benefit.

HYS Tax Firm
3475892822

amother

Mauve

Wed, Apr 28 2021, 12:17 pm

amother [ OP ] wrote:

It's a very exact science. As I learned from the recent guilty plea of a council member.

This exactly. Please don't take advise from random posters, it can really get you into trouble. I'm not sure what the line is between "I really didn't realize I can't deduct x,y and z" and fraudelent intent. (One thing I know for sure is that the home office deduction is going to be an almost automatic no).