Is PAYE open to people in big law? Forum

[Anonymous User]

OP again. What I'm not getting is how the system works for the government. Outside of the corporate world many people under declare their income or are paid off the books. Technically many people could get away with paying 0. Am I reading this wrong?

[bk1]

OP again. What I'm not getting is how the system works for the government. Outside of the corporate world many people under declare their income or are paid off the books. Technically many people could get away with paying 0. Am I reading this wrong?

Works for the government? The purpose of the income-based repayment plans is a subsidy to assist those who cannot repay their loans, not so that the government is able to recoup the full amount that was lent to these people. This is why the partial financial hardship requirement exists, but the problem is that it doesn't scale properly and so people with 6 figures are able to take advantage of it to save money.

More to the point, your hypo is illogical because you overestimate the number of people who commit tax fraud and who take out a significant amount of student loans. There really isn't a big overlap there.

[Tiago Splitter]

well that seems like the jam for years ~18-20 on PAYE.

now that I think about it I dont know if it actually helps your AGI. Might just save you some self-employment taxes

Why would it not? Can an s-corp not have any cash reserves?

I dont think so. You have to dividend the income to the shareholders, but maybe you can make your spouse a shareholder (seems like a problem in law) and keep the AGI down that way.

To add to bk's point above, when you combine the tax hit at the end of 20 or 25 years plus small yearly payments during that time most borrowers will end up paying the government more than they borrowed, even if they use one weird trick to get their AGI down.

[lacrossebrother]

well that seems like the jam for years ~18-20 on PAYE.

now that I think about it I dont know if it actually helps your AGI. Might just save you some self-employment taxes

Why would it not? Can an s-corp not have any cash reserves?

I dont think so. You have to dividend the income to the shareholders, but maybe you can make your spouse a shareholder (seems like a problem in law) and keep the AGI down that way.

To add to bk's point above, when you combine the tax hit at the end of 20 or 25 years plus small yearly payments during that time most borrowers will end up paying the government more than they borrowed, even if they use one weird trick to get their AGI down.

Hmm--can the s-Corp then not take long term positions or own real property?

[Internetdan]

well that seems like the jam for years ~18-20 on PAYE.

now that I think about it I dont know if it actually helps your AGI. Might just save you some self-employment taxes

Why would it not? Can an s-corp not have any cash reserves?

I dont think so. You have to dividend the income to the shareholders, but maybe you can make your spouse a shareholder (seems like a problem in law) and keep the AGI down that way.

To add to bk's point above, when you combine the tax hit at the end of 20 or 25 years plus small yearly payments during that time most borrowers will end up paying the government more than they borrowed, even if they use one weird trick to get their AGI down.

But the tax hit is dischargable in bankruptcy

[bk1]

To add to bk's point above, when you combine the tax hit at the end of 20 or 25 years plus small yearly payments during that time most borrowers will end up paying the government more than they borrowed, even if they use one weird trick to get their AGI down.

But the tax hit is dischargable in bankruptcy

OP's point was that it seemed like people could easily use small time tax evasion to get a good deal. Having to go through bankruptcy isn't really getting a good deal. Yes it's possible, but most people would rather not go through bankruptcy if they could avoid it.

[kingme23]

Correct me if I am wrong, but there is an hardship requirement to IBR/paye. Your loans have to be greater than your income.

[A. Nony Mouse]

The hardship is if the annual amount due on all your eligible loans, calculated under a standard 10-year repayment plan, exceeds 15 percent of “discretionary income.” I don't know how that works out in practice wrt loans v. income, though. Also, if you reach a point where you don't have the partial financial hardship, all that happens is that you pay the standard 10-year payment amount. If your income goes down again, then your payment goes back down.

[Tiago Splitter]

Correct me if I am wrong, but there is an hardship requirement to IBR/paye. Your loans have to be greater than your income.

You'll enroll in PAYE within six months after graduating, which means the income they use is very low. Once you're in PAYE you can't be kicked off. So yes there is a hardship requirement but it stops very few people.

[bk1]

The hardship is if the annual amount due on all your eligible loans, calculated under a standard 10-year repayment plan, exceeds 15 percent of “discretionary income.” I don't know how that works out in practice wrt loans v. income, though. Also, if you reach a point where you don't have the partial financial hardship, all that happens is that you pay the standard 10-year payment amount. If your income goes down again, then your payment goes back down.

I'd also add that if you no longer have a PFH and your payments are not been keeping up with interest, the unpaid interest capitalizes (only a portion if you are on PAYE).

[Johann]

i dont get what the s corp talk is about. you still own the company and the assets. you still PAYE for dividend income and still an asset to fuck you on the tax bomb.

you need to look at trusts.

[lacrossebrother]

i dont get what the s corp talk is about. you still own the company and the assets. you still PAYE for dividend income and still an asset to fuck you on the tax bomb.

you need to look at trusts.

This is your solvency avoidance strategy.
I was just contemplating a payment avoidance strategy. I can't imagine actually being insolvent at 46. Especially to the extent that 401k is such a critical payment reduction tool.
But trusts could work I suppose and somehow taking on a shitload of debt?

Is the c-corp really the only corporate structure that doesn't need to pay a dividend?

[Johann]

i dont get what the s corp talk is about. you still own the company and the assets. you still PAYE for dividend income and still an asset to fuck you on the tax bomb.

you need to look at trusts.

This is your solvency avoidance strategy.
I was just contemplating a payment avoidance strategy. I can't imagine actually being insolvent at 46.
But trusts could work I suppose.

Is the c-corp really the only corporate structure that doesn't need to pay a dividend?

s corps dont have to distribute. but i just mean you have to live and need money for that.

[Johann]

for tht matter pships dont have to distribute either. only weird entities like rics and reits have to distribute.

[kartelite]

i dont get what the s corp talk is about. you still own the company and the assets. you still PAYE for dividend income and still an asset to fuck you on the tax bomb.

you need to look at trusts.

This is your solvency avoidance strategy.
I was just contemplating a payment avoidance strategy. I can't imagine actually being insolvent at 46.
But trusts could work I suppose.

Is the c-corp really the only corporate structure that doesn't need to pay a dividend?

s corps dont have to distribute. but i just mean you have to live and need money for that.

Yeah, but if you own an s corp the taxes flow through to your personal income anyway, so choosing not to distribute doesn't help.

I would think the best bet is to max out your various retirement accounts (having your own business can help with this, I think it can get you to 53k or so), and then to take compensation in some sort of option/other financial derivative that doesn't count against your AGI, but structure it in a way so that you're fully hedged (taking the other side with your own account if need be). Or some very creative loss harvesting (like continually rolling investment losses in a (your own) business that keeps deferring income, staggering multiple entities if necessary in a pyramid that finally unwinds when your PAYE loans are forgiven).

[Johann]

yeah true. but you can stack the business expenses up against that to minimize as you already pointed. also, buy yourself a nie $1M office and depreciate 40k a year.

[Tiago Splitter]

Set up defined benefit plan and take AGI to zero Mr. Solo.

[bk1]

Set up defined benefit plan and take AGI to zero Mr. Solo.

[84651846190]

The problem is that most people don't know how long they'll be in biglaw or how long they'll make biglaw money. If you're planning on banking 250k+ on average over the next couple of decades, it doesn't make sense to do PAYE.

[DELG]

The problem is that most people don't know how long they'll be in biglaw or how long they'll make biglaw money. If you're planning on banking 250k+ on average over the next couple of decades, it doesn't make sense to do PAYE.

"Planning" is such a funny word here. Which is why I'm on PAYE.

[kcdc1]

Lax's calculation assumes constant 160k income, which makes it inaccurate for most of the readers ITT (even in Year 1, it neglects bonus). 20 years is a really long time. During that time, many people's AGI will increase (whether via inflation, marriage, or moving up the ladder). If your AGI increases, you may wind up paying off all or most of your debt under PAYE, in which case you've wasted a lot of money on interest as compared to refinancing.

Regarding the marriage issue, filing separately to avoid increasing your loan payments may increase your tax burden. This needs to be considered when weighing PAYE vs. refinancing (because you don't have to file separately if you refinance, and you might therefore be able to pay less taxes).

[sweeteavodka]

The problem is that most people don't know how long they'll be in biglaw or how long they'll make biglaw money. If you're planning on banking 250k+ on average over the next couple of decades, it doesn't make sense to do PAYE.

This is exactly why I'm planning on doing PAYE/IBR for the first two to three years until I have a better idea of the long term. And while I'm making lower payments, that's more money to invest and grow to take a bit of the bite out of the higher interest I'll pay for delaying the pain for a few years if I do end up staying in the private sector long term.

[DELG]

Lax's calculation assumes constant 160k income, which makes it inaccurate for most of the readers ITT (even in Year 1, it neglects bonus). 20 years is a really long time. During that time, many people's AGI will increase (whether via inflation, marriage, or moving up the ladder). If your AGI increases, you may wind up paying off all or most of your debt under PAYE, in which case you've wasted a lot of money on interest as compared to refinancing.

Regarding the marriage issue, filing separately to avoid increasing your loan payments may increase your tax burden. This needs to be considered when weighing PAYE vs. refinancing (because you don't have to file separately if you refinance, and you might therefore be able to pay less taxes).

It doesn't really matter what income you insert when you're trying to predict this shit, you'll almost certainly be wildly off.

Regarding the marriage issue, don't get married.

[bk1]

It doesn't really matter what income you insert when you're trying to predict this shit, you'll almost certainly be wildly off.

This is personally why I favor refinancing and aggressively paying down debt (also helps that I don't have to provide for others yet). I know what I make now and I know I can get rid of it if I pay it down quickly. There is definitely some risk if my income drops precipitously and it delays/slows saving for retirement and a house down payment, but I'd rather it just be gone.

Regarding the marriage issue, don't get married.

This almost assuredly TCR if you want to maximize your $ if you plan on being dual-income with kid(s).

[DELG]

Regarding the marriage issue, don't get married.

This almost assuredly TCR if you want to maximize your $ if you plan on being dual-income with kid(s).

Look at all these combos that shouldn't get married:

http://www.nytimes.com/interactive/2015 ... .html?_r=0

We're right there in that dark-orange field of regret