The tax law offers many tax deductions, credits and other
benefits that can save a taxpayer thousands of dollars
every year. However, many of these tax benefits are
eliminated when a taxpayer has income that is "too" high.
Knowing how to legally get around these limitations can
save you thousands in taxes!
When I use the term "too" high, I am referring to income
that is over the limits the IRS has set. These limits vary
based on the specific rules. For example, up to $25,000 of
rental real estate losses can be deducted every year
against any other income. This can be a significant tax
benefit often resulting in tax savings of several thousand
dollars every year. However, once a taxpayer's income
exceeds $100,000, the $25,000 allowance begins to phase out
and it is completed eliminated when income reaches $150,000.
Of course, my goal for everyone is to have massive amounts
of income! That is why I am ready to share these
strategies that maximize your tax benefits even when your
income is over the limits set by the IRS.
#1 Get Your Children in the Game
If you have a business, and you have minor children, then
here is one thing you can do. Have your business hire your
children. This reduces your business income, which reduces
your taxable income. The goal here is to reduce your
taxable income so you can take advantage of the tax
benefits that are otherwise unavailable to you because your
income is too high.
This strategy gets even better though!
You can use your children's lower tax rates. Your children
can earn up to $5,700 in 2009 and pay zero income tax. So
not only are you reducing your taxable income, you are
shifting income out of your tax rate and into a 0% tax rate!
Depending on how your business is structured, you may or
may not have to pay payroll taxes on your children's wages.
Even if you do, that is a 15.3% tax, which may still be
less than your tax rate!
Overall, this one strategy can save you over $10,000 in
taxes every year!
#2 Make the Most of a C Corporation
Add a C Corporation to your structure! Like your children,
a C Corporation is its own separate taxpayer. This means
that shifting income to the C Corporation reduces your
taxable income which works toward the goal to reduce your
taxable income so you are eligible for more tax benefits.
There are even more tax savings!
You can use the C Corporation's lower tax rates. C
Corporation's have an initial tax rate of 15%. If your tax
bracket is higher than 15%, not only are you reducing your
taxable income, you are shifting your income into a lower
tax rate which means even more tax savings!
Plus, the money in your C Corporation can be used for
certain employee benefits that work best in a C Corporation
environment.
Overall, this one strategy can save over $15,000 in taxes
every year!
#3 Bunch Your Income and Expenses
Bunch your income and expenses so your net income
alternates between high and low every year. In many of the
tax situations that I analyze, income is just over the
point that eliminates the tax benefits. By using the
bunching strategy, there is an opportunity to have income
low enough to take advantage of more tax benefits every
other year!
Overall, this one simple strategy can save over $3,500
every other year!
Simple planning can save you thousands in taxes!
Tax planning works in many ways and there are ways to
reduce your taxable income without making less money! Now
is the time to start planning your taxes for 2009.
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When I use the term "too" high, I am referring to income
that is over the limits the IRS has set. These limits vary
based on the specific rules. For example, up to $25,000 of
rental real estate losses can be deducted every year
against any other income.
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