Have an offer to move to a K1, direct-admit Partner. Got the estimated cash flow breakdown, and over half my annual "draw" is taxes (federal, state, taxable benefits, etc). Is this fairly common for those of you in this setup? I'm a W2 today, and based on my research 50%+ seems high, so appreciate any advice.

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Sounds about right. You have self employment taxes. As biz owner you pay your own benefits and retirement unless they offer otherwise. Good luck now you know what you negotiate

likehelpful

Keep us posted if you decide to make the move and how negotiations go (eg what you got bs not) Congrats on the offer

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Yep. 55% here.

That’s why cash flow comparison is critical.

likehelpful

Yep I knew enough to ask for it, but didn't realize how high the % went. Thanks!

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As a Partner on K1 income for the last 7 years, living in Texas, my effective tax rate is around 40%.

likehelpful

K-1 in NYC… avg 53%

likehelpful

~48% last year on K1

likehelpful

Firstly congrats. Yes, K1 is self employment so there’s an expectation to pay 50-55% in taxes overall. Be careful with your write-offs too. You don’t want to get audited.

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Wait until you see your non-subsidized health insurance bill as a K-1 owner…mine is $38k for 2 adults, 2 kids.

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Yep, got that one!

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Yup it’s pretty brutal !

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Yet still totally worth it. Don’t let us scare you off. Costs are high, taxes are high, but income is significantly higher.

Rather than focusing on taxes alone, try to calculate how much your net worth will increase on an annual basis. Account for the firm's contributions to 401(K), HR-10, pension (if that still exists), etc. Also consider that new partner income tends to rise quickly in the first few years.

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Never said it was nothing but now it is much more comparable to the benefits you would get in other industries of not actually less value.

How much is the comp really more than W2 setup? I am 9 year partner on W2 and at $3m level before any taxes. I am close to 48% tax as well in a high state tax area.

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