I am self-employed in the United States, and am working on long-term projects. Most years I don't make much (lets say $20k), but every 4-8 years, after a large project is complete, I expect to get a big spike of income (lets say $200k). I would get taxed that year at a high rate, around 33%, even though if you had averaged out my income over the years, it would warrant closer to a 22% tax bracket.

Is there a way I can structure things so that the income gets more or less averaged out over the years? Right now I just have an LLC and pass through all my income. Maybe I could benefit from some kind of salary structure? I'm not that well versed in tax things, so I might be missing some options.


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    How is your compensation for each project determined? Is it set up in such a way that in each year, you know (or can estimate) the amount of money you are "earning" in that year, even though you won't get paid until later? – Tanner Swett Apr 10 at 13:27
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    @TannerSwett It's hard to estimate accurately - basically I'll create a creative work like a video game or music album, and then sell it digitally once it is complete, generating a burst of income. – augh Apr 10 at 14:02

Well, if the LLC were taxed as a corporation then the federal tax rate would be 21% regardless of the amount of profit.

The problem is that dividends from a corporation face double taxation. So regular salary is likely the only financial reward taken out of the company. Or I suppose that a bonus salary is reasonable at a time of a large successful project.

So much of the wealth of the enterprise would likely stay contained in the value of the corporation so as to avoid the double taxation of dividends. Now for instance, an issuer corporation avoids being regulated as an investment company if it's wealth portfolio is 60% or more in Treasury Securities or cash.

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