b'5 Tax Reduction Strategies American Society for Asset ProtectionStrategy #3 - Maximize Deductions There are thousands of items that are allowed as Americans pay more in taxes each year than theybusiness expenses. You want to make sure as many spend on food, clothing, and housing combined, soexpenses as possible are deducted as business reducing your taxes to the legal minimum can greatlyexpenses. Expenses you may not be taking full increase your ability to build wealth. Judge Learnedadvantage of as a business deduction are your medical Hand said, Anyone may so arrange his affairs that hisexpenses. Within a sole proprietorship or an S taxes shall be as low as possible; he is not bound tocorporation, there is a limit on the medical expenses choose that pattern which will best pay the treasury;you can deduct. With the right provisions in a C there is not even a patriotic duty to increase onescorporation, you can deduct all medical insurance taxes. Supreme Court Justice Sutherland declared,premiums and all out-of-pocket medical expenses for The legal right of a taxpayer to decrease his taxes orco-pays, medications, first aid items, etc. to altogether avoid them by means which the law permits cannot be doubted. Here are five strategies to reduce your taxes to the legal minimum. Strategy #4 - Defer Income One way the IRS allows you to defer income is by Strategy #1 - Create Non-Taxable Incomecontributing to a retirement plan. A retirement plan that works well for a business with no employees The IRS allows you to rent out your home for up to(you may have another business with employees) is a fourteen days each year without having to declare theSimplified Employee Pension Individual Retirement rent as income. When a business partner or clientAccount (SEP IRA). The IRS allows you to comes into town and stays at your home, you cancontribute 18.58% of net profit (maximum of $50,000 charge your corporation rent for the room. You canper year) to your SEP IRA for retirement. If you have also have a company party or trainings at your home$100,000 net profit in your business, you would be and rent your home to your corporation for the day.able to contribute up to 18.587%, or $18,587, to your The corporation deducts the rental expense, and youretirement account. You would get to deduct the enjoy the rental income tax free.contribution, saving you thousands in federal and state taxes. Thus, money goes into your SEP IRA tax-free and grows tax-free. SEP IRA funds are taxed at Strategy #2 - Spread Incomeordinary income tax rates when qualified withdrawals If you are in a federal tax bracket higher than 15%,are taken after 59.5 years of age.you may be able to reduce your taxes by setting up a Nevada C corporation and have up to $50,000 of your income flow to this corporation. Nevada has no stateStrategy #5 - Proper Use of Entities income tax and has a federal tax rate of 15% on theThe tax rules are different for S corporations, C first $50,000 of taxable income. Your corporation cancorporations and Sole Proprietorships. You want to retain these earnings so you are not double taxed. Ifuse the entity or entities which require you to pay the you had a personal marginal federal income tax rate ofleast amount of tax. For example, if you operate your 28% and a state income tax rate of 7%, you would paybusiness as a sole proprietor, all profit (up to the $17,500 in federal and state income tax on thistaxable maximum) is subject to Social Security and $50,000. If, however, this $50,000 flowed to a NevadaMedicare taxes. In an S corporation, profits are C corporation, you may only pay the federal corporatedistributed through a K-1 and are not subject to Social tax rate of 15% (depending on the activity of theSecurity and Medicare taxes. Having your profits corporation), or $7,500, saving you $10,000 in taxes. flow to you as K-1 income, instead of as profit from a sole proprietorship, could save you thousands each year in Social Security and Medicare taxes.Another application of this strategy is to spread income to children in lower tax brackets. Instead of paying your childrens expenses directly with after-taxFor example, if a sole proprietorship has a profit of dollars, hire your children and pay them for the work$100,000, a 15.3% tax (12.4% Social Security tax and they do and have your children pay for their own2.9% Medicare tax) would have to be paid on the clothes, food, school, etc. from the money they earn.entire $100,000, totaling $15,300 ($100,000 x You can deduct the wages as a business expense, and15.3%). In comparison, if an S corporation has a your children will pay taxes at their lower tax bracket.profit of $100,000 and you pay yourself a reasonable(continued to page 18) 16'