S Corp Owner with FIRE goal: How to stay in the 12% MFJ tax bracket?

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S Corp Owner with FIRE goal: How to stay in the 12% MFJ tax bracket?

Post by Mako52 » Sun Oct 07, 2018 7:13 pm

A thread I posted about my potential early retirement led to a very helpful post in which someone proposed paying off the mortgage to slash our taxes, improve cash flow, and put us in the 12% tax bracket. This could be a very good strategy but we would be very close to the 22% tax bracket and pay 15% on dividends on long-term cap gains and dividends instead of 0.

I’m self-employed, with an S corporation. Income varies. Potential to earn up to $250k per year, but $100k seems likely the next few years if I want/need to keep working. 401k and HSA already set up.

Wife’s P/T Job: $57k….she can contribute to 401k
Land Income: $40-45k
Dividends: $4k
Current expenses, not including income taxes or mortgage: $115k / year
My question for the forum is: What are some deduction strategies to keep our taxable income below $77,600?

Here’s an example scenario, which I should probably cover with a CPA or two before making any huge decisions.
Total Gross Income: $98,500
Standard Deduction: ($24,000)
Taxable Income: $74,500
Tax: $8,559
Child Tax Credits (2): (4,000)
Net Tax: $4,559
2 children: ages 12 and 15. The 15 year-old has his own business and will make $12-15k this year. So he could easily put us in the 22% bracket. Should we “disclaim” him as a dependent?

Home value: $875k, with $455k / 20 years left on a 30 year mortgage at 4.125%. We plan to stay in it for 10 years, and then downsize to a lower cost of living area. $35k P&I per year. (approx. 44% Principal / 56% Interest currently). We have cash to pay it off entirely.

Current Itemized Deductions (before 2018 tax code change):
401k employer contributions
H S A contribution $6,500
S corp owner medical insurance: $10,500
State income taxes: Around $10k, typically 25-33% of our Federal bill.
Local property taxes: $14,000
Mortgage Interest: $20,000
This would become $47k with the $10k SALT limit.

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