SM / Director here, trying to understand the comp implications of K1 vs W2 income. From my research (combo of googling + ChatGPT), it seems like $100 of pre-tax K1 income is roughly equivalent to $80 of pre-tax W2 income…owing to increased FICA, full fare Health Insurance, no 401k matching and other smaller things. Said another way, to match a $450k MD W2 salary, one would need $550-600k Partner K1 pay. Does that feel about right? I came away somewhat surprised by the K1 hit.

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Depends - # of dependents on health insurance (or getting on spouse’s) is a major individual variable. Writing off business-related expenses on K1 can help offset the tax burden. Comes down to individual circumstances.

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Feels about right yes

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401k can potentially be matched depending on the partnership.

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Directionally appropriate

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Really depends on your situation. Loss of some benefits which may or not be material in your situation (ex. access to spouse health insurance) and more difficult to prepare taxes vs potentially better tax situation (ex. way more write offs, equity/dividend comp at capital gains rate, etc.). Usually, the total comp jump from W2 to K1 is so large that you’re better off anyways.

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There is also a PTET deduction that helps some

Might be going away….

The big first thing on the state tax side is whether there is incremental state tax cost (do you live in a no or lower tax state).

Two additional questions…

1) I live in a no income tax state. Presumably there’d be a negative impact there too? Meaning, there’s whatever the firms blended 50-state tax rate is that would take effect in the shift from W2 -> K1? Perhaps 4-5%?

2) My spouse is a high earner W2. How’s that work if I flip to K1? Is it as simple as just us married filing separately? Trying to understand if there’s downside (or upside) there as well from a tax standpoint.

Thank you so much everyone.

So, with that in mind, it really is looking like it’s at the upper end of the range in my original post. Meaning, $450k W2 -> $600k K1 equivalent.

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