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Originally Posted by GMAN
Rawlco, you can set up a S-corp and avoid the double taxation of a regular C-corp. You only have to pay Social Security Tax on earned income, such as a salary. If you have a corporation, you can pay yourself dividends instead of a salary and avoid the Social Security Tax. I have a friend who has been doing this for years. He owns several businesses and he does that with each business.
Thank you GMAN. I had a momentary brain cramp when I was posting that before. I have an LLC where all the business income is distributed to the members and is taxed as self employment income, so there is no self employment tax avoidance that way.
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You can also opt out of Social Security and avoid having to pay it, too. The down side is if you opt out, you can never collect any benefits from it. Of course, you could invest the 15% you would pay into Social Security and have a REAL retirement fund when you get ready to retire. :P
I believe that if you invest the same amount wisely you will have a lot more money than social security will ever amount to. For us young people there may not even be any social security in 40 years.
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Originally Posted by Cam
Nah, I mean, what is the upper limit? How much income can you shelter?
Last year the maximum deductible amount for a traditional IRA was $4000 per person. For this year it may be more. There isn't a limit on how much you can contribute, just a limit on how much is deductible.
Roth IRA is after tax dollars so no contribution is tax deductible. I think there is some way around this for people over a certain age. The nice thing about Roth IRA contributions is that they earn interest TAX FREE. For example. This year you contribute $10,000 to a Roth IRA. In 20 years that $10,000 has earned $20,000 in interest (maybe) and you can take out the entire $30,000 when you are retired with no taxes due on any of it.
With a traditional IRA you contribute $4,000 without paying taxes on it BUT when you take it out in 20 years you owe taxes on that $4,000 AND all of the interest it earns.