Comment by dheera
3 years ago
> Donating illiquid assets to your own non-profit helps a lot.
What sort of non-profit is this? Can you just register a 501(c)(3) with the sole purpose of giving yourself charity and then use it to pay for food and housing for yourself? Trying to honestly learn here as I have a massive W-2 tax bill.
> requires you to pay it back across an interval over 5 years. So in future years you're doing that
This sounds like you're just deferring tax to the next 5 years? Don't you have to use after-tax money to repay the 401k loan?
> Your various side project pursuits just have to make revenue in 5 years to prove that its not a hobby
My understanding of the IRS rule is you have to profit in 3 out of 5 consecutive years if you want to claim tax losses in the other 2 years. Not revenue. (IRC 183).
Private foundation, and no the money is not yours anymore, just under your control, you have to actually plan on doing something charitable for this to be of interest. But importantly, foundations and charities can invest in nearly anything. And yes you can get a salary from them, which is taxed normally.
Yes, everything here is just deferring. What you’re really doing is staggering the tax events across different years.
Like, it’s not important that something increases a tax footprint in year 5 if you have already planned on reducing tax footprints another way that year. More Net Operating Losses, more thing to carry forwards, more and bigger real estate depreciation, offsetting the increase in income.
Or eventually just paying taxes. Its not controversial to do.
Another aspect is the time value of money. With strategies like this you can go to your employer and file an exemption from employer withholding. So you get your full salary now instead of hoping for a tax refund next year , and that lets you employ these strategies at all and invest and live your life. Take a chance on having more capital gains, so you start getting taxed at the lower Long term capitals rate and phase out your W-2 work when this exceeds your income.