As I watch the presidential debates, I am in a panic. It appears that taxes are going up any way you slice it. McCain made the statement that the only president to ever raise taxes when the economy was in trouble was Herbert Hoover. McCain didn’t finish the thought with the next statement which should have been “and the tax increase was what lead to the GREAT depression.” Are the politicians really stupid enough to do it again – increase taxes when the economy is in a downward spiral? It appears so.
If taxes are going up on the small businesses and reasonably successful people in our society, what can you do? I am going to assume you are a small business person that will get hit. You may not be living flush, because every dime goes back into the business, but as far as the new tax laws are concerned, you will be the target. “You make too much money.” It doesn’t matter that you are growing your business with it and hiring more people. I understand that you’re not irresponsible enough to go out and buy a house you can’t afford or buy big toys. You need your money to do business. Even though you need the money to make your business survive, the new regime is going to take it away from you. How can you protect yourself and your hard earned money?
There are three basic ways that you can reduce taxes. Yes, there is the deductions trick, and I can turn you on to a lot of those. There are also a number of ways you can reduce your Adjusted Gross Income by large amounts, but to really start slashing your taxes on a consistent basis, there are only three ways.
- Defer the tax.
- Change the nature of the tax
- Shift the tax
Any one or more of the three might work for you. I can go through lots of examples, but here is a couple. Defer the tax – use a retirement plan or Section 1031 for example. Change the nature of the tax – as long as the capital gains is low (I am afraid they will do away with it) hold the investment long enough to get the favorable treatment. By the way, today’s rate of 15% is a gift from the feds. Shift the tax – use a Family Limited Partnership (FLP) or a Limited Liability Company (LLC).