As both parties plan to limit itemized deductions and increase individual tax rates, saving taxes will require innovative use of a related corporation.
With both parties wanting the USA to grab European small businesses, they have decided to reduce the corporate tax rate. U.K. -and EU small businesses work in corporate form.
Our corporate tax rates exceed the European rates. But, coming in 2013, the two parties are planning a bold move. They plan to substantially reduce the corporate tax rate.
Tax planning using a corporation includes the improved ESOP rules (employee stock ownership plan) for owners over age fifty-five.
Toss in the often forgotten corporate health reimbursement arrangement (“HRA”) within the meeting of IRS Notice 2002-45 and you have a powerful tax saving plan.
But, there is more. Creation of wealth is easy in this structure with the first $100,000 tax at an expected rate of only 20%. When it is time to retire, the ESOP will allow you to get most or all of the money out tax free. Yes, ESOPs have that magic.
With this episode of Tax Talk, you will learn how small business owners can save taxes by creating a corporation and how both parties will increase your taxes without increasing the tax rate. By placing your innovative business activities in your corporation, you can move income into your corporation. This audio is about 12 minutes.
What type of income? Here are two ideas.
1. Many businesses have create a hidden intangible (or should I say invisible) asset. For the manufacture or distributor, it is the advance inventory control system. Taken for granted, inventory control is allows for the maximizing of profits.
Shifting your inventory management personal along with the computer system can allow this corporation to recognize taxable income with an offsetting reduction of income on your individual return.
2. Service businesses are using sophisticated and expensive paperless systems. Reducing the need to office space, these paperless systems can be owned and operated by your related corporation. This corporation will not only own the computer system, it will also hire the office personal.
Your existing service business will be paying this new corporation of sophisticated file management. Not only will your service business need less office space, you make more money by the instant access to your clients files ( I have such a method for the last six years and it is great).
This corporation to recognize taxable income with an offsetting reduction of income on your individual return.
Both parties plan to expand this type of invisible tax increase. Yes, there will be no increase in the tax rate. Instead, deductions will be phased out. By the way, the Form 1040 is designed to make the loss of tax benefits invisible to the reader.
So, work with your Tax Team (your CPA and attorney) to discover an activity or activities for your related corporation. Then take an action. The money your save is needed to survive the Great Recession (because it not over yet).