Investment

You work hard for your money. But did you know not all income is taxed the same way? If you’re running a business, investing in real estate, or stacking multiple income streams, understanding how the IRS classifies your income can be the difference between keeping more of your cash or overpaying in taxes every year.

Many high earners assume that income is income but nope, the IRS doesn’t see it that way. The tax code treats passive and active income very differently, and if you don’t know the rules, you could be missing out on big tax savings.

At Insogna CPA, one of the top CPA firms in Austin, Texas, we help business owners and investors structure their income in a way that legally minimizes taxes and maximizes deductions. Let’s break it all down—in plain English—so you can make smarter financial moves.

Passive vs. Active Income: What’s the Difference?

Your income falls into two main categories:

1. Active Income (a.k.a. Earned Income)

This is money you actively work for—the kind that requires your time and effort. This includes:

• W-2 wages from your job
• Self-employment income (freelancing, consulting, running a business)
• Side hustle income (Etsy shop, online courses, Uber driving)

Tax impact: Active income is taxed at ordinary income tax rates (up to 37% for high earners) and, if you’re self-employed, you also get hit with self-employment taxes. Basically, this is the most expensive type of income tax-wise.

2. Passive Income

Passive income is money you make without actively working for it (or at least, not daily). The IRS defines passive income as coming from:

• Rental properties (unless you qualify as a real estate professional)
• Limited partnerships
• Businesses you own but don’t actively manage

Tax impact: Passive income is usually taxed at lower rates, and in some cases, you can use passive losses to offset passive income, reducing your tax bill.

Sounds great, right? But here’s where things get tricky: passive losses don’t always offset active income.

Wait… My Rental Property Losses Can’t Reduce My W-2 Taxes?

If you own rental properties and report a $20,000 real estate loss on paper (thanks to depreciation, mortgage interest, and expenses), you’d think you could use that loss to lower your taxable income from your job.

Problem: The IRS doesn’t work like that. Rental real estate losses are considered passive losses, while your salary is active income and the two don’t mix.

Solution: The key is knowing how to qualify as a real estate professional or using short-term rental strategies to unlock bigger tax savings. That’s where a solid Austin tax accountant can help.

How to Pay Less in Taxes (Legally, of Course)

Now that you know not all income is taxed the same, here’s how to use that knowledge to pay less and keep more.

1. Become a Real Estate Professional

If you or your spouse qualify as a real estate professional, you can use real estate losses to offset your W-2 or business income. To qualify, you need to:

• Spend 750+ hours per year in real estate activities.
• Have more than 50% of your working hours in real estate.

For real estate investors with high earnings, this can be a massive tax savings strategy. A small business CPA in Austin can help make sure you meet IRS rules.

2. Use the Short-Term Rental Loophole

If you own Airbnb or vacation rentals, you might be able to use rental losses to offset active income without needing real estate professional status.

The key? Actively managing your short-term rentals and meeting the IRS’s guidelines.

Pro Tip: Work with an Austin small business accountant to structure this correctly and avoid IRS red flags.

3. Offset Passive Income with Passive Losses

If you’re stuck with passive losses you can’t use, invest in other passive income streams (like partnerships or REITs) to balance things out.

Why it works: Passive income can cancel out passive losses, helping you lower your overall tax bill.

Smart move: A tax advisor in Austin can help structure your investments to take advantage of this strategy.

Let’s Structure Your Income the Right Way

Knowing how passive and active income are taxed isn’t just helpful—it’s a game-changer if you want to keep more of your money. Whether you’re an investor, business owner, or high-income professional, structuring your income the right way can mean thousands in tax savings.

At Insogna CPA, we specialize in tax strategies that help business owners, real estate investors, and high earners legally pay less. Whether you need guidance from a CPA in Austin, Texas, or want a proactive tax plan from a small business CPA in Austin, we’ve got you covered.

Want to pay less in taxes? Let’s structure your income the smart way. Contact Insogna CPA today...

Let’s face it: navigating Roth IRA withdrawal rules can feel overwhelming. You’ve worked hard to grow your retirement savings, and the last thing you want is to lose a portion of it to penalties or taxes. But don’t worry, you’re not alone. At Insogna CPA, we’re here to help you make sense of the complexities, empowering you to make confident decisions about your financial future.

Whether you’re based in Austin or searching for the best CPA in Austin, understanding how Roth IRA withdrawals work is key to keeping more of your hard-earned money. Let’s break it down.

What Are You Withdrawing: Contributions or Earnings?

Here’s the first thing you need to know: not all withdrawals are treated equally. Your Roth IRA has two components:

• Contributions: The money you’ve deposited after taxes.
• Earnings: The growth your contributions generate over time.

The good news? Your contributions are always accessible—no taxes, no penalties. But earnings are a different story. If you withdraw them early, you could face a 10% penalty and additional taxes.

This is why it’s important to know the difference. Whether you’re working with an Austin, Texas CPA or managing your finances independently, keeping track of these details will save you time and stress.

Avoiding Penalties: The Rules You Need to Know

Let’s talk about those earnings. To withdraw them without penalties, you need to meet two requirements:

1. The Five-Year Rule: Your Roth IRA account must have been open for at least five years.
2. Qualifying Events: You can take out earnings penalty-free if:

• You’re 59½ or older.
• You’re using up to $10,000 for a first-time home purchase.
• You’re disabled or the withdrawal is after your death.

If you don’t meet these criteria, any withdrawal of earnings could result in taxes and penalties. Having a trusted CPA—especially from one of the top CPA firms in Austin, TX—can help you avoid these costly mistakes.

What Happens If You Get It Wrong?

We get it—reporting Roth IRA withdrawals isn’t the easiest task. The IRS requires you to correctly track and report the difference between contributions and earnings. You’ll also need to complete Form 8606 for non-qualified withdrawals.

At Insogna CPA, we’ve helped countless clients navigate these situations. Our Austin accounting services are designed to handle the complexities for you, so you can focus on building your wealth, not worrying about forms.

Why Partner with a CPA?

Roth IRA rules may be complicated, but you don’t have to figure it all out on your own. Here’s how a CPA can make your life easier:

• Proactive Planning: We help you map out a withdrawal strategy that aligns with your goals, whether that’s buying a home or funding your retirement.
• Tax Optimization: Our team specializes in identifying tax-saving opportunities that protect your earnings.
• Peace of Mind: With expert guidance from a firm like Insogna CPA—recognized as one of the best CPA firms in Austin—you can rest easy knowing your finances are in good hands.

From individuals in need of small business CPA services in Austin to those looking for trusted accounting firms in Austin, Texas, we’re here to simplify the process.

Your Next Steps

Roth IRAs are incredible tools for building tax-free wealth, but the rules around withdrawals can trip you up if you’re not careful. The good news? You don’t have to navigate them alone.

Whether you’re searching for an accountant in Austin, exploring options with CPA firms in Austin, TX, or simply want clarity on your retirement strategy, Insogna CPA is here to help. Our accounting services in Austin are tailored to your unique needs, ensuring that every decision you make is a confident one.

Let’s work together to keep your Roth IRA strategy sound. Contact Insogna CPA today for expert tax advice.

Ever feel like planning for retirement is just one more thing on your never-ending to-do list as a business owner? You’re not alone. When you’re running a business, managing retirement savings often gets pushed aside. But here’s the reality—a Solo 401(k) could be one of the smartest financial tools to help you reduce taxes and grow your wealth faster.

If you’re self-employed or run a business without full-time staff, this retirement plan was made for you. At Insogna CPA, we help business owners just like you simplify complex financial strategies—so you can focus on your business while we help you secure your future.

Let’s break down exactly what a Solo 401(k) is, why it matters for business owners, and how you can start using it to your advantage.

So, What Exactly Is a Solo 401(k)?

A Solo 401(k) is a retirement savings plan designed specifically for self-employed entrepreneurs or business owners with no employees (other than a spouse).

It works a lot like the 401(k) plans you might remember from a corporate job—but with some powerful differences designed for solo business owners.

The Big Perks:

• Contribute More: You can contribute as both the employee and employer, which means higher savings potential.
• Cut Your Taxes: Contributions can reduce your taxable income.
• Invest Your Way: Choose from stocks, mutual funds, and even real estate.
• Spouse Participation: If your spouse works for your business, they can contribute too!

It’s flexible, powerful, and a must-know tool if you’re serious about reducing your tax bill while saving for retirement.

Do You Qualify for a Solo 401(k)?

Wondering if you can use a Solo 401(k)? The eligibility requirements are simple:

• You’re self-employed with no full-time W-2 employees (except your spouse).
• You operate as a sole proprietor, LLC, S Corp, or C Corp.
• You want to save for retirement while lowering your tax bill.

If you’re making income on your own—whether as a freelancer, consultant, or business owner—you likely qualify.

However: If you hire non-spouse full-time employees, you’ll need to explore traditional 401(k) options instead.

How Much Can You Contribute? (More Than You Think!)

Here’s where a Solo 401(k) really shines compared to other retirement plans.

You can contribute twice—once as an employee and again as the employer.

As of 2023:

• Employee Contribution: Up to $22,500 (or $30,000 if you’re over 50).
• Employer Contribution: Up to 25% of your net self-employment income.
• Total Possible Contribution: Up to $66,000 (or $73,500 for those over 50).

Example for a Business Owner Earning $100,000:

• Employee Contribution: $22,500
• Employer Contribution: $25,000 (25% of net earnings)
• Total Saved: $47,500 in tax-advantaged retirement savings!

Pro Tip: The higher your income, the more you can save—and lower your taxable income.

How a Solo 401(k) Saves You Money on Taxes

Let’s talk about the part every business owner cares about—saving money on taxes.

A Solo 401(k) lets you reduce your taxable income, which can mean thousands of dollars saved each year.

Here’s how it works:

Option 1: Traditional Contributions (Pre-Tax)

• Contributions are made before taxes.
• Reduces your taxable income this year.
• You’ll pay taxes when you withdraw during retirement.

Option 2: Roth Contributions (After-Tax)

• Contributions are made after taxes.
• No tax savings now, but…
• Tax-free withdrawals in retirement, including growth!

Example:

If your business earns $150,000 and you contribute $50,000 into a Solo 401(k):

• Your taxable income drops to $100,000.
• This could save you thousands in taxes today while you build wealth for the future.

At Insogna CPA, a top-rated Austin Texas CPA firm, we help you structure your Solo 401(k) contributions to maximize both immediate tax savings and long-term wealth growth.

Solo 401(k) vs. Other Retirement Plans—Which Is Best?

You might be wondering how the Solo 401(k) stacks up against other retirement plans like the SEP IRA or Traditional IRA.

Key Takeaway: If you’re self-employed and want higher contribution limits with more tax flexibility, the Solo 401(k) beats most other options.

How to Set Up a Solo 401(k) (Without the Headache)

Setting up a Solo 401(k) might sound complicated, but it doesn’t have to be—especially when you have the right guidance.

Here’s how we help at Insogna CPA:

Step 1: Confirm Eligibility – We’ll review your business structure and income to ensure you qualify.
Step 2: Customize Your Plan – Choose between pre-tax and Roth options to match your goals.
Step 3: Handle Setup – Our team will establish your Solo 401(k) plan and prepare all necessary paperwork.
Step 4: Maximize Contributions – We’ll help you determine the ideal contribution amounts based on your income.
Step 5: Keep You Compliant – If your account balance exceeds $250,000, we’ll ensure proper Form 5500-EZ filing.

Why Business Owners Trust Insogna CPA

At Insogna CPA, we go beyond tax prep—we’re here to help you build lasting wealth through smart financial strategies.

🔹 Specialized in Small Business Retirement Planning
🔹 Personalized Tax Strategies Tailored to Your Business
🔹 Ongoing Compliance Support
🔹 Deep Expertise as a Leading Austin CPA Firm

We don’t just help you save on taxes this year—we help you build a financial legacy for the years ahead.

Ready to Build Wealth and Save on Taxes?

Solo 401(k) can be your secret weapon for reducing taxes and growing long-term wealth—but only if it’s set up the right way.

Let Insogna CPA, your trusted small business CPA in Austin, TX, guide you every step of the way.

👉 Get started today—contact Insogna CPA for a personalized Solo 401(k) strategy!

Running a business is challenging enough without having to decode complex tax strategies. But here’s the thing—knowing how to use tools like the Qualified Small Business Stock (QSBS) exemption and the 83(b) election can make a massive difference when it comes to reducing your tax bill and keeping more of your hard-earned money.

At Insogna CPA, we work with entrepreneurs, founders, and small business owners like you every day, helping them understand and leverage strategies that can create long-term wealth protection. Let’s break this down in a way that makes sense—so you can start using these strategies to your advantage.

What is QSBS (Qualified Small Business Stock)?

Imagine you start a business, and it takes off—really takes off. You invest a lot upfront, and five years later, your company’s value has skyrocketed. Now you’re thinking of selling your shares and making a significant profit.

But here’s the good news: if your stock qualifies as Qualified Small Business Stock (QSBS) under Section 1202 of the IRS code, you could avoid paying capital gains taxes on up to $10 million of profit.

That’s right—zero capital gains taxes on potentially millions of dollars.

Does Your Stock Qualify for QSBS?

Here’s what needs to happen:
 ✅ You Own Shares in a C Corporation – The business must be structured as a C Corp, not an LLC or S Corp.
 ✅ The Company Has Gross Assets Under $50 Million – At the time you received your shares.
 ✅ You Held the Stock for At Least Five Years – Patience is key here!
 ✅ You Acquired the Stock Directly from the Company – Shares need to be issued directly, not bought second-hand.

If your business fits this profile, you could be in for some serious tax savings. But if you’re unsure whether you qualify, Insogna CPA, a leading Austin, Texas CPA firm, can review your situation and help you make the most of this exemption.

What is an 83(b) Election and Why Should You Care?

The 83(b) election is a powerful tax-saving tool if you’re receiving restricted stock or equity compensation as a founder or early employee.

Think of it this way:

You receive shares in your company when they’re worth next to nothing. But instead of waiting for the shares to increase in value and being taxed later (when it could cost you a lot more), you can prepay taxes upfront at today’s lower valuation.

Here’s How It Works:

Say you receive 10,000 shares of restricted stock worth $1 per share.

Without the 83(b) election:

• You wait to pay taxes until the shares vest.
• If the shares rise to $10 each, you owe taxes on $100,000 in ordinary income.

With the 83(b) election:

• You pay taxes on the shares’ current value.
• At $1 per share, you only pay taxes on $10,000

If the shares later grow in value, the profit would be taxed at the lower capital gains rate instead of ordinary income rates. See the difference?

But there’s a catch—you have only 30 days from receiving your restricted stock to file the 83(b) election with the IRS. Miss that deadline, and you’ll lose out on this advantage.

👉 Need help filing on time? Our experts at Insogna CPA, one of the best CPA firms in Austin, can handle the entire process for you.

How QSBS and 83(b) Work Together for Bigger Savings

Now, here’s where things get even more interesting. When you combine QSBS and the 83(b) election, you’re creating a double tax-saving shield.

Imagine this:

1. You receive restricted stock and file an 83(b) election, paying minimal taxes upfront.
2. You hold the stock for five years.
3. The stock qualifies for QSBS, and you sell your shares.
4. You avoid capital gains taxes on up to $10 million in profit.

This combo can be a game-changer for startup founders and early investors, but only when executed properly—and that’s where Insogna CPA, a trusted small business CPA in Austin, TX, steps in.

Steps We Take to Get It Right for You

When you partner with Insogna CPA, we make sure every step is handled with precision. Here’s how we ensure you maximize your tax benefits:

Step 1: Confirm Eligibility – We review your company structure and stock issuance to confirm if you qualify for QSBS and 83(b) benefits.
Step 2: Prepare the Paperwork – Filing an 83(b) election requires precision. We prepare and submit it on your behalf within the critical 30-day window.
Step 3: Track Your Holding Period – To claim the QSBS exemption, you’ll need to hold your shares for at least five years. We track this for you.
Step 4: Ensure Compliance – Proper documentation is crucial for both elections. We keep your financial records audit-ready.
Step 5: Provide Ongoing Support – Whether you need help with tax planning or future stock events, our team has you covered.

Our clients trust us as their Austin accounting services partner because we simplify complex tax strategies while ensuring every opportunity is fully leveraged.

Why Work with Insogna CPA?

At Insogna CPA, we go beyond traditional accounting. Our focus is on helping business owners, founders, and early-stage investors like you keep more of what you’ve worked hard to build.

• ✅ Proactive Tax Planning
• ✅ Specialized in Equity Compensation
• ✅ Compliance-Driven Approach
• ✅ Expertise in High-Value Tax Strategies

Whether you’re a startup founder exploring tax-saving strategies or an entrepreneur managing restricted stock, our CPA firm in Austin, Texas provides expert guidance every step of the way.

Common Questions About QSBS and 83(b)

Q: Can I file an 83(b) election after the deadline?
A: No. The IRS requires the election to be filed within 30 days of receiving your stock grant—no exceptions.

Q: Does QSBS apply to LLCs?
A: No, QSBS is only available to C Corporations that meet specific criteria.

Q: Can I use QSBS and 83(b) together?
A: Absolutely! When combined properly, they can provide massive tax savings—but the rules are complex, which is why working with a CPA in Round Rock, TX like Insogna CPA is crucial.

Let’s Maximize Your Tax Savings Together

You’ve worked hard to build your business—don’t let unnecessary taxes take a bite out of your success. With the right strategies, you can protect your wealth, reduce your tax liability, and secure long-term financial benefits.

At Insogna CPA, we specialize in small business tax strategies and help entrepreneurs just like you make informed financial decisions.

👉 Ready to see how QSBS and the 83(b) election can work for you? Contact Insogna CPA, your trusted Austin CPA firm, today for expert tax planning guidance!