John E is an Engineer who sold his business in 2016, but will continue to work for the company for several years and receive his salary via W-2 wages.  The sale proceeds are received over a 2 year period and related taxes paid over this 2 year as well. His wife, Julie is a real estate agent and operated her business through an S-Corporation to maximize her tax savings each year.    They also have mortgage interest, property taxes, and some charitable contributions. John and Julie implemented this tax strategy in 2016 and plan to use it each year until their income drops in retirement. The strategy they are using is flexible annually to accommodate any income fluctuations.

 

Below are their ACTUAL numbers from their personal income tax return for 2016 and the estimated numbers based on their tax projection for 2017 before the tax strategy and after the strategy was implemented.

 

2016 Actual Before After
W-2 Earnings (Box 1) $154,165 $154,165
Gain On Sale of Business $2,151,173 $2,151,173
Business Earnings $353,124 $353,124
Other Income (Int, Div, Etc) $28,761 $28,761
AGI (Adjusted Gross Income) $2,687,223 $2,687,223
TI (Taxable Income) $2,642,289 $1,298,882
Federal Tax $569,698 $225,134
AMT (Alt. Minimum Tax) $0 $769
Other Tax $79,814 $79,155
Total Federal Tax $649,512 $305,058
State Tax $326,775 $162,713
Total Income Tax $976,287 $467,771

 

2017 Projected Before After
W-2 Earnings (Box 1) $154,165 $154,165
Gain On Sale of Business $2,151,173 $2,151,173
Business Earnings $353,124 $353,124
Other Income (Int, Div, Etc) $28,761 $28,761
AGI (Adjusted Gross Income) $2,687,223 $2,687,223
TI (Taxable Income) $550,936 $1,298,882
Federal Tax $163,837 $225,134
AMT (Alt. Minimum Tax) $0 $769
Other Tax $3,478 $79,155
Total Federal Tax $167,315 $305,058
State Tax $26,591 $162,713
Total Income Tax $193,906 $467,771

 

Year 1 Savings:  $508,516 (52% reduction)

Total Savings: $104,103

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