In the new economy, many people aren’t transitioning to a life of leisure in retirement but rather they are transitioning into owning their own business. According to the Betterment 2018 Report, 49% of workers 55 years old and older are saving for retirement with a side job.
The Gig (side job) Economy is opening up opportunities for retirees to start their dream jobs, earn a little extra money and get some significant tax breaks. Not sure if you should have an LLC, an S Corporation, partnership or sole proprietorship? Pure Financial’s experts, Joe Anderson and Alan Clopine discuss how to start a business and how to maximize the tax benefits with the Tax Cuts & Jobs Act.
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Important Points:
(1:18) – How Much Do You Have Saved For Retirement?
(2:15) – Retiring in the Gig Economy
• Getting Started
• Entity Selection
• Self-Employed Retirement Plan
• The New Tax Act
(3:12) – How to Get Started in the Gig Economy
• Make a List of Your Skills
• Think About Your Schedule
• Be Willing to Develop New Skills
• Research Websites Devoted to Gig Jobs
(3:44) – A Few Side Job Ideas to Get You Started
• Working in your current field
• Making money with your car
• Caring for others
• Selling physical products
• Tutoring students
Source: 250+ Ways to Make Extra Money by Nick Loper
(4:12) – Best Practices in Setting Up Your Small Business
• Consider entity type
• Registration & licenses
• Open a business checking account
• Keep a good accounting of income & expenses
• Create a website
(5:15) – Small Business Entity Types
• Sole Proprietorship
• Partnership
• Limited Liability Company
• S Corporation
(7:31) – Are profits that pass through from an S-corp. are subject only to income taxes (not self-employment taxes)?
(8:55) – Small Business Retirement Plans
• SEP IRA
• Simple IRA
• 401(k) (Solo & Safe Harbor)
• Defined Benefit Plan
(11:50) – Contribution Levels of Small Business Retirement Plans
(13:30) – New Qualified Business Income (QBI) Deduction for Small Business Owners from the Tax Cuts and Jobs Act of 2017 (199A)
• Up to 20% of small business profits
• Applies to all entities except C Corporations
• Applies to rental properties
• IRS Code 199A – Very complex and ambiguous rules
(15:30) – Things to Consider With the New 20% Deduction for Small Business Owners
• Limited to 20% of your taxable income
• Much more complicated above these taxable incomes:
o Single: $157,500
o Married $315,000
(16:35) – Can professionals in the fields of health, law, accounting, brokerage and consulting services ever benefit from the tax reform business deduction?
(18:30) – Tax Cuts & Jobs Act: 4 Things Affecting Small Business Owners
• Lower Tax Rates
• 20% Business Deduction (199A)
• Higher Equipment Deductions (179 Deduction)
• Entertainment Expense Deduction Repealed
(20:10) – VIEWER QUESTION: I have a question for you Al…As a result of the tax reform changes affecting small business owners, do you think most will see a reduction in taxes?
(21:30) – VIEWER QUESTION: For the past decade I’ve had a sole-proprietor business that nets about $75,000 a year. Are there tax benefits to turning it into an LLC?
(23:20) – Takeaways from the Show
• Many will work during retirement in a side job
• Get educated on opportunities & legal structures
• Take advantage of self-employed retirement plans
• Understand the new tax act to your benefit
