The Solo 401k

The Solo 401k

A retirement savings vehicle designed for the smallest businesses.

A solo 401(k) lets a self-employed individual set up a 401(k) plan combined with a profit-sharing plan. You can create one of these if you work for yourself or for you and your spouse.(1)

Reduce your tax bill while you ramp up your retirement savings. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

*As an employee, you can defer up to $18,500 of your compensation into a solo 401(k). The yearly limit is $24,500 if you are 50 or older, for catch-up contributions are allowed for these plans.(1)

*As an employer, you can have your business make a tax-deductible, profit-sharing contribution of up to 25% of your compensation as defined by the plan. If your business isn’t incorporated, the annual employer contribution limit is 20% of your net earnings rather than 25%. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make using the methods in Internal Revenue Service Publication 560.(1,2)

*Total employer & employee contributions to a solo 401(k) are capped at $55,000 for 2018.(1)

Are you married? Add your spouse to the mix. If your spouse is a full-time employee of your business, then he or she can also make an employee contribution to the plan in 2018, and you can make another profit-sharing contribution on your spouse’s behalf. (For this to happen, your spouse must have net self-employment income from the business.)(2,3)

The profit-sharing contributions made by your business are tax-deductible. Annual contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) per year.(2,4)

You can even create a Roth component in your solo 401(k). You can direct up to $5,500 annually (or $6,500 annually, if you are 50 or older) into the Roth component of the plan. You cannot make employer contributions to the Roth component.(3)

Rollovers into the plan are sometimes permitted. Certain plan providers even allow hardship withdrawals (loans) from these plans prior to age 59½.(5)

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 full-time employees, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. There are no compliance testing requirements, and you will only need to file a Form 5500 annually with the I.R.S. once the assets in your solo 401(k) exceed $250,000.(4)

If you want to hire more employees, your solo 401(k) will turn into a standard 401(k) plan per the Internal Revenue Code. The good news is that you can present your new hires with an established 401(k) plan.(2,3)

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.(5)


J Rucci

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors

 

 

 

Justin D. Rucci is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.

1 – irs.gov/retirement-plans/one-participant-401k-plans [10/25/17]
2 – mysolo401k.net/solo-401k/solo-401k-contribution-limits-and-types/ [2/13/18]
3 – doughroller.net/retirement-planning/solo-401k-best-retirement-plan-self-employed/ [5/21/17]
4 – tdameritrade.com/retirement-planning/small-business/individual-401k.page [2/13/18]
5 – thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/ [12/11/17]

Form 5498 – What is it?

Form 5498 – What is it?

If you have an IRA open, then you might have received a form in the mail.

This is Form 5498, and it summarizes the type of IRA that you have (traditional, Roth, SEP, or SIMPLE) and the total annual contributions made to the account for the previous tax year. Additionally, it will also note any transfers or roll overs from other types of retirement accounts into your IRA.

Here are 4 quick things you can do with the form:

  1. Review it for accuracy for contribution and/or rollover amounts
  2. Review your account values from December, 31 2017 to ensure they match your statements
  3. Review your tax return to make sure that any tax deductible contributions were accounted for
  4. Keep a copy for your records

If you do not have an IRA account with us or did not make contributions into your IRA account, then you most likely did not receive a Form 5498.

Should you have any questions, feel free to reach out to us for clarification.


Veronica TorresVeronica Torres
Director of Operations
Warren Street Wealth Advisors

 

 

 

 

Veronica Torres is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

 

Less SALT for Taxpayers to Subtract

Less SALT for Taxpayers to Subtract

What does the new federal cap on state and local tax deductions mean for you?

Have you routinely itemized your federal tax deductions? In 2018, you may decide to take the standard deduction instead. One possible reason: the new limit on state and local tax deductions set by the federal government.

The SALT deduction is now capped at $10,000. The standard deduction is now $12,000 ($24,000 for a married couple). So, your incentive to take the SALT deduction might be gone. Even if you live in a wealthy suburban area, a high-tax state, or a state that charges no income tax, you might not see any point in claiming it. The Tax Policy Center estimates that 3.5 million households will quit itemizing in 2018 simply because of this one revision to the Internal Revenue Code.(1,2)

High-earning households have usually claimed SALT deductions. Research from the TPC’s Briefing Book shows that 93% of households earning $200,000-$500,000 took the deduction in 2014. In fact, more than 40% of taxpayers in Connecticut, Maryland, and New Jersey made use of the tax break that year. In 2015, the average SALT deduction for taxpayers in California and New Jersey was around $18,000; in New York, it topped $22,000.(1,3)

The change may not affect some taxpayers. The TPC projects that households earning $150,000 or more could be hit hardest by this, but it also believes that just 40% of those households will actually see higher taxes as a result of the SALT cap. Why? Many households earning between $200,000-$500,000 will be subject to the Alternative Minimum Tax, so they will not benefit from a SALT deduction. The average taxpayer in the top 1%, though, is positioned to see a federal tax increase of about $30,000 due to the new deduction limit.(2)

Some state governments are crafting responses. In California’s state legislature, a bill proposes the creation of a new state charity, the California Excellence Fund, to which taxpayers could pay some of their state taxes. Residents could contribute the portion of their state tax bill exceeding the $10,000 federal cap to the proposed fund, and all their SALT taxes would be deductible. (To help facilitate this, these taxpayers would need to meet with their CPA or tax preparer in December rather than spring.)(1)

New York state lawmakers are also advancing a plan to create a new state charity, in the vein of the California bill. Maryland state legislators are proposing something similar, whereby taxpayers could make charitable donations to public schools once over the $10,000 SALT deduction limit.(1)

Another idea making the rounds in New York’s state legislature: have workers accept a pay cut in exchange for a SALT break. Employers would shoulder a new statewide payroll tax, and presumably reduce employee pay – but in compensation, workers would get a wage credit equivalent to their pay cut. This way, the worker’s pay would stay the same. For example, an employee could see a $10,000 salary cut, but pick up a $10,000 tax-deductible wage credit at the same time.(1)  

Will the $10,000 ceiling on the SALT deduction rise in future years? Unfortunately, no. It is not indexed for inflation.(2)

Should you still itemize in 2018, even with the new SALT deduction cap? You should make that decision (and others) with input from the tax preparer you know and trust. There are many variables that can potentially impact your federal tax return, and you will want to take a thorough look at them before you make a move.  

 


Cary FacerCary Facer
Founding Partner
Warren Street Wealth Advisors

Cary Facer is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.


Citations
1 – cnbc.com/2018/01/23/how-these-states-are-rebelling-against-the-new-gop-tax-code.html [1/23/18]
2 – forbes.com/sites/beltway/2017/12/21/what-the-tax-bills-curbs-on-the-salt-deduction-would-mean-for-itemizers/ [12/21/18]
3 – taxpolicycenter.org/briefing-book/how-does-deduction-state-and-local-taxes-work [2/19/18]

Tax Deductions Gone in 2018

Tax Deductions Gone in 2018
What standbys did tax reforms eliminate?
Provided by Aileen Danley, CFP®, MBA

Are the days of itemizing over? Not quite, but now that H.R. 1 (popularly called the Tax Cuts & Jobs Act) is the law, all kinds of itemized federal tax deductions have vanished.

Early drafts of H.R. 1 left only two itemized deductions in the Internal Revenue Code – one for home loan interest, the other for charitable donations. The final bill left many more standing, but plenty of others fell. Here is a partial list of the itemized deductions unavailable this year.(1)

Moving expenses. Last year, you could deduct such costs if you made a job-related move that had you resettling at least 50 miles away from your previous address. You could even take this deduction without itemizing. Now, only military servicemembers can take this deduction.(2,3)

Casualty, disaster, and theft losses. This deduction is not totally gone. If you incur such losses during 2018-25 due to a federally declared disaster (that is, the President declares your area a disaster area), you are still eligible to take a federal tax deduction for these personal losses.(4)

Home office use. Employee business expense deductions (such as this one) are now gone from the Internal Revenue Code, which is unfortunate for people who work remotely.(1)

Unreimbursed travel and mileage. Previously, unreimbursed travel expenses related to work started becoming deductible for a taxpayer once his or her total miscellaneous deductions surpassed 2% of adjusted gross income. No more.(1)

Miscellaneous unreimbursed job expenses. Continuing education costs, union dues, medical tests required by an employer, regulatory and license fees for which an employee was not compensated, out-of-pocket expenses paid by workers for tools, supplies, and uniforms – these were all expenses that were deductible once a taxpayer’s total miscellaneous deductions exceeded 2% of his or her AGI. That does not apply now.(2,5)

Job search expenses. Unreimbursed expenses related to a job hunt are no longer deductible. That includes payments for classes and courses taken to improve career or professional knowledge or skills as well as and job search services (such as the premium service offered by LinkedIn).(5)

Subsidized employee parking and transit passes. Last year, there was a corporate deduction for this; a worker could receive as much as $255 monthly from an employer to help pay for bus or rail passes or parking fees linked to a commute. The subsidy did not count as employee income. The absence of the employer deduction could mean such subsidies will be much harder to come by for workers this year.(2)

Home equity loan interest. While the ceiling on the home mortgage interest deduction fell to $750,000 for mortgages taken out starting December 15, 2017, the deduction for home equity loan interest disappears entirely this year with no such grandfathering.(2)

Investment fees and expenses. This deduction has been repealed, and it should also be noted that the cost of investment newsletters and safe deposit boxes fees are no longer deductible.  In some situations, investors may want to deduct these fees from their account balances (i.e., pre-tax savings) rather than pay them by check (after-tax dollars).(5)

Tax preparation fees. Individual taxpayers are now unable to deduct payments to CPAs, tax prep firms, and tax software companies.(3)

Legal fees. This is something of a gray area: while it appears hourly legal fees and contingent, attorney fees may no longer be deductible this year, other legal expenses may be deductible.(5)

Convenience fees for debit and credit card use for federal tax payments. Have you ever paid your federal taxes this way? If you do this in 2018, such fees cannot be deducted.(2)

An important note for business owners. All the vanished deductions for unreimbursed employee expenses noted above pertain to Schedule A. If you are a sole proprietor and routinely file a Schedule C with your 1040 form, your business-linked deductions are unaltered by the new tax reforms.(1)

An important note for teachers. One miscellaneous unreimbursed job expense deduction was retained amid the wave of reforms: classroom teachers who pay for school supplies out-of-pocket can still claim a deduction of up to $250 for such costs.(6)

The tax reforms aimed to simplify the federal tax code, among other objectives. In addition to eliminating many itemized deductions, the personal exemption is gone. The individual standard deduction, though, has climbed to $12,000. (It is $18,000 for heads of household and $24,000 for married couples filing jointly.) For some taxpayers used to filling out Schedule A, the larger standard deduction may make up for the absence of most itemized deductions.(1)


 

Aileen Danley

Aileen Lau Danley CFP®, MBA
Relationship Manager
CERTIFIED FINANCIAL PLANNER®
Warren Street Wealth Advisors

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Warren Street Wealth Advisors, LLC is a Registered Investment Advisor. The information posted here represents opinion and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.

1 – forbes.com/sites/kellyphillipserb/2017/12/20/what-your-itemized-deductions-on-schedule-a-will-look-like-after-tax-reform/ [12/20/17]
2 – tinyurl.com/y7uqe23l [12/26/17]
3 – bloomberg.com/news/articles/2017-12-18/six-ways-to-make-the-new-tax-bill-work-for-you [12/28/17]
4 – taxfoundation.org/retirement-savings-untouched-tax-reform/ [1/3/18]
5 – tinyurl.com/yacz559c [1/8/18]
6 – vox.com/policy-and-politics/2017/12/19/16783634/gop-tax-plan-provisions [12/19/17]

Handling ESOP Shares & Taxes

Joe OcchipintiJoe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

 


Sometimes an employer’s benefits program can include an employee stock ownership plan, commonly referred to as an ESOP plan. An ESOP plan is an employee benefit that allows its company’s participants to purchase the common stock of their company. Those who participate often receive tax benefits for purchasing these shares, and companies believe that allowing their employees to purchase shares of the company will incentivize employees to perform well and boost the share price.

This is an excellent program to take advantage of if your company provides it, but there is something to be mindful of, which is: How can these shares impact my tax liability?

Well, the tax issue doesn’t become relevant until you approach retirement and begin to think about taking your balance out of the plan. When you become ready to do this, you are presented with two options on how to handle the balance.

Option 1 is to take the shares from the ESOP program and roll them into an IRA. Taxes do not come due, but you will be liable for the taxes when you take a withdrawal from the account. The amount will be taxed at your current ordinary income rates.

Option 2 is to move the shares into a non-retirement account. In this method, the ESOP shares are moved in-kind and you pay ordinary income tax rates on the average cost basis of the shares, which is the average price you paid for all the shares you own and typically below market value. Then when the shares are sold within the account, the amount in excess of cost basis is taxed at long term capital gains rates.

 

(1)


It may seem like you’re paying taxes twice in the second option, but by taking advantage of net unrealized appreciation (or NUA), you might be able to save yourself on taxes in the long run. You see, long term capital gains rates are typically lower than a person’s income tax rates with capital gains being 0, 15, or 20%, so a person would be paying ordinary income tax on a portion, then long term capital gains on the remainder, again assuming the shares have been held for 1 year or longer.

This can be a tricky process, and most employee benefits programs only allow you to execute this process once. Make sure you have it right.

Warren Street Wealth Advisors has worked with employee ESOP shares before and executed NUA strategies. Contact Us today and schedule a free consultation on how to best handle your ESOP shares.


 

  1. This item  is only used as an illustration of the strategy. Illustration does not indicate how all tax liabilities could play out. All investments carry specific risks and please consult your financial professional before making investment decisions.

Warren Street Wealth Advisors are not Certified Public Accountants (CPA), and this is not considered personal or actionable advice. Please consult with your accountant or financial professional for further guidance on whether an NUA strategy is right for you.

Disclosure: Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

9 Year End Tax Tips for Investors

Blake Street

Blake Street
Chartered Financial Analyst
Certified Financial Planner®
Founding Partner & CIO  
Warren Street Wealth Advisors



I know, I know, you’d rather be thinking about the holidays than taxes. Consider us
The Grinch for even bringing this up, however, the timing is important. As the years draws to a close it is important that you consider year end tax planning before 2017 strikes our calendars.

Here are the some of the biggest items for consideration for an investor before year end:

1) Changes to the tax code?

There were no significant changes to tax law from 2015 to 2016, prepare for much of the same for your 2016 filing.

2) Don’t forget your RMDs (Required Minimum Distribution)

If you’re over age 70 ½, make sure you take your required minimum distribution (RMD) by December 31st. Investors who turned 70 ½ this year can defer their 2016 RMD until April 1st of next year, but that will mean taking two RMDs next year. Investors who turned 70 ½ last year and deferred their 2015 RMD to 2016 need to make sure they take their 2016 RMD by December 31st. Important to note: RMDs apply to most retirement accounts, not just IRAs; 401(k)s and even Roth 401(k)s are subject to RMDs.

3) Max out your IRAs

If you are eligible, be sure to max out your IRA when you can. An individual can contribute up to $5,500 per year, or $6,500 if over the age of 50. These contributions can be on a tax deferred basis or after-tax basis (ROTH IRA) depending on your personal goals and objectives.

The truth is you can cut these checks all the way up until the time you file your taxes, but as like I to say to myself, “save early, save often.”

4) Consider a ROTH conversion

If you think you’re in a lower tax bracket now then you will be in the future, and you’ve got most your assets in pre-tax buckets like a 401(k) or an IRA, it may pay to consider converting some of those assets to a ROTH IRA. The ROTH IRA grows and can be withdrawn from tax free after age 59 ½. Converting assets to a ROTH may create a tax bill today for future savings, so be aware.

One wonderful perk of a conversion is the fact that you can undo it should the terms or tax implications look unfavorable before you file. This is called recharacterization. You’re eligible to recharacterize the conversion all the way up until the time you file, including extensions.

Consider converting small portions over a long period of time when your tax scenario makes sense.

5) Make the Most of your Charitable Giving

Charitable contributions are usually deductible up to 50% of your adjusted gross income (AGI). If you have a habit of being charitable, might as well get credit for the deduction. If you plan to give, consider doing it in years when you need the tax break. Also, if you’re at the limit for giving, consider delaying gifts until your deduct limit clears out next year.

One other strategy we like to see considered is gifting highly appreciated securities. You can deduct the market value of the securities subject to your deduction limit, and avoid the capital gains taxes you would have been exposed to should have sold the securities in your name.

If you’re curious for a ballpark figure on what you can deduct, you can see your AGI on Page 1, Box 37 of your 1040, also known as your tax return.

6) Consider Qualified Charitable Distributions

Two bullet points for charity, we can’t be The Grinch! Qualified Charitable Distributions (QCDs) are a wonderful part of the tax code that allows you take distributions from your IRA and send directly to a charity of your choice, tax free.

The best part, QCDs don’t count as income, but do count against your RMDs. QCDs will also reduce your adjusted gross income and could reduce your Medicare Part B premiums, in addition to reducing the amount of your Social Security benefits that are taxable.

7) Gifts to Non-charitable Interests

I know, sometimes your loved ones feel like charity, but if you’ve got any large gifts planned to grandkids, children, or whomever, timing matters. You’re able to gift $14,000 to any individual each year without any gift tax implications. You and your spouse can gift that amount separately to the same person for a total of $28,000.

These gift amounts are a great way to reduce your taxable estate or even fund your wishes in your lifetime without getting into messy gift and estate tax issues. One additional creative idea, you’re able to gift five years worth of gift limits into a 529 plan in a single year, so in this case, $70,000. One asterisk, you can’t gift to this person again for five years. We see folks use this technique if they want to fund large portions of someone’s advanced education while reducing their taxable estate at a faster rate.

8) Tax Loss Harvest

This is something we do on behalf of our clients, but if you manage outside assets on your own, consider booking some of your losses. We all have some, don’t be shy. Losses can be used to offset capital gains generated within your portfolio, carried forward to future years, or even a small portion used to reduce taxable income. One great idea when harvesting losses is trying to replicate your exposure of what you sold, so that you’re not sitting in cash waiting for the IRS 30-day wash sale rule to pass to buy back the original security. If it sounds complicated, let us show you how we do it for our clients.

9) Take Your Gains

To add some intrigue after the last bullet point, it’s equally as important to harvest your gains at the appropriate time. Depending on your income level, you could pay as low as 0% in long term capital gains tax rates. It makes sense to know in what years you’ll fall below this income threshold so that you can pay as little taxes as possible.

 

RMD? IRA? What are these things exactly? If you need help navigating your financial picture, contact us  and schedule a free consultation.

 


Blake Street is a Founding Partner and Chief Investment Officer of Warren Street Wealth Advisors. Blake graduated from California State University, Fullerton in 2009 with a Bachelor of Arts in Finance, and  he is a CERTIFIED FINANCIAL PLANNER™ (CFP™) and a Chartered Financial Analyst (CFA).

Disclosure: Blake Street is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

 

 

Tax Write Offs. Tax Write Offs Everywhere…

It’s no secret that streamers don’t like paying taxes, we don’t either. Don’t let taxes drag down your profits as a streamer or content creator.

Using bookkeeping software should be one of the first things you do to take control of your stream as a business and attempt to reduce your tax liability. Bookkeeping will allow you to classify your stream expenses and potentially turn them into tax write offs.

What can you write off you might be asking? Well let’s start with some of the easy ones:

Computer Equipment & Software – Yes this means games. Since you are most likely using games or other pieces of software to entertain your audience, this is a necessary business expense for you. Don’t forget that if you purchase computer parts, upgrades, or even a whole new system that this is necessary for you to complete your work  they can be written off

Your Streaming Space – Also known as your home office. Most people are streaming out of their homes, and that means that part of your mortgage or rent goes towards the space for your stream. This percentage of space can be written off every year. As a simple example, if you use 25% of your space for your stream, and your rent is $1,000, then you can write of $250 per month for a total of $3,000 per year.

Travel Expenses – I’m assuming you went to Twitchcon. Well, you guessed it, that travel expense can be deducted. You went to a location to help promote your business, maybe took some meetings, and tried to grow your brand. All of which are very legitimate business expenses.

Meals & Entertainment – Do you have a partner for your stream? Are you collaborating with other streamers? Well, if you go meet with them for coffee, lunch, or dinner, and discuss business during the meals, then the meal expense can be written off as a tax deduction. Up to 50% of the total expenses associated with meals & entertainment can be deducted as long as you are conducting business.

As you can see, if you are spending money on your business, the stream, then there is a possibility that the expense can be written off to lower your taxable income.

Contact Us to learn more about what you can do to lower your taxable income and protect your earnings as a streamer.

 

Joe Occhipinti


Joe Occhipinti
Joe@warrenstreetwealth.com
714.823.3328

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

It’s Your Stream, Your Money

As many have come to learn, taxes can be the most complicated part of being a full time content creator, streamer on Twitch or professional gamer. With some people being considered contractors or employees of a team, or both, it can be difficult to navigate your tax liability and learn how to reduce it.

However, there are solutions available. The biggest solution for those receiving a majority of their income via 1099 is the Solo 401(k) option, or “Solo(k)”. The Solo(k) is essentially a 401(k) plan but for a single person, and potentially a spouse, giving them the ability to defer their taxes and profit share themselves to help reduce tax liability come April.

So what can the Solo 401(k) do for a streamer or pro player?


solo projection
Table provided by Robert McConchie, CPA/PFS®

This example shows a streamer/player earning $225,000 in 1099 income, assumes $30,000 in business expenses across the year, a standard deduction (single person, 2016), and standard exemption (single person, 2016). Additionally, California state tax rate was used in conjunction with the Federal tax, and you can see the savings between utilizing and not utilizing the Solo 401(k), a $20,000 savings to be exact.

The savings comes from the $18,000 personal deferral then a profit share from the business of $35,000 for a max total deferral of $53,000 income within the year. Establishing a Solo 401(k) account is beneficial on multiple fronts; it allows you to set money aside for your retirement date, reduces your tax liability today, and can even be borrowed against should you find yourself in a pinch.

Now, for some streamers who are married, you have the ability to put your spouse on to your business’ payroll. How can that impact your tax savings come year end? Here’s a conservative estimate below.

solo projection spouse
Table provided by Robert McConchie, CPA/PFS®

Using the same amount of income, we can see that tax savings can also be found by correctly setting up your business to include your spouse on payroll, a 401(k) contribution for them and take advantage of additional tax savings.

Opening a Solo 401(k) is one thing you can do, but you can see the immediate impact it can make for full time content creators.

The Solo 401(k) is one of many things that every content creator should do to help minimize their tax liability into the future. Don’t wait to open one. In order to receive the tax benefit, the account must be opened within the calendar year.

Contact us today to set up a free consultation and learn what you can do to maximize your tax savings for 2016 and into 2017.

 

Joe Occhipinti

Joe@Warrenstreetwealth.com
714.823.3328
www.warrenstreetwealth.com/esports

 

The contents of this article are not meant to be personal or actionable tax advice. Please consult a tax professional or your personal advisor before making any decisions. IRS & DOL guidelines must be carefully considered before choosing the retirement plan or tax advantaged savings vehicle that is right for you. The illustrations above are of hypothetical scenarios and are meant strictly for informational purposes.

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.