The goal of income tax planning is to minimize your federal and state income tax liabilities. You can achieve this in different ways. Typically, the attorneys at Sidney B. Margolis, Ltd. look at ways to reduce your taxable income by deferring your income, shifting income to family members, and converting income to the more favorably taxed long-term capital gain which might otherwise be considered ordinary income. This applies to individuals and businesses equally. Along with income tax planning, Mr. Margolis also considers deduction planning, investment tax planning, and year-end planning strategies to lower your overall income tax burden.
By deferring income to a later year, you may be able to minimize your current income tax liability and invest the money that you would have otherwise used to pay income taxes. And when you eventually report the income, you may be in a lower income tax bracket. As an example, this may be accomplished by contributing part of your salary to a 401(k) plan or a traditional IRA. When you contribute to one of these retirement plans, you take a deduction on your income tax return in the year of the contribution and are taxed when the money is withdrawn.
You can shift income to family members by hiring them in a family business and paying them wages. You can also gift them dividend-paying stocks, which income would be reported by the recipients of the stocks. However, you must be careful with giving such stock to minor children. There are special rules when minor children are recipients of such income-producing assets, which reduce or eliminate any income tax benefits.
In certain situations, real estate developers can convert ordinary income into long-term capital gain by structuring the transactions following certain guidelines.
Investment tax planning seeks to minimize your overall income tax burden through tax-conscious investment choices. Several potential strategies may be considered. These include the possible use of tax-exempt securities and intentionally timing the sale of capital assets for maximum tax benefit.
Whether you are just starting a business or have been in business for a number of years, you must realize that the legal entity which you operate your company through – sole proprietorship, partnership, c corporation, s corporation, limited liability company – greatly affects the income taxes you pay. The attorneys at Sidney B. Margolis, Ltd. will consider for you the best entity for your business.
The above-discussed strategies are just examples of what Mr. Margolis and his staff can do to help you improve your income tax planning. Call Mr. Margolis to make an appointment to discuss your situation, and he will advise you as to how you can best legally reduce your income taxes.