The rich play by different rules than we do

 

Not because the tax rules don’t apply to them, but because they take the time to learn more. Tax law is constantly changing and is difficult. Those that do not spend time learning  about their tax situation and actively work with their tax professional to reduce taxes, will pay more taxes. 

 

Tax planning is an on-going activity and you should be meeting with your tax professional at least once a year. This is not something you should expect to have done for free. Good tax planners work diligently to keep up with changing tax laws. They deserve to get paid.

 

Below are some advanced ways to save on taxes

 

As the number of moving parts in your financial world increase, and the more flows of income you have, the more important tax planning becomes. 

 

In order to utilize the tax law, you have to do tax planning services. Taxes are most likely the biggest expense in your life.

 

Cash-Flow Planning and Tax Planning can create much bigger returns than what you are getting in your 401 (K), IRAs, and other investments 

 

These strategies are for informational purposes only. Do not take any of this as financial or tax advice. Some of these strategies may apply to your specific situation and some may not. Consult your tax professional to see if any of these strategies apply to your specific situation.    

 

If you enjoy over-paying on taxes, there is no reason to do tax-planning. If you don’t enjoy giving the government money call us today we will help you stop giving your money away. 

 

  • Life Insurance
    • The wealthy not only use life insurance to pass down tax-free money to their heirs, but they also use the cash value in life insurance to create access to cash, tax-free.
  • Rule 72 T
    • You can avoid paying the 10% early withdrawal penalty by taking advantage of Internal Revenue Code 72(t). That’s shorthand for a provision in the tax code that allows you to take early distributions from your retirement plan or IRA and avoid the 10% penalty.
    • You can avoid that penalty as long as the distributions are made as part of a “series of substantially equal periodic payments” (or SOSEPP for short).
    • Once you start taking these distributions, you have to keep it going for the longer of five years or until you reach age 59-1/2.
  • Financial Organization
    • Avoid overpaying on taxes and make audits easier with a good bookkeeper.
    • Bad Bookkeeping is one of the top reasons people over-pay on taxes.
  • Build a coordinated Financial Team
    • Your team must communicate and work together in order for you to have an efficient and integrated strategy.
    • Lawyer
    • CPA
    • Insurance Specialist
    • Cash Flow Specialist
    • Financial Advisor
    • Use tax-free Ways to Extract Income.

 

  • Salary, bonuses, and distributions of your share of business profits are taxable. However, there are ways to benefit from your business without triggering the tax. 
  • Income-Flow Planning in Retirement.
    • A tax professional is needed to do this. 
    • Start preparing for this a minimum of about 5 years before retirement. If you want to do a Roth Conversion, at least 10 years before retirement is better. 
    • A financial advisor does not have the knowledge or legal ability to do this.
    • Make sure as little of your money as possible is taxable as regular income. This is especially important in retirement. Twenty years of retirement and a change of tax laws can dramatically destroy your lifestyle. 
  • Qualified Plans create a massive tax burden in retirement.
    • There are ways to create tax-free flows of cash that most financial advisors are unaware of, such as LIRPs and 412(e)(3) plans
  • Charitable Remainder Trust/Tax-exempt Trust.
    • Contribute Assets to the trust.
    • The trust owns the asset.
    • Sell the Asset.
    • No Tax is Allowed.
    • You get a lifetime Payout from the Trust if you give away 10% to Charity.
    • You pay tax on the distributions, normally at Capital Gains Rate.
  • Business Owners can open Retirement Account and have them tax-deductible.
    • Traditional IRA
    • Roth IRA
    • Solo 401 (K)
    • 412 (e)(3) plans 
    • There are other Retirement accounts most financial advisors and CPAs have never heard of that are used for high-income earners. These accounts allow you more safety and allow you to put much more money into them than a 401(K) or SIMPLE plan.
  • Put Family Members to work
    • Several Benefits to this.
    • Kids: Teach value and work ethic.
    • Kids will earn money to pay for stuff you otherwise would have paid for. 
    • They can even open an IRA account.
  • Health Insurance Premiums are Tax-Deductible for business owners.
    • Be sure to pay out of your business account.
  • REAL ESTATE has a lot of tax benefits.
  • Tax Loss Harvesting.
    • There are Capital Gains and Incomes Tax Strategies when harvesting losses

 

  • Take advantage of the massive tax savings Life Insurance gives you. 
    • This is a strategy used by the wealthy.
  • Specialized Trusts
  • Grantor Retained Annuity Trust
  • Manage your capital tax gains properly.
  • Re-categorize income
    • Income is taxed as regular income, capital gains, or as a dividend rate. Change how the money coming in is taxed
    • Shift income to a lower bracket.
    • Understand Marginal Vs Average Tax Rate.
  • Turn your sole-proprietor business into a corporation. 
    • These are taxed very differently. 
    • This strategy allows the owner to make money at a lower tax rate and claim expenses.
    • An example of how business structure can make a difference: Musicians can have the corporations hold the rights of the performer, and the money he’s paid goes to the corporation, not the individual.
  • Keep an eye on AGI

 

  • Many tax breaks, limitations, and additional taxes tee off of adjusted gross income (AGI) or modified adjusted gross income (MAGI). For example, you’ll avoid the 0.9% additional Medicare tax on earned income if your AGI does not exceed a certain threshold.
  • Make Smart Tax Elections.
  • There are several ways for how to reduce taxable income by being strategic about your business expenditures. When you acquire machinery, you can deduct the equipment in full, up to a certain dollar amount.  
  • However, if your business is just starting up or is not yet profitable, you can depreciate these expenses.  It might be better for your overall tax situation if you spread out the value of the purchases across multiple years.  This can help produce deductions for future years when you have more income to protect.
  • Manage your assets like a business. Create LLCs or corporations for each asset. 
  • Buy cars and lease your house in the business if related to the business.
  • Pay employees compensation through stock options. 
    • This creates additional opportunities
  • Pay employees through profit sharing or Phantom Stock Options
  • Incorporate in places with lower tax rates.
  • IRC Section 280A allows you to rent your entire home to your S corporation for 14 days or less during the year and get big tax deductions
    • There are some rules that must be followed when using this strategy. 
  • Reduce self-employment tax with an S corporation.
  • Evaluate the benefits of a C corporation.
  • “Conservation Easements” and Historical Sites With “Conservation easements”
    • you can give up your development rights for a piece of property that you own, so you’re unable to build on the property (but you could still use it for camping, recreation, or to temporarily park a trailer on, etc.)
  • “Historical easements”. If you buy a building in a historic district, you can get a tax deduction on it. With this rule, you give up the right to rebuild or change the historical aspect (or facade) of the building, but you can still remodel the inside and use it for business.
  • If the LLC is a management company that provides oversight and advice to owners of the assets, under certain circumstances, the expenses incurred by the LLC will be deductible as business expenses.”
  • Restricted Property Trust
  • HSA

 

Some of these strategies are more basic, while many of them are more complicated, but the bottom line is, they will all help you keep more of the money you are making. Start making an effort today to keep more of your money. 

 

The rich play by different tax rules than we do. Not because the tax rules don’t apply to them, but because they take the time to learn more.

 

 

 

 

 

The rich play by different rules than we do

 

Not because the tax rules don’t apply to them, but because they take the time to learn more. Tax law is constantly changing and is difficult. Those that do not spend time learning  about their tax situation and actively work with their tax professional to reduce taxes, will pay more taxes. 

 

Tax planning is an on-going activity and you should be meeting with your tax professional at least once a year. This is not something you should expect to have done for free. Good tax planners work diligently to keep up with changing tax laws. They deserve to get paid.

 

Below are some advanced ways to save on taxes

 

As the number of moving parts in your financial world increase, and the more flows of income you have, the more important tax planning becomes. 

 

In order to utilize the tax law, you have to do tax planning services. Taxes are most likely the biggest expense in your life.

 

Cash-Flow Planning and Tax Planning can create much bigger returns than what you are getting in your 401 (K), IRAs, and other investments 

 

These strategies are for informational purposes only. Do not take any of this as financial or tax advice. Some of these strategies may apply to your specific situation and some may not. Consult your tax professional to see if any of these strategies apply to your specific situation.    

 

If you enjoy over-paying on taxes, there is no reason to do tax-planning. If you don’t enjoy giving the government money call us today we will help you stop giving your money away. 

 

  • Life Insurance
    • The wealthy not only use life insurance to pass down tax-free money to their heirs, but they also use the cash value in life insurance to create access to cash, tax-free.
  • Rule 72 T
    • You can avoid paying the 10% early withdrawal penalty by taking advantage of Internal Revenue Code 72(t). That’s shorthand for a provision in the tax code that allows you to take early distributions from your retirement plan or IRA and avoid the 10% penalty.
    • You can avoid that penalty as long as the distributions are made as part of a “series of substantially equal periodic payments” (or SOSEPP for short).
    • Once you start taking these distributions, you have to keep it going for the longer of five years or until you reach age 59-1/2.
  • Financial Organization
    • Avoid overpaying on taxes and make audits easier with a good bookkeeper.
    • Bad Bookkeeping is one of the top reasons people over-pay on taxes.
  • Build a coordinated Financial Team
    • Your team must communicate and work together in order for you to have an efficient and integrated strategy.
    • Lawyer
    • CPA
    • Insurance Specialist
    • Cash Flow Specialist
    • Financial Advisor
    • Use tax-free Ways to Extract Income.

 

  • Salary, bonuses, and distributions of your share of business profits are taxable. However, there are ways to benefit from your business without triggering the tax. 
  • Income-Flow Planning in Retirement.
    • A tax professional is needed to do this. 
    • Start preparing for this a minimum of about 5 years before retirement. If you want to do a Roth Conversion, at least 10 years before retirement is better. 
    • A financial advisor does not have the knowledge or legal ability to do this.
    • Make sure as little of your money as possible is taxable as regular income. This is especially important in retirement. Twenty years of retirement and a change of tax laws can dramatically destroy your lifestyle. 
  • Qualified Plans create a massive tax burden in retirement.
    • There are ways to create tax-free flows of cash that most financial advisors are unaware of, such as LIRPs and 412(e)(3) plans
  • Charitable Remainder Trust/Tax-exempt Trust.
    • Contribute Assets to the trust.
    • The trust owns the asset.
    • Sell the Asset.
    • No Tax is Allowed.
    • You get a lifetime Payout from the Trust if you give away 10% to Charity.
    • You pay tax on the distributions, normally at Capital Gains Rate.
  • Business Owners can open Retirement Account and have them tax-deductible.
    • Traditional IRA
    • Roth IRA
    • Solo 401 (K)
    • 412 (e)(3) plans 
    • There are other Retirement accounts most financial advisors and CPAs have never heard of that are used for high-income earners. These accounts allow you more safety and allow you to put much more money into them than a 401(K) or SIMPLE plan.
  • Put Family Members to work
    • Several Benefits to this.
    • Kids: Teach value and work ethic.
    • Kids will earn money to pay for stuff you otherwise would have paid for. 
    • They can even open an IRA account.
  • Health Insurance Premiums are Tax-Deductible for business owners.
    • Be sure to pay out of your business account.
  • REAL ESTATE has a lot of tax benefits.
  • Tax Loss Harvesting.
    • There are Capital Gains and Incomes Tax Strategies when harvesting losses

 

  • Take advantage of the massive tax savings Life Insurance gives you. 
    • This is a strategy used by the wealthy.
  • Specialized Trusts
  • Grantor Retained Annuity Trust
  • Manage your capital tax gains properly.
  • Re-categorize income
    • Income is taxed as regular income, capital gains, or as a dividend rate. Change how the money coming in is taxed
    • Shift income to a lower bracket.
    • Understand Marginal Vs Average Tax Rate.
  • Turn your sole-proprietor business into a corporation. 
    • These are taxed very differently. 
    • This strategy allows the owner to make money at a lower tax rate and claim expenses.
    • An example of how business structure can make a difference: Musicians can have the corporations hold the rights of the performer, and the money he’s paid goes to the corporation, not the individual.
  • Keep an eye on AGI

 

  • Many tax breaks, limitations, and additional taxes tee off of adjusted gross income (AGI) or modified adjusted gross income (MAGI). For example, you’ll avoid the 0.9% additional Medicare tax on earned income if your AGI does not exceed a certain threshold.
  • Make Smart Tax Elections.
  • There are several ways for how to reduce taxable income by being strategic about your business expenditures. When you acquire machinery, you can deduct the equipment in full, up to a certain dollar amount.  
  • However, if your business is just starting up or is not yet profitable, you can depreciate these expenses.  It might be better for your overall tax situation if you spread out the value of the purchases across multiple years.  This can help produce deductions for future years when you have more income to protect.
  • Manage your assets like a business. Create LLCs or corporations for each asset. 
  • Buy cars and lease your house in the business if related to the business.
  • Pay employees compensation through stock options. 
    • This creates additional opportunities
  • Pay employees through profit sharing or Phantom Stock Options
  • Incorporate in places with lower tax rates.
  • IRC Section 280A allows you to rent your entire home to your S corporation for 14 days or less during the year and get big tax deductions
    • There are some rules that must be followed when using this strategy. 
  • Reduce self-employment tax with an S corporation.
  • Evaluate the benefits of a C corporation.
  • “Conservation Easements” and Historical Sites With “Conservation easements”
    • you can give up your development rights for a piece of property that you own, so you’re unable to build on the property (but you could still use it for camping, recreation, or to temporarily park a trailer on, etc.)
  • “Historical easements”. If you buy a building in a historic district, you can get a tax deduction on it. With this rule, you give up the right to rebuild or change the historical aspect (or facade) of the building, but you can still remodel the inside and use it for business.
  • If the LLC is a management company that provides oversight and advice to owners of the assets, under certain circumstances, the expenses incurred by the LLC will be deductible as business expenses.”
  • Restricted Property Trust
  • HSA

 

Some of these strategies are more basic, while many of them are more complicated, but the bottom line is, they will all help you keep more of the money you are making. Start making an effort today to keep more of your money. 

 

The rich play by different tax rules than we do. Not because the tax rules don’t apply to them, but because they take the time to learn more.