new job with k1

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glethemin
Posts: 1
Joined: Mon Aug 12, 2019 11:51 am

new job with k1

Post by glethemin » Mon Aug 12, 2019 12:07 pm

My spouse, a physician, just started a new job. It is a partnership track and she is an associate. She was told that she would be getting a K1 instead of a W2. I've been trying to read up and learn about this and how to plan for taxes.

1. I've read on the forum that associates get w2s until they are partners and then partners in some business structures may get k1s. Is it correct that as an associate, she will get a K1?

2. With a K1, is there a way to do withholdings, or do we need to make quarterly estimated tax payments to the IRS?

3. What are ways of dealing with the increased tax implications? Should she set up a corporation (LLC?) and have the K1 employer pay the LLC?

4. She has another job with the government and puts most of that income into the TPS retirement account, maxing it out. I've been reading and am seeing opposing information about setting up a second retirement account, such as a SEP or solo 401k to put away some of this K1 income into. Is there a limit of 19 thousand/ 56 thousand for each individual for retirement accounts or is that limit only per job. Can she set up a solo 401k and put away $56k with this second job in spite of maxing out her government retirement plan?

5. second scenerio... If I am maxing out my 401k with a pension/profit sharing ($56k) and having a second 1099 job with a different employer. Can you set up a SEP or solo 401 to shelter the 1099 income or is the limit $56 thousand per individual ?

Thank you for your advice.

Olemiss540
Posts: 1046
Joined: Fri Aug 18, 2017 8:46 pm

Re: new job with k1

Post by Olemiss540 » Mon Aug 12, 2019 3:10 pm

In my experience, she will need to pay quarterly taxes (state and federal) on her k1 income following the safe harbor rules of 110% previous years taxes or 90% of current years taxes I believe. I do not believe she can setup a separate LLC as she will already be part of a partnership corporation resulting in her income.

No answer to the other questions but will others will hopefully weigh in!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

SouthernFIRE
Posts: 11
Joined: Tue Jul 10, 2018 1:24 pm

Re: new job with k1

Post by SouthernFIRE » Mon Aug 12, 2019 3:35 pm

If her income is high (>$250k), it will likely make sense to form an LLC taxed as an S-Corp to hold her interest to save on self-employment taxes.

Soda
Posts: 1
Joined: Mon Aug 12, 2019 7:07 pm

Re: new job with k1

Post by Soda » Mon Aug 12, 2019 7:23 pm

1. It depends on how her contract is structured. Does she have any ownership in the partnership right now? (Profits interest, capital interest etc.) If she does have ownership then she should be receiving a K-1. If she is an employee only then she should be receiving a W-2.

2. Estimated Payments

3. There are different ways she could set this up. An Scorp would maximize tax efficiency, but has some annoying rules that need to be followed. As SouthernFIRE said the more income she has the more tax savings can be had with an Scorp. I agree with his income rule if it's less than 250k it's probably not worth the headache / tax prep fees.

4. I'm guessing a bit on this one, but I think it's a limit per person not per job. If it were a limit per job I could see people setting up semi-complicated structures and socking away hundreds of thousands in T401k's or Roth 401k's. I can't imagine that it would be allowed.

5. A quick Google search (so take this with a french fry of salt) makes me think you can do this. The solo 401k eligibility requirements appear to be A) having self employment income and B) not having employees (with some exceptions). I would think you could contribute 19k to your workplace 401k and then another 36k to your solo 401k provided you have at least 36k in self employment income.

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