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What you make and what you take home are completely different items - cash vs accrual income, estimated value per unit vs actual, amount that is held back, tax distributions, etc. Also, what I make is an estimate until actual results for the year have been finalized, so it’s pretty normal to not know the exact amount. Total comp is targeted to to be X, of which You are distributed ~42% to live on in 12 payments. You get another ~35% of X in 4 payments which is to fund quarterly tax payments. This leaves 23% of X which is distributed in one payment after year end from which certain taxes (states, foreign) deferred comp, and other items (capital loan repayment) are deducted. This leaves a net settlement of Y which is also dependent on if X was accurate when estimated at the start of the year or if it was adjusted up/down for actual results. This summary has worked well when explaining to my spouse. Obviously %s and approach will vary from firm to firm but the concept is pretty close.
It is odd for a partner to not know how much he or she makes. Explaining to a spouse is different. If my wife wants an explanation, I ask questions to determine what information she really wants, which is the top line number, before any deductions. I then go over various deductions and she walks away.
Can't you just estimate it as 45-50%
I thought the minimum for all big 4 partners was $600,000... just kidding.
The conversion from employee to partner is approximately 82-85% of the top line number, due to the extra things the partner has to pay for that reduce the top line number (full freight medical and dental insurance, cover their own 401k match, incremental state taxes, employer share of payroll taxes, required life insurance costs, tax prep fees, etc). So $450,000 could be the equivalent of $375,000 as an employee. This is before any required capital contributions too.
Lately I have been telling my wife one month at a time. Been very choppy waters for a while…
What do u mean? Choppy as in your marriage or firm?
I thought it was just commonly understood in the US that you have no idea what you’ve really made until you retire 😂
I don’t tell my wife. She would think we are Rich and buy, buy, buy!