My wife and I file jointly, but we each have separate businesses as sole proprietors (Schedule C).
This year, our combined net income, after business expenses, was around $124K.
We contributed a total of about $66K to our Solo 401(k) accounts, plus $14K to our Roth IRA.
As a result, our federal income tax owed is only $1700. Of course, this doesn’t include self-employment taxes, which are still a big chunk of money.
Of course, our personal living expenses are greater than our remaining income after these retirement contributions. We used cash saved from previous years to fund the contributions, with the primary goal of reducing our tax bill.
I’m not concerned about an audit, since all our numbers and expenses are legit.
I’m just genuinely curious—do other folks out there use strategies like this to significantly reduce their federal income tax bill?
Thanks!
