How to get income low enough for 199a deduction?

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jkushne1
Posts: 81
Joined: Sun Nov 23, 2014 9:20 pm

How to get income low enough for 199a deduction?

Post by jkushne1 » Sun Feb 10, 2019 1:05 pm

Fresh out of training as a new physician. My attending job is all 1099 income. I've been doing lots of reading on the 199a deduction here at WCI, bogleheads, Kitces, etc... It's obviously very complicated and a lot has to be worked out still. For 2018, I will only have a few months of attending income so will definitely have income low enough to qualify. However, for 2019 I'm expecting 1099 money to be between 550-650k. This is obviously much higher than the phaseouts for a service industry and was wondering if there are any ways to get the income low enough to take advantage of this benefit in 2019. Here's what I could think of...

-i401k: 56k. Yep already doing that
-Schedule C business deductions. There will be some there but not too much. Maybe a few thousand.
-Health Insurance Premiums: maybe 10-15k
-Backdoor Roth: no help as this does nothing to reduce income now (although I'll still take advantage of it). 
-Standard deduction for family: 24k
-HSA: 7k
-Charity: we give every year but not in a financial position yet to give massive amounts to make any type of difference
-Work Less: not interested at this point in my career. Maybe in 5-10 years. Don't want to let the "tax tail wag the dog."
-Employer portion of self-employment taxes
-solo defined benefit plan: I was told on this forum that at my age (32), it just doesn't make sense given expenses, lower contributions, etc... So that seems off the table. 

So, with all that taken into consideration, it seems like I have no shot at staying under the thresholds. Is there something else that I'm missing that may help? Does an S-corp help at all in this situation as I'm not sure how the salary vs dividends play into the 199a (I know the main goal is to minimize Medicare taxes). Thanks for all the input. 

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White Coat Investor
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Joined: Fri Mar 02, 2007 9:11 pm
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Re: How to get income low enough for 199a deduction?

Post by White Coat Investor » Sun Feb 10, 2019 2:01 pm

jkushne1 wrote:
Sun Feb 10, 2019 1:05 pm
Fresh out of training as a new physician. My attending job is all 1099 income. I've been doing lots of reading on the 199a deduction here at WCI, bogleheads, Kitces, etc... It's obviously very complicated and a lot has to be worked out still. For 2018, I will only have a few months of attending income so will definitely have income low enough to qualify. However, for 2019 I'm expecting 1099 money to be between 550-650k. This is obviously much higher than the phaseouts for a service industry and was wondering if there are any ways to get the income low enough to take advantage of this benefit in 2019. Here's what I could think of...

-i401k: 56k. Yep already doing that
-Schedule C business deductions. There will be some there but not too much. Maybe a few thousand.
-Health Insurance Premiums: maybe 10-15k
-Backdoor Roth: no help as this does nothing to reduce income now (although I'll still take advantage of it). 
-Standard deduction for family: 24k
-HSA: 7k
-Charity: we give every year but not in a financial position yet to give massive amounts to make any type of difference
-Work Less: not interested at this point in my career. Maybe in 5-10 years. Don't want to let the "tax tail wag the dog."
-Employer portion of self-employment taxes
-solo defined benefit plan: I was told on this forum that at my age (32), it just doesn't make sense given expenses, lower contributions, etc... So that seems off the table. 

So, with all that taken into consideration, it seems like I have no shot at staying under the thresholds. Is there something else that I'm missing that may help? Does an S-corp help at all in this situation as I'm not sure how the salary vs dividends play into the 199a (I know the main goal is to minimize Medicare taxes). Thanks for all the input. 
I don't think you're going to make it. I'm sorry. The government has singled out your profession (along with a handful of others) and declared it is not worthy of receiving this particular tax break.

The good news? You've got a very nice physician income and will do just fine AND don't have to plan your financial life around this very complicated piece of the tax code.

If you ever cut back to part-time it might be worth looking at again.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

sc9182
Posts: 227
Joined: Wed Aug 17, 2016 7:43 pm

Re: How to get income low enough for 199a deduction?

Post by sc9182 » Sun Feb 10, 2019 3:37 pm

Not much tax exp here. But wanted to find someone on this forum may sound off on the following idear:

You may be $125k - $200k over the 315k MFJ income limit of 199A for QBI.

A) Defined Benefits contributions/plan to further reduce gross. Lots of gotchas and higher costs to consider though!?

B) Do you own partnership or mostly own a C-Corp which offers services to you with those remaining excess monies which only generate minimal income? Ideally if that C-Corp pays ‘recently-reduced’ Corp taxes, and re-invests monies with minimal dividends/income being passed to owner(s) during first few years.

Definitely get any/all ideas checked by Professionals!

Kudos on your hard work to get where you are with your specialty - at you age.

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