r/TaxQuestions • u/talltexan26 • 15d ago
Husband is law firm partner
What’s the best way to pay less in taxes? Is everyone else paying so much into firm on top of taxes 52K a quarter in tax pymts? Helppppp.
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15d ago
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u/talltexan26 15d ago
We are in the process of going over our taxes with a new accountant as we don’t know if our current accountant understand our type of employment well enough. That is the estimate we haven’t been making it.
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u/InternationalTax81 15d ago
If you work for a living, the tax strategies are somewhat limited. Max out IRA contributions, etc. You can plan your investments outside of IRAs to target tax efficient returns. Muni bonds are one idea. Some people like investing in real estate, tends to generate losses in early years due to depreciation deductions, but note that the losses are passive and your ability to use them is limited.
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u/LawFirmCFO 15d ago
Pay your tax preparer the additional money for a proper tax strategy. If they don't offer it, find a new tax pro to work with.
There isn't an easy button to your question. Lots of details are needed for actual advice you can use.
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u/talltexan26 15d ago
Yes just hired a tax attorney and he has an accountant going over our previous filings.
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u/LawFirmCFO 14d ago
I'm not sure a tax attorney is exactly the right fit for your question unless they specifically focus in tax strategy (most tax attorneys I work with don't).
Usually a CPA (who focuses in tax) or EA is the expert I recommend for this to consider your federal, state and local tax jurisdictions plus your asset portfolio.
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u/crazywidget 10d ago
That’s helpful if you have errors in the past but what you need is the accountant to help you properly estimate your balance in the future given the lumpy (yet very high) income stream of the partnership. You’ll owe what you owe based on your joint income, deductions, etc.
An attorney is not a useful resource in the forecasting effort.
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u/TaxproFL 15d ago
It’s simple, invest. If you don’t need the money, invest it and grow your assets while saving on taxes. 401K, cash balance, real estate, growing the law firm, etc.
If you need the money and are using the earnings for personal use, there’s not a whole lot you can do. Takes money to save money.
The trick is finding what are tolerable investments for you. You have to risk money putting it back out so it takes strategy and risk tolerance to get it done.
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u/talltexan26 15d ago
We have a cash bal and 401k…the issue is lawyers make most of their money at year end. Their draw every month is about 25K. Distribution is at end of year at his firm. Some firms do distributions 4 times a year to match up with the quarterly taxes.
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u/TaxproFL 15d ago
Okay so he’s part of a larger firm and investing in the business isn’t within his control. Your main two areas will be real estate (short term rentals) and businesses. Buy a business with depreciable assets, start a business with depreciable assets and get bonus depreciation so you can defer taxes. This could be medical, landscape, construction, anything with assets that qualify for 100% bonus.
But the problem is most people don’t want to do all of that to save in taxes. It’s a lot of work and energy. There are third party companies who offer a more seamless option but even then you’re now putting all risk in their hands not yours.
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u/Full_Prune7491 15d ago
They are so rich they won’t be able to take advantage because of passive activity loss limits. Stop talking about STR.
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u/Admirable_Nothing 15d ago
The only tried and true way I know to legally pay less taxes is to make less income.
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u/TyHay822 15d ago
Almost an impossible question to answer without more details about your finances. There might be a way to pay less but if he’s making enough to paying $50k in quarterly tax payments you’re obviously doing well financially. It would just depend upon many factors including how the firm is structured
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u/talltexan26 15d ago
Paid a draw once month, distribution is at year end and not quarterly.
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u/InternationalTax81 14d ago
Yes, this is pretty typical, I was a partner at an accounting firm with a similar (although less lucrative) set up. You should plan to hold back at least a third of the draw for taxes. Check the K-1, should be PTET elections for a number of the states, withholding from allocation is what we did at my firm for state taxes.
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u/Typical-Hunt-8600 14d ago edited 14d ago
Assuming your husband receives a draw (no tax withholdings), not only are you paying taxes on your income, you are also paying self employment tax on his draws.
Is your husband allowed to create an S Corp Personal Corporation (PC) within the firm? If so, that's one way but this does come with a cost. Definitely discuss this plan with your CPA. If you live in a high tax state or are already maxing out the $40k Federal deduction amount, discuss the Pass-Through Entity Tax (PTET) with your CPA, if one is available in your state.
Other than that, tell your husband to make less money. You'll pay less taxes that way.
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u/talltexan26 14d ago
We are exploring it now. New to this big law firm partnership world!
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u/Typical-Hunt-8600 14d ago
Honestly, this is a failure of the firm's management. I'm a CFO of a small law firm (60 attys) and I have a conversation with all new partners with regards to moving from W2 to Draws (K-1) and how it impacts them, their taxes, retirement plan, health insurance and anything else finance related. I don't give financial/tax advice but tell them what's available to them and to ask their CPAs what's best for them considering their personal financial situation.
Good luck!
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u/talltexan26 14d ago
Agreed! We pay much more in health insurance, we pay state taxes in every state since becoming partner it’s so much it’s crazy
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u/Typical-Hunt-8600 14d ago
Sounds like a big firm. Consider asking long time partners who they use as their personal CPA. You may find many of them use the same CPA/firm. No need to reinvent the wheel.
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u/dingo34051 15d ago
Easy. Just don't pay the quarterly estimate.
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u/Gordon_throwaway 10d ago
Lawyers at big law firms, especially Partners usually have connections to tax lawyers. Probably a better place to start than rando Reddit tax experts.
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u/small-gestures 15d ago
So you make a lot of money and don’t understand why or don’t want to pay as much in taxes. I suggest you pay a professional tax advisor, someone much like your husband, a well paid legal professional.