Smart Tax Rate Planning

Straight Talk: Smart Tax Rate Planning

Welcome to Straight Talk.  Straight Talk is just that. I don’t mince words. I tell it like it is.

I have reached an age where the nonsense, the B.S. and the snake oil salesman who don’t know what they are talking about just won’t do. I have over 35 years of experience in my industry, advanced degrees and countless hours coming alongside business owners to build rock solid foundations and use the most advanced business, legal and tax ideas and strategies to save tens of thousands to hundreds and yes even millions of dollars, protect what you have and increase your lifetime net worth.

I appreciate your enjoyment of our insights on growing your business by design, changing your wealth and increasing your choices.

I love using tax rate planning when we can.  Tax rate planning comes into play in two primary situations.  

The first is when your business has grown from stability and has been expanding.

I call this the fat, dumb and happy rule.  When you are doing everything you want to do but the money you are making is simply being taxed at the highest tax rates, then it’s time to start looking at using tax rate planning to your advantage.

Most companies in their early stages are formed as S corporations and this is a good thing.  

Profits flow through to you personally and are taxed to you personally usually at lower tax rates in the beginning. However, when you begin to start making too much money, you money is taxed at the highest tax rates. Once this happens creating a different tax structure for your company can create some real tax advantages.  Simply put, if you change the nature of your tax entity, income up to 100,000 can be taxed at rates that are much lower than you would pay on the same income if you simply included that income on your personal return.

I was working with a client where we did just that. We change the structure of his company and his savings every year will now be in the hundreds of thousands of dollars.  I realize not everyone is in that position, however, what if it were tens of thousands of dollars EVERY YEAR! How good would that be?

The second type of planning involves family.  

Some family members may be in a lower tax bracket than other family members.  Of course, this works best when we are dealing with a family business or possibly real estate.  

The goal in this situation is to shift income from the family member who is making higher dollars and being taxed at higher rates to family members who are in a lower tax bracket, such as the children.

Before running headlong and implementing this strategy, you have to be careful of a crazy rule called the kiddie tax which is a rule dreamed up to cause passive income going to the children to be taxed instead to the parent’s or at the parent’s tax rate.  So much for income shifting.

Except, if the children are actually earning money then there are some great benefits and planning that can be done.

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