- quote -

As others have said, SEP, SIMPLE, solo 401K. But remember,
you will still owe SS/ Medicare at about 15.3% on your net
and some states may not allow the deferrals. Talk to your
tax pro.

Helen, EA in PA
50 miles, 3 days, 1 cause - Multiple Sclerosis Challenge Walk for the Cure
October 1 to October 3, 2004
Donate on-line at www.msandyou.org

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- quote -

Thanks Helen. Any thoughts on what those alternatives wiuld be?

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"JustMe" <JustMe[at]nowhere.nul> writes:

- quote -

Actually, I want to win the lottery, but it doesn't seem to
be happening. You can shelter a lot of your self-employment
income in retirement accounts, but if your business does
well you're going to have taxable income.

See IRS Publication 560 for retirement plan options for the
self-employed.

Phil Marti
Clarksburg, MD

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"JustMe" <JustMe[at]nowhere.nul> wrote:

- quote -

Yes it can be done, but you may need help. I'm retired and
started working for a s-corp part time. They have a SIMPLE
IRA and I'm contributing 93.65% of my paycheck to the SIMPLE
(Can't do social security and medicare) up to $10,500 this
year. Traditional IRA's are maxed at $3,500 this year (over
age 50).

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"JustMe" <JustMe[at]nowhere.nul> wrote

- quote -

It won't accomplish what you're hoping to. The IRA would be
operating a business. Tax-exempt entities that operate
businesses unrelated to their tax exempt purpose (and this
would be unrelated) are subject to the "unrelated business
income tax." This causes you to pay tax currently at
corporate income tax rates. You're still subject to tax
again when the funds are withdrawn from the IRA.

Brian Bivona

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If you set up a legitimate small business with no more you
and your wife as the employees, a Solo 401k would be worth
looking at.

A 412i plan might make sense, but find a good financial
planner, these are not do it yourself plans.

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JustMe wrote:

- quote -

Congratulations on your impending withdrawal from the grind.
I may also some day retire from my 10 - 2 daily grind
(except during tax season).

To your question though. You can contribute to an IRA IF
you have earned income which is of consequence subject to
tax. And if you're a proprietor, that also means SE tax
(otherwise known as social security tax). So let's say
you're single and earn about 5,000 net profit per year. You
may not have any federal income tax to pay, but you will
have SE tax to pay (15.3%). Then if you choose to
contribute 3000 to an IRA it won't save you a bit of
federal tax.

It DO get complicated!

ChEAr$,
Harlan Lunsford, GC and EA n LA

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"JustMe" <JustMe[at]nowhere.nul> wrote:

- quote -

What's a hobby business? It is either one or the other.
You are taxed on the gross income of the hobby and any
allowable deductions are itemized deductions subject to 2%
of AGI. You are already in a losing position before
considering the IRA, which IMO is also a loser because the
gross hobby income is not considered earned income for
purposes of the IRA.

If this is a business, then the result will be you are taxed
on the net income of the business, which is also subject to
self employment tax. This will allow you to contribute to
an IRA, but that does nothing to reduce your SE tax, and it
also seems you are under the misguided assumption that you
are taxed on how much many you take from the business. You
are taxed on the net profit, what you take in cash from it
is not usually relevant.

I strongly suggest you hire a professional for planning if
you wish to proceed.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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- quote -

Sure it is doable that you can put all your money away in
retirement plans (not necessarily an IRA) but you will still
have some taxes due (SS and medicare). Meet with a local tax
professional and do some mapping out.

Helen, EA in PA
50 miles, 3 days, 1 cause - Multiple Sclerosis Challenge Walk for the Cure
October 1 to October 3, 2004
Donate on-line at www.msandyou.org

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Within the next year or so I'm planning to retire from my
9-6 regimented white collar job. I'll have sufficient income
from a retirement plan my long term employer has paid into
for me. The thought occurs to me I need to fill the void and
since I don't have or want a hobby, I may as well start a
hobby business and add to my retirement.

Since I don't absolutely need the income from it at the
moment and wanted to avoid immediate taxation. Well,
actually I want to avoid taking ordinary income period. I
thought the business could contribute all funds not required
to operate the business into an IRA until I found it
necessary to withdraw from it to support myself.

So, the question is; is this legal, can it work, is there a
better plan to shield income from immediate taxes? I haven't
a clue about these things, I'm a Network Administrator/
Computer Tech.

TIA

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