Andrew Altfest, CFP®, MBA quoted in Financial Planning.com
Being your own boss creates big opportunities for tax savings — but only if financial advisors and their clients understand all of the complex rules surrounding self-employment, experts said.
Self-employed clients include physicians and other high-earning medical professionals — a niche served by Andrew Altfest, the president of New York-based Altfest Personal Wealth Management.
“While their wealth can grow, business owners often feel pinched because they don’t want to draw on their assets fearing adverse tax consequences,” Altfest said in an email.
“Tax strategies to reduce tax liability include Roth conversions, particularly in low-income years such as just after retirement, qualified charitable distributions, 1031 exchanges, step-in basis planning for their estates, loans and, when it comes to selling a business, proactively allocating for goodwill vs equipment/materials which will produce better and worse tax treatment.”
Individual 401(k) advantages: Certain business owners see big tax and retirement benefits from individual 401(k) plans, Altfest said. “A favorite for contractors and solo practitioners is the individual 401(k), as you get to contribute as the employer and the employee, potentially allowing for much larger contributions,” Altfest said. “This not only helps with savings but reduces taxes.
Big savings potential: Certain business owners may find substantial tax savings by using defined-benefit pension plans, Altfest said. “As business owners get older and have a steady reliable stream of income, defined benefit plans allow for large tax deferred contributions to be made,” he said. “The tax savings of large defined-benefit contributions can exceed seven figures!”
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