tax
planning
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The object of all actual tax planning is permanent elimination of tax.
Most tax planning available from other firms takes the form of timing differences. Timing difference delay tax for a time, but do not eliminate tax.
Timing differences should be handled with care. Some timing differences can get you into real trouble. We have seen businesses go bankrupt because of timing differences. I am certain many business are struggling with the
effect of timing differences right now.
Timing differences always catch up with you in a brutal way when the economy goes sour.
Here is an example of genuine tax planning.
You income is determined by the amount of money you collect from outside sources: companies, individuals, etc.
An ice cream vendor collects money from his customers for ice cream cones. Network marketers collect money from the company they promote for. Lawyers collect money from their clients. Grocery stores collect money when someone buys groceries.
That determines income.
That particular point, an individual making income, is the worst place you want to be because you are subject to every tax Congress can think up.
35% Federal Income Tax
15% Federal Employment Tax
5% State Tax
55% Top Tax Rate
That is also the base to which all tax planning will be compared to measure its effectiveness.
All tax planning is designed to get you off that target where the 55% tax bomb lands.
One of the staples of our tax planning involves re-characterizing your income into smaller chunks to take advantage of tax preferences to escape unnecessarily brutal taxation.
For instance, recharacterizing income as corporate income. Then, as pass through income. Or as partnership income. In some cases we actually recharacterize income into a more taxable character in order to protect other tax preferences we have taken advantage of.
None of this changes your income, except to decrease it and make it subject to fewer taxes. this is all completely legal. Everything we do is done to take advantage of tax preferences legislated by Congress.
Tax savings result in two primary ways ... Congress has made each chunk of income subject to different taxes, and Congress has made certain costs deductible only to certain chunks. if you know what you are doing and do it correctly, you can permanently avoid some amount of tax.
If you rely on timing differences, you will eventually have to pay that tax. Sour economies inevitably bring timing differences to a head.
Back to Timing Differences. There are times and places for the efficient use of timing differences, but most firms regard any timing difference that delays income tax as a good thing, and that is definitely not the case.
Any tax planning that does not permanently save income tax is a waste of time.
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