When it comes to the idea of tax mitigation, or the strategies of simply paying as little tax as possible, some might ask–are these strategies legal? The concept of avoiding paying tax might conjure up images of sleazy billionaires weaseling out of paying their fair share to the government.
But there’s another, better way to approach the idea of tax mitigation. Simply put, you wouldn’t overpay for any other business expense when clear and legal discounts were available to you. At Financial Gravity, that’s how we approach tax mitigation strategies: the moral, ethical and legal way. That’s our promise to you.
Overall, your goal with tax mitigation is to minimize the tax impact on your overall financial status while ensuring the cash flow that you and your family require. With the right moral, ethical and legal tax strategy in place, you effectively increase your available wealth.
When you contact Financial Gravity to get your free assessment, our team members look over your tax and financial situation to determine possible strategies you could follow using the U.S. Tax Code to pay less tax, potentially saving you thousands of dollars annually. These recommendations then make up your Tax Blueprint, a detailed and customized tax strategy designed for you and your business. The following are some examples of possible legal and ethical tax mitigation strategies you might be advised to implement:
Take Advantage of “Opportunity Shifting”
“Opportunity shifting,” which allows a new or future business venture to be undertaken by the next generation through an entity separate from the existing business, can be a successful method in transitioning a family business to the next generation. Since taxation is connected to actual property ownership, shifting substantial future asset values to a family’s younger generation can be an effective means of mitigating tax. This can be done with the senior family members still in control as trustees, voting shareholders, partners or managing members in an LLC, while allowing the tax burden to be shared by younger family members. The key to making this work is identifying the right younger family members, as punitive “kiddie tax” rules apply to those under age 19 or dependent full-time students under age 24.
Consider Implementing Family-Controlled Entities
The various legal entities allowed under the tax code are key to effective wealth management. They secure your wealth and assets even against creditors’ claims. Consider setting up entities such as:
- Charitable trusts
- “C” and “S” corporations
- Family limited partnerships (FLPs) or limited liability companies (FLLCs)
There are advantages and disadvantages to each type of entity. When you meet with a Financial Gravity team member, part of the analysis of your wealth and taxes may consider the use of these entities and other setups to ensure long-term and multigenerational wealth preservation–all within the legal boundaries of current tax law.
Look Into Life Insurance Opportunities
Various life insurance products offer a number of ways to provide a tax-free or tax-deferred buildup of wealth. In fact, when life insurance policies are correctly implemented, they can provide a “double tax-free benefit.” Both deferred income tax benefits and estate tax reduction benefits result from having an appropriate family member or entity (someone other than the insured) be the owner and beneficiary of the policy.
Turn Many Personal Expenses into Business Expenses
By making use of tax code provisions, you can transform many personal expenses into tax-deductible business expenses. You should also check into the opportunity for younger-generation family members to gain valuable work experience in any family-controlled business or investment vehicle. They gain good work experience just starting out, and you can shift the salaries you pay them from being taxed at your maximum tax rate to their lower tax rate (probably zero percent!).
Overall, keep in mind that while you may be able to benefit greatly from these legal and ethical tax mitigation strategies described here, these few examples may not be enough in and of themselves to maximize your chances of achieving all that is important to you. What you need is a comprehensive tax strategy–a Tax Blueprint.
Requesting a free assessment talk will help you determine if Financial Gravity’s proactive tax planning program can save you money. Find out more about how you can bring on a financial planner who will truly assist you in employing the best investment strategies for your small business. Speak with a Financial Gravity team member: Let’s Talk!