Financial Advice for Joe the Plumber

[Xavier434]

I briefly browsed the threads to see if this had been posted. If it has and I missed it then please lock.

Source

Joe the Plumber and his tax worries have suddenly become a major feature of the campaign.

But from the sound of things Joe doesn't need a new president ? he needs a new accountant.

The reason? The tax code already contains some incredible deals for small business owners and independent contractors.

(Of course Joe may have some other matters to deal with first. He doesn't yet have a plumber's license. And there are reports he still has a personal tax lien outstanding.)

But if he sorts out those issues and is able to buy the small plumbing company where he works, he'll have access to some great tax shelters.

Of course he'll also be able to write off a lot of business expenses. But that's just the start.

Special plans like SEP IRAs, self-employed or "solo" 401ks, and defined benefit pensions let the self-employed slash their taxable income still further and save the money in a tax-deferred retirement account each year.

We're not just talking to the $15,500 limits available to ordinary folk working for a salary. We're looking at limits of $46,000 ? or more.

"These are fantastic ways to shelter your profits," says Karin Maloney Stifler, a financial planner in Joe's home state of Ohio. "Of course you have to be profitable to take advantage."

Joe, according to reports, is trying to buy out the plumbing business he works for. It makes, he says, $250,000 a year.

Joe: If you are self-employed, a "solo" or self-employed 401(k) plan will let you deduct $15,500 from your taxable income and salt it away in a tax-deferred retirement account, just like any other 401k.

But then, because you're running your own business, you can deduct even more ? up to a total of $46,000 this year.

For some people the SEP or self-employed IRA may be a better alternative. It also has a limit of $46,000.

Joe's only 34 right now, but when he passes 50 he can shelter even more of his income.

And that's not all.

For self-employed contractors nearing retirement, the best shelter of all may be to set up a defined benefit company pension plan. The law may allow you to shelter huge amounts of your salary from tax each year thanks to incredible catch-up provisions. The limits are generous: You can save enough to ensure yourself a retirement income of $180,000 a year.

Bob Glovsky, head of Mintz Levin Financial Advisors, says that "in some cases you can actually shelter almost everything you earn."

Obviously we're simplifying things here. There are details to work through. If you have full-time staff it can complicate matters. A SEP IRA or solo 401k is pretty cheap to set up, but the defined benefit pension plan is more complex and expensive, though Mr Sard says costs can start at around $1,500 a year.

 

[heyheybooboo]

Joe, apparently, has been whiffing too much PVC solvent and glue

 

[chess9]

I made the point about hiring a good accountant and lawyer in one of the other threads. If Obama knew anything about running a small business he would have told the guy about these issues. I don't think it's a major failing in a presidential candidate to not be able to advise small businesses, however.

Joe is like a lot of blue collar workers. They don't have the tools or the money to put a business together. Too bad, as many of them might be good businessmen with the right training. Joe might also learn to read....It's amazing what one can learn once those little letters of the alphabet start making sense....

-Robert

 

[Xavier434]

Originally posted by: chess9
I made the point about hiring a good accountant and lawyer in one of the other threads. If Obama knew anything about running a small business he would have told the guy about these issues. I don't think it's a major failing in a presidential candidate to not be able to advise small businesses, however.

Joe is like a lot of blue collar workers. They don't have the tools or the money to put a business together. Too bad, as many of them might be good businessmen with the right training. Joe might also learn to read....It's amazing what one can learn once those little letters of the alphabet start making sense....

-Robert

Keep in mind that Obama's response at the time was one which relied on everything that Joe said as being an absolute 100% fact. He didn't have time and nor would it have been appropriate for him to start playing 20 questions with Joe in order to find out all of the info he needed to know in order to determine what we know about Joe and his situation now. That is by no means an indicator that Obama knows nothing about running a small business in regards to their tax situations and funding concerns.

 

[WHAMPOM]

"Joe" can't pay his taxes and thinks he will buy his boss's business, ya right! He will have to get his own plumbers license first and "Joe" may have a few other delusions too.

 

[techs]

I've got some REAL financial advice for Joe the Plumber.
Apply for a no-bid contract in Iraq.

 

[Thump553]

It is refreshing to see the WSJ do a politically related article that is not a total right wing hack job. Kudos to them for conveying honest, nonpartisan advice this time.