Income Tax Planning

image3A research project was initiated 40 years ago to study the problems that small business owners experienced in accumulating savings.

The project revealed five significant issues:

  1. The importance of saving money pre-tax as opposed to saving after tax.
  2. The importance of using the correct qualified plan and non-qualified plans.
  3. The importance of having a customized portfolio managed by a quality money manager.
  4. The importance of establishing appropriate financial structures.
  5. Maximizing tax planning strategies.

Here are some questions to consider:

  • Are you contributing surplus earning to a qualified retirement plan?
  • Are you contributing surplus pre-tax earnings to a captive Insurance company, a section 79 program, or a donor advised fund?
  • Are you paying off student debt or children’s education costs with non-taxed dollars?
  • Have you maximized your own retirement income by multiplying non-taxed corporate qualified retirement plan accumulations or personal savings to create leveraged tax free Internal revenue Code 101 (a) gain to fund lifestyle costs for you and /or to fund your spouse’s lifestyle costs for life expectancy expected to exceed yours?
  • Are you within 5 years of retirement and, if so, have you initiated business sale plan to convert your business equity into spendable assets?
  • Do you have a charitable bequest will or revocable living trust/ public charity beneficiary structure established?
  • Are you multiplying non-taxed funds to endow economic safety nets for your children or to perpetuate charitable and educational institutions and professional associations that support your values?

You can use the following formula to determine how much unnecessary tax you might be paying:

  1. Estimate your annual pre-tax business income______________________
  2. Estimate your monthly lifestyle costs ___________ X 20 =____________
  3. Subtract #2 from #1 =_____________
  4. Your potential loss to unnecessary taxes #3 X .40 =_____________