Tax Strategies

[BusinessAdviser]

When my companies are creating enough wealth for the holding company to take advantage of the C-corp tax classification, my holding company will switch to C-corp tax election status permanently. The distributions will turn into dividends that will be taxed at the portfolio income tax levels (substantially lower than what the distributions are taxed at now) and I will be able to write a LOT more expenses off. I will also be able to keep money within the holding company for investment purposes and only pay taxes at the corporate level, avoiding double taxation.

You lost me somewhere around the point that you thought switching to a C-corp would be advantageous. As fun as double taxation may be, I just don't prefer it.

[capforge]

Next time you are at a bookstore, look up Loopholes of the Rich: How the Rich Legally Make More Money & Pay Less Tax by Diane Kennedy, CPA & tax strategist.

My CPA, who is a tax specialist, says that book is full of errors and questionable strategies and consequences not mentioned for some of the things they suggest. I am not an expert in that area myself, which is why I rely on advice from proven professionals, which I figure in the long run saves me the most money. I would definitely get a second opinion before basing too many strategies on that book.

[dropbox247]

You lost me somewhere around the point that you thought switching to a C-corp would be advantageous. As fun as double taxation may be, I just don't prefer it.

The end-result is that double-taxation is still less tax overall when you organize and operate your businesses a certain way. Do you think mega-companies and the rich operate under C-corp's because they like to pay more tax? I think not. These organizations are structured for maximum tax savings, among other things. C-corps are a vehicle, but these tax strategies are used in combination with other entity types including LLCs and S-corps.

[BusinessAdviser]

News to me.

[dropbox247]

My CPA, who is a tax specialist, says that book is full of errors and questionable strategies and consequences not mentioned for some of the things they suggest. I am not an expert in that area myself, which is why I rely on advice from proven professionals, which I figure in the long run saves me the most money. I would definitely get a second opinion before basing too many strategies on that book.

I am definitely not basing my strategies entirely on the book and I appreciate the great advice. The book has a few math errors in her examples and some of her advice has been rendered obsolete because of changes in the tax code. However, it's the strategy, attitude and the overall big picture that are what must be looked at. She teaches you to identify loopholes as the law changes and her examples are just that: EXAMPLES that worked for her and her clients at the time of the writing.

As for your CPA, I'm guessing she didn't read the book in its entirety because the author clearly states the consequences of these strategies if you do not apply them the right way. The author advises to have a seasoned professional apply the most relevant strategies to your situation.

At first glance the strategies are questionable, but they are completely legal and thats not something most CPA's are used too. Most CPA's follow the cookie cutter "play it safe and while minimizing your tax burden" strategies that they learn from college, books and seminars. If you want a CPA that knows the most advantageous tax strategies, find out who the rich are using. A typical small business owner's tax strategist and CPA isn't going to be using these advanced techniques.

Are these strategies questionable to someone not aware of them, yes. Are there serious consequences if you mess it up, yes. However, your legality worries and negative consequences are eliminated when a high-end (and expensive) tax strategist does it for you. I think you have more to risk by not protecting your money from the government than you do by trying to protect it. We have an obligation to minimize our tax burden to the lowest point possible. The tax system rewards the rich and punishes the poor, so I have made it my mission to find out what the rich are doing.

[dropbox247]

News to me.

It sounds like you have a LOT of studying to do then. Like I said, when your income reaches a certain level, double-taxation at the lowest corp and passive income brackets is substantially less than paying taxes at the highest earned income bracket along with self-employment or FICA taxes.

[erijane]

That sounds interesting, but a sole proprietorship pays self-employment tax and income tax. However, you can elect to have your LLC taxed as an s-corp, allowing only part of the income to be taxed at the FICA level and the rest pass to you as a distribution only subject to income tax. I don't think the distribution is considered passive income though, unfortunately, so it would be subject to the earned income tax and not the passive income tax.

just thanking you all for the info. flow- taxes suck- thats hwy I let my CPA worry about it! shes the best! But I will pick up the strat. book! any other reading I should have a look at- I own a service company. video production (web video)