Made partner! What are some tips you all have about adjusting to comp being fully K-1? Other than to meet with a financial advisor? I’m mildly concerned that if I don’t take advantage of every write-off possible, my tax burden is going to increase disproportionately, e.g. I’m now taxed on the firm’s payment of my health insurance premiums.

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One tip I’ve heard is that if you have a working spouse that has an employer that offers health insurance, consider switching to their plan.

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Set aside this year’s bonus to pay Q1’s estimated taxes

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Yes I second this so you have a head start on your taxes. Start saving for taxes with every pay check - no exceptions.

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Always keep some reserves, because if the firm ends up not collecting the targeted revenue on which your draw was based, they will deduct it from the next year's draw to balance the books.

likesmart

I'd meet with your accountant after your 2025 taxes are done to run a projection so you can get on quarterly estimates. First year might be difficult but after that it should become more predictable.

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Congrats!

One thing I’ve noticed about a couple of the firms near me is that several of the partners are members of the firm as an independent PC. Even on the firm website, they’re listed as Joe Cheetham, PC. Not sure if it’s a tax strategy or some other internal structural issue, but it’s not a thing at my firm and I’ve never really investigated. May be too late if you’ve already become a partner as an individual but if not, may be worth research.

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I was k1 for four years and didn’t particularly like. I wasn’t tax lawyer but i liked the idiosyncrasies of tax law that i paid attention to it. Because of my technical background (phd in chemistry), patent law was more lucrative for me. So, i always filed my taxes without an accountant. One thing that I didn’t like about k1 was that i had to file taxes in NY and CA (NY is terrible with taxes) even though i didn’t live or owned any business or property there. Anyway, my colleagues swore creating an s corp that you funnel your income through saves you money. So, consider that. Regarding the health insurance premium, k1 should characterize it as tax deductible. You will pay payroll tax yourself (both employer and employee portions— all of 12.4%). So, you should see about 50-60k of your compensation as covering things that your employer used to cover. The rest is your real compensation. So, if you make 300k, you really make about 240k. If you have a working spouse, drop your health insurance and that should save you quite a bit — 30k+ I suppose.

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As above, always keep some powder dry!

Depending on when your distributions will be and your overhead, I know K-1 partners who live off of a line of credit most of the year and then pay it down or off when they get the largest distributions (and then start the process all over). Definitely consult an excellent financial and tax advisor.

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