A tax strategy is a plan for reducing taxes, regardless of your business or investment situation. It is a strategy developed to ethically ensure you pay the least amount of tax allowable by law.
Retained Earnings (C Corporations)
Are defined as cumulative net income since corporate inception, minus dividends that have been declared since inception. These earnings are reported in Stockholder’s equity section of the balance sheet. The retained surplus that isn’t distributed to partners and shareholders is subject to taxation if the organization’s retained earnings reach a $250,000 threshold. Any amount beyond this becomes subject to a supplemental corporation tax at 39.6 percent unless the organization is able to justify a significant reinvestment of profits. The IRS makes exceptions on supplemental tax liability when businesses demonstrate how they plan to use these retained earnings.
Family Limited Partnerships
Are a legitimate business structure used by families to pool their resources for business and investing purposes. Each family member involved in the partnership becomes a shareholder and has specific powers and authority based on the partner role the charter or operating agreement as either a General or Limited Partner.
Advantages of a FLP are Asset Protection, Avoiding Probate since FLP assets are not subject to probate although each person’s share in the FLP is subject to probate, and Business Succession Planning for passing on Business interests in the event of a Member’s death.
Business Related – Simple IRA’s 401K’s
401(k) - Employer sponsored retirement plan. Contributions are often taken directly from payroll. Employee contributions are made with pre-tax dollars and are tax deductible. Provisions can and often do allow for Employer Matching contributions up to a specified percentage of income.
403(b)- A retirement account designed for certain employees of public schools and other tax-exempt organizations such as hospitals, churches and certain other medical facilities. Participants may include teachers, school administrators, professors, government employees, nurses, doctors, and librarian sallows participants to save money for retirement through payroll deductions while enjoying certain tax benefits. There's also an option for the employer to match part of the employee's contribution.
Deferred Compensation Plans - Retirement plans that allow an employee to defer part of their compensation until a future date. The employee does not pay income tax on the deferral until it is received. They can be qualified plans such as a 401K or 403b or nonqualified. A non qualified plan is typically used for highly compensated employees and can be set up so it does not need to include all employees,
Defined Benefit Plans - These are like traditional Pension Plans. They are employer sponsored plans that will pay a benefit based on factors such as salary and years with the company. They have a set amount that they will provide at retirement and contributions are made to reach that specified amount.
