Tax Saving Strategies For Tax Certificate Investors
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Drew Miles
I have spent years studying the tax code looking for ways to help people lower their tax bill and keep more of what they earn. Drew Miles Find Out More: <a href="http://www.taxsavingconcepts.com" title="http://www.taxsavingconcepts.com" target="_blank">http://www.taxsavingconcepts.com</a> By Drew Miles
Published on 08/21/2008
The first step in moving yourself from the “uneducated” tax system to the “educated” tax system is to have your own business I’ve got great news; Tax Certificate Investing is a business
The first step in moving yourself from the “uneducated” tax system to the “educated” tax system is to have your own business. I’ve got great news; Tax Certificate Investing is a business.
Many new investors don’t capitalize on this distinction and they grossly overpay their income taxes as a result.
Unenlightened investors who confine themselves into the W-2 tax system give up between 42% and 55% in taxes. That’s because there are only a handful of deductions available to you in that system. Things like the interest on your home mortgage and some limited amount of medical deductions come to mind.
Yet by shifting into the other, more favorable tax system, you can reduce your taxes into the teens or even into single digits. Yes, that means you could be paying only 5%-15% by knowing and using some simple strategies. Strategies that the wealthiest people in America have been using for decades. This can save you $10,000 - $50,000 per year in cold, hard cash.
Let’s look at some of the key tax-saving differences.
First, the entire framework for the two systems is completely different. In the uneducated system, you must pay for your expenses with after-tax dollars. I’ll illustrate the
W-2 System this way:
Earn
- Taxes
------------
Live on what’s left over.
So, if you earn $100,000 and are paying $45,000 in taxes (Federal, State and FICA), you only have $55,000 left over to live on. Its tough to get ahead this way.
Yet, the educated system turns the tables on this formula:
Earn
- Spend
------------
Pay taxes on the balance
Can you see the HUGE shift here. Using the same figures, if you make $100,000 and have $55,000 in deductable expenses*, you only have to pay taxes on $45,000. That’s a tremendous savings potential.
Next, business owners have hundreds of deductions available to them instead of the relative handful for W-2 employees. In fact, we have identified over 300 individual expenses you can write off (most of them are 100% deductible). Again, fully utilizing these deductions can put thousands of dollars in your pocket.
Simple examples include writing off your phone, fax, cell, computer, home office, supplies, internet connection and business meals and entertainment. By re-charactering these expenses from personal expenses into business expenses, you can significantly reduce your taxable income and therefore your income tax obligation.
The next key is to use what I call the Power of Corporations. Corporations have a different tax structure than individuals. As of this writing**, here are the rates.
Taxable income over:_______Not over:______Tax rate:
$0______________________$50,000_______15%
50,000__________________75,000________25%
75,000__________________100,000_______34%
100,000_________________335,000_______39%
335,000_________________10,000,000____34%
10,000,000______________15,000,000____35%
15,000,000______________18,333,333____38%
18,333,333______________..............______35%
Single Taxpayers--2005
Taxable income:________________________________Tax:
Over:________But not over:________Tax:__________+%:_________On amount over:
$ 0__________$ 7,300____________$ 0.00_________10__________$ 0
7,300_________29,700____________730.00________15__________7,300
29,700________71,950____________4,090.00______25__________29,700
71,950________150,150___________14,652.50_____28__________71,950
150,150_______326,450___________36,548.50_____33__________150,150
326,450_______.......______________94,727.50_____35__________326,450
Taking a close look at these tables is very revealing. For example, a corporation with a $50, 000 net income pays only 15% tax. Yet, an individual making the same $50,000 has to pay 25% tax. If you think about it, that’s a double whammy because they get almost no deductions, plus they pay a higher rate.
You deserve better than that.
On the high end of things, corporations don’t reach the 35% tax rate until they make more than $10 million in net income. Individuals hit the 35% rate at just $326,450.
Are you starting to see the savings potential? Are you starting to get excited?
But there’s still another important benefit for you. By incorporating, you can greatly reduce the self employment tax. That’s because if you do business as a sole proprietor, you pay self employment tax from the first dollar you make. That’s not so for corporations. This simple strategy is overlooked by about 90% of small business owners.
The next area of savings is what I call the Golden Tax Secrets. These are little known, highly effective strategies that you can begin using immediately.
Here are just some of them:
1. Group Term Life Insurance. –Sec 79. You can receive up to $50,000 in coverage and the premium is not included in your gross income, and it is 100% deductible to your corporation
2. Achievement and Awards for Safety and Longevity –Sec 74. These awards have to be in writing and can be up to $1,600 each. In a family corporation, both the husband and wife could receive the awards annually. The wife might receive the Longevity Award because she has been with the company since its inception. The husband might receive the Safety Award because he maintains a safe work environment. These awards are tax free deductions for the company.
3.Health Insurance Sec 105. If you already have a health insurance program, the corporation can reimburse you for any expenses paid.. There is no dollar limit.
4. Insured Medical Plans 106. Your corporation can pay 100% of your medical plan. The amount is not included in your gross pay.
5.Meals and Lodging –Sec 119. When your meals and lodging are furnished by the employer (your corporation) and you are required to live in the house and eat on the premises, then they are paid for by the corporation as a business expense and are tax deductible. These are no limits to the amount spent for meals and lodging. Strict compliance with the code is necessary.
6. Dependent Care Sec 129.. Your corporation can provide you up to $5,000 a year for dependent care and it’s not part of your gross income.
7. Educational Assistance -Sec127. Your allotment is up to $5,250, and is not part of your gross income.
8.Seminars-Sec 162. Expenses (including meals and lodging) for business related seminars are 100% tax deductible to the corporation and are not included as part of your income.
9.Moving Expenses –Sec 217. All reasonable moving expenses except meals can be paid for and are not included in your gross pay.
10. Physical Fitness- Sec 132. You can have a physical fitness facility on your premises totally paid for by the corporation.
.
But the key is doing it right! It’s not about operating in the grey area. Some people can get very creative and figure: “Well, we’ll try it this year to see if we can get away with it.” But when the government and the IRS want to help you save on taxes, why not do it in the black and white area so that you can take full advantage of legitimate tax savings and be able to sleep at night?
The other thing that’s really great about the corporation is that it has so many different retirement plans available that you, as an individual, cannot take advantage of. You can put so much more money away in your retirement program through the corporation. There are qualified plans and unqualified plans depending on where you are and what you’re trying to do. So what you can save with a corporation is virtually endless.
Yet, I want to save you one last strategy to help you build lasting wealth. That’s our IRA Wealth System. This system let’s you utilize the incredible power of a self directed IRA to grow your retirement plan exponentially! It allows you to invest in tax certificates, real estate, foreclosures and other businesses right from your IRA and with our IRA Wealth System you retain checkbook control over your money! Let’s face it, the very best deals don’t last very long. So, if you’ve got to deal with a custodian to access your retirement money, you’ll lose the deal. With the IRA Wealth System, you can immediately write a check from your Retirement account and land yourself the best possible deals.
Some of these individual strategies will save you a small amount of money, some will save you much more. But, when you combine them together, you are building yourself a tax-saving machine that can save you a small fortune and help you build lasting wealth.
Ira Wealth
Drew Miles is an attorney, investor and successful businessman. Since retiring from the practice of law in 2001, he has dedicated his career to teaching others how to build and protect wealth for generations to come. To learn more about his programs, you can visit http//www.taxsavingconcepts.com or call Pathfinder Business Strategies, LLC at (888) 695-2765.
* For purposes of our illustration, we are assuming you can write off 100% of your expense. While this is not likely, it simplifies the illustration of the concept.
** August 2005
Many new investors don’t capitalize on this distinction and they grossly overpay their income taxes as a result.
Unenlightened investors who confine themselves into the W-2 tax system give up between 42% and 55% in taxes. That’s because there are only a handful of deductions available to you in that system. Things like the interest on your home mortgage and some limited amount of medical deductions come to mind.
Yet by shifting into the other, more favorable tax system, you can reduce your taxes into the teens or even into single digits. Yes, that means you could be paying only 5%-15% by knowing and using some simple strategies. Strategies that the wealthiest people in America have been using for decades. This can save you $10,000 - $50,000 per year in cold, hard cash.
Let’s look at some of the key tax-saving differences.
First, the entire framework for the two systems is completely different. In the uneducated system, you must pay for your expenses with after-tax dollars. I’ll illustrate the
W-2 System this way:
Earn
- Taxes
------------
Live on what’s left over.
So, if you earn $100,000 and are paying $45,000 in taxes (Federal, State and FICA), you only have $55,000 left over to live on. Its tough to get ahead this way.
Yet, the educated system turns the tables on this formula:
Earn
- Spend
------------
Pay taxes on the balance
Can you see the HUGE shift here. Using the same figures, if you make $100,000 and have $55,000 in deductable expenses*, you only have to pay taxes on $45,000. That’s a tremendous savings potential.
Next, business owners have hundreds of deductions available to them instead of the relative handful for W-2 employees. In fact, we have identified over 300 individual expenses you can write off (most of them are 100% deductible). Again, fully utilizing these deductions can put thousands of dollars in your pocket.
Simple examples include writing off your phone, fax, cell, computer, home office, supplies, internet connection and business meals and entertainment. By re-charactering these expenses from personal expenses into business expenses, you can significantly reduce your taxable income and therefore your income tax obligation.
The next key is to use what I call the Power of Corporations. Corporations have a different tax structure than individuals. As of this writing**, here are the rates.
Taxable income over:_______Not over:______Tax rate:
$0______________________$50,000_______15%
50,000__________________75,000________25%
75,000__________________100,000_______34%
100,000_________________335,000_______39%
335,000_________________10,000,000____34%
10,000,000______________15,000,000____35%
15,000,000______________18,333,333____38%
18,333,333______________..............______35%
Single Taxpayers--2005
Taxable income:________________________________Tax:
Over:________But not over:________Tax:__________+%:_________On amount over:
$ 0__________$ 7,300____________$ 0.00_________10__________$ 0
7,300_________29,700____________730.00________15__________7,300
29,700________71,950____________4,090.00______25__________29,700
71,950________150,150___________14,652.50_____28__________71,950
150,150_______326,450___________36,548.50_____33__________150,150
326,450_______.......______________94,727.50_____35__________326,450
Taking a close look at these tables is very revealing. For example, a corporation with a $50, 000 net income pays only 15% tax. Yet, an individual making the same $50,000 has to pay 25% tax. If you think about it, that’s a double whammy because they get almost no deductions, plus they pay a higher rate.
You deserve better than that.
On the high end of things, corporations don’t reach the 35% tax rate until they make more than $10 million in net income. Individuals hit the 35% rate at just $326,450.
Are you starting to see the savings potential? Are you starting to get excited?
But there’s still another important benefit for you. By incorporating, you can greatly reduce the self employment tax. That’s because if you do business as a sole proprietor, you pay self employment tax from the first dollar you make. That’s not so for corporations. This simple strategy is overlooked by about 90% of small business owners.
The next area of savings is what I call the Golden Tax Secrets. These are little known, highly effective strategies that you can begin using immediately.
Here are just some of them:
1. Group Term Life Insurance. –Sec 79. You can receive up to $50,000 in coverage and the premium is not included in your gross income, and it is 100% deductible to your corporation
2. Achievement and Awards for Safety and Longevity –Sec 74. These awards have to be in writing and can be up to $1,600 each. In a family corporation, both the husband and wife could receive the awards annually. The wife might receive the Longevity Award because she has been with the company since its inception. The husband might receive the Safety Award because he maintains a safe work environment. These awards are tax free deductions for the company.
3.Health Insurance Sec 105. If you already have a health insurance program, the corporation can reimburse you for any expenses paid.. There is no dollar limit.
4. Insured Medical Plans 106. Your corporation can pay 100% of your medical plan. The amount is not included in your gross pay.
5.Meals and Lodging –Sec 119. When your meals and lodging are furnished by the employer (your corporation) and you are required to live in the house and eat on the premises, then they are paid for by the corporation as a business expense and are tax deductible. These are no limits to the amount spent for meals and lodging. Strict compliance with the code is necessary.
6. Dependent Care Sec 129.. Your corporation can provide you up to $5,000 a year for dependent care and it’s not part of your gross income.
7. Educational Assistance -Sec127. Your allotment is up to $5,250, and is not part of your gross income.
8.Seminars-Sec 162. Expenses (including meals and lodging) for business related seminars are 100% tax deductible to the corporation and are not included as part of your income.
9.Moving Expenses –Sec 217. All reasonable moving expenses except meals can be paid for and are not included in your gross pay.
10. Physical Fitness- Sec 132. You can have a physical fitness facility on your premises totally paid for by the corporation.
.
But the key is doing it right! It’s not about operating in the grey area. Some people can get very creative and figure: “Well, we’ll try it this year to see if we can get away with it.” But when the government and the IRS want to help you save on taxes, why not do it in the black and white area so that you can take full advantage of legitimate tax savings and be able to sleep at night?
The other thing that’s really great about the corporation is that it has so many different retirement plans available that you, as an individual, cannot take advantage of. You can put so much more money away in your retirement program through the corporation. There are qualified plans and unqualified plans depending on where you are and what you’re trying to do. So what you can save with a corporation is virtually endless.
Yet, I want to save you one last strategy to help you build lasting wealth. That’s our IRA Wealth System. This system let’s you utilize the incredible power of a self directed IRA to grow your retirement plan exponentially! It allows you to invest in tax certificates, real estate, foreclosures and other businesses right from your IRA and with our IRA Wealth System you retain checkbook control over your money! Let’s face it, the very best deals don’t last very long. So, if you’ve got to deal with a custodian to access your retirement money, you’ll lose the deal. With the IRA Wealth System, you can immediately write a check from your Retirement account and land yourself the best possible deals.
Some of these individual strategies will save you a small amount of money, some will save you much more. But, when you combine them together, you are building yourself a tax-saving machine that can save you a small fortune and help you build lasting wealth.
Ira Wealth
Drew Miles is an attorney, investor and successful businessman. Since retiring from the practice of law in 2001, he has dedicated his career to teaching others how to build and protect wealth for generations to come. To learn more about his programs, you can visit http//www.taxsavingconcepts.com or call Pathfinder Business Strategies, LLC at (888) 695-2765.
* For purposes of our illustration, we are assuming you can write off 100% of your expense. While this is not likely, it simplifies the illustration of the concept.
** August 2005