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I'm a US citizen with a US-based single-member LLC operating in the internet space that will have $100K of profit / taxable income this year. I'm looking for ways to creatively (and legally) spend/invest all or a portion of the $100K profit in order to reduce taxable income as much as possible.

The way I see it is that if I do nothing, I'm going to owe $40K in taxes this year, leaving me with only $60K cash. Alternatively, if I can find a way to spend/invest the $100K profit in a tax deductible manner, then I'd owe no taxes and have a $100K asset(s). If this line of thinking is flawed, please let me know!

Some things I'm considering:

  1. Acquire other internet businesses and structure the transactions to take advantange of large step ups and accelerated depreciation

  2. Retirement accounts (solo 401k, SEP IRA, etc.) - I'm leaning away from these as it's possible I'll need the cash over the next few years and would hence be hit with a 10% early withdrawal penalty (not to mention having to pay tax upon withdrawal)

Aside from the 2 things I'm considering above, what else should I consider?

  • You want to spend the LLC profit to reduce tax, but you don't want to invest it because you might need the cash in a few years? Your goals seems to contradict each other. – gaefan May 22 '18 at 12:57
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    @JeffO'Neill I do in fact want to invest the profit, but in asset(s) that I could liquidate over the next few years if necessary (NOT retirement accounts that have early withdrawal penalties). – patrickbateman08 May 22 '18 at 15:43
  • If not IRA/401k, how do you plan to fund your retirement? Or do you plan not to? – Harper May 22 '18 at 23:39
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Direct investment in oil and gas production has a lot of avenues for upfront tax deductions and can also produce an income stream over time. One downside, of course, is that you might invest in a venture which produces no oil and no gas, so you'd get some tax deductions but never see any profit or other return on your investment. This is certainly not the only risk, and based on my own experiences, I would say that it's not for the faint of heart, and you really have to do your due diligence (much more so than you would if just buying some stocks or bonds or whatnot) before you commit a single penny.

For reference, this is a good read: https://www.investopedia.com/articles/07/oil-tax-break.asp

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This doesn't work.

If your LLC buys an asset for $10,000, writes it off over four years, and then sells it for $10,000 then your LLC got its $10,000 profit right back.

If your LLC buys an asset for $10,000, writes it off over four years, gives you personally the written off asset for $1, and you sell it for $10,000 then you will get into deep trouble for tax evasion, because the LLC sold you an asset worth $10,000 for $1.

(In the UK, you can pay up to £25,000 a year tax free into a director's pension fund. Also, the company pays 20% on the profits, and you pay tax on dividends being paid, but you don't have to pay yourself dividends - you can leave the money in the company until you need it and then pay the dividends).

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