Strategies and Tactics

One of the biggest expenses that you will pay over your lifetime is income taxes. When you factor in federal & state income taxes and FICA, these can average between 25% - 40% of your earned income. If you own a business, these same taxes can run between 33% - 50% because of the inclusion of the employer FICA and unemployment taxes. As high as these tax rates are now, they are the lowest you are going to see over the rest of your life. With the expiration of the Bush income and estate taxes, Washington wants to drive these taxes higher to pay for all their significant deficits and the increases in the unfunded entitlement programs of healthcare, social security, and medicare. What other component of your cost structure takes so much?

As you have progressed in your career, hopefully your earnings have grown and you have started to invest in your retirement. The simple secret is time * compounding. The earlier you start to invest, the better the odds of achieving Financial Freedom. You should definitely have an integrated long term financial plan with a tax strategy. The following recommendations are some of the pertinent income tax strategies that will cover you over many years, and you will be able to make annual tactical actions year after year.

S. Probably the best tax strategy is to open your own business in the form of a pass through entity. ( Sub S Corporation, LLC, LLP, or Partnership)

T. Establish a QRP such as a Profit Sharing Plan or a Defined Benefit Plan in which you can deduct up to $49,000 - $240,000 / yr for yourself

T. Write off many more business/personal expenses (w/ bus. connection)

T. Sec. 179 write off any business investment up to $250,000 (Reduced to $25,000 in 2011)

T. Utilize any business loss pass-through to offset all other types of income

T. Employ family children for fringe benefits without income & FICA taxes

T. Establish college education expense fund

T. Grow business asset to sell at capital gain rates

S. W2 employees should maximize all pre-tax deductions and fringe benefits

T. Maximize participation in any employer 401k, 403b or 457 plan

T. Participate in Health Savings Account

T. Fully participate in Sec. 125 plans

T. Pre-tax deductions for medical insurance, childcare, & fringe benefits

S. Own house and raising family

T. Maximize tax credits (energy, education, children, & childcare)

T. Home office deduction

T. Deductions for real estate taxes, mortgage interest and points

T. Sale exemption of up to $500,000 as often as every 2 yrs

S. Invest in rental real estate property

T. Active mgmt vs passive (write off up to $25,000/yr against other income)

T. Write off all improvements and operating expenses

T. Deduct annual property inspection trip (FL, Hawaii, even Europe)

T. Personal use of property up to 14 days/yr

S Investments (both retirement and non-retirement)

T. Convert IRA &/or 401k to Roth – Recharacterize, if not favorable

T. Non-retirement assets - Focus on long term gains & qualified dividends

T. Off set cap gains with cap losses and other income up to $3000 / yr

S. Maintain or improve job / professional skills

T. Utilize Hope & Lifetime learning credits

T. Deduct tuition, education expenses & student loan interest in AGI

S. Prepay all tax deductible expenses

T. Pay all estimated state income taxes before 12/31

T. Make extra mortgage payment, RE tax & excise taxes before 12/31

T. Deduct all cash & non-cash charitable contributions up to 50% of AGI