The 2017 tax season has officially begun. Most tax experts recommend filing as early as possible. Yet before you file your taxes it’s a good idea to take some time to think about the different strategies that can help you reduce income taxes. While there are numerous legal strategies that taxpayers employ to lower their taxes, this post will only look at a brief selection just to give you an idea of what’s out there. These tax reduction strategies are presented for educational purposes only. When filing your taxes it’s always recommended that you consult with a tax expert.
Reduce Earned Income Taxes
In a recent post, I discussed the various tax credits related to home improvement projects. In particular, adding solar panels to your home can greatly reduce your tax burden. Business owners have a number of strategies that they should consider to reduce earned income taxes. Below are two strategies that are worth highlighting.
- Micro-Captive Reinsurance Company – Businesses that earn less than $2,200,000 of profit can utilize this plan to significantly reduce their tax burden. Read this article to learn more.
- Employee Stock Ownership Plan (ESOP) – ESOPs help reduce business owners’ tax burden by converting their business into a tax-exempt entity. While ESOPs have a number of tax benefits, they are also a great option for motivating employees. Visit this link to learn more about ESOPs.
Indexed universal life (IUL) plans have lower expenses than many other assets. They also don’t have any stock market risk and, historically, have a higher return than the stock market. There aren’t any IRS contribution or income limits associated with IUL plans like there are with Roth IRAs. To learn more about the benefits of IUL plans, read a previous post I wrote on the subject.
Estate taxes are especially damaging for high-net-worth families. There are three strategies that families should consider to reduce the burden of estate taxes: lifetime gift tax exemption, family limited partnerships, and irrevocable trusts.
- Earlier this month Rande Spiegelman wrote an excellent article for Charles Schwab that explains lifetime gift tax exemption. You can read the article here.
- A Family Limited Partnerships (FLP) is another strategy that’s used to transfer wealth between generations. A General Partner or Limited Partner manage the FLP’s assets. These partners can’t sell their interest, but they can transfer them to family members. Learn more about the details of FLPs at this link.
- Once a grantor transfers funds to an irrevocable trust, he or she can no longer claim ownership of the assets. Grantors are able to dictate the rules or terms of the trust. This article has more details on irrevocable trusts.