112th Congress in Session – What Now?

The 112th Congress was sworn in today and they will begin their work tomorrow. But, what does this mean for those of us who own assets? Will this Congress be better than the last one? Will they do their jobs and pass legislation which is both constitutional and begin to solve the problems our nation faces? Or will partisan gridlock continue on unabated?
The 111th Congress passed, in December, legislation to keep the “Bush tax cuts” in place. So, for the next 2 years there will be no income tax increases and payroll taxes will actually be reduced for one year. But, President Obama has made it clear that he still will be pushing for the expiration of the tax cuts for upper income Americans (those making over $200,000 per year for a single person or $250,000 per year for a married couple). Obviously, the battle is not over, but is merely beginning. If you are one of the Americans earning that amount now, or hope to be earning it in a couple of years, you should still be concerned that your taxes will increase within a couple of years.
Remember the adage: “He who fails to plan, plans to fail.” Don’t let that happen to you. Use the next couple of years wisely, and plan to protect your financial future. Then, when the inevitable happens and your taxes are set to go up, you may be able to avoid those increases, because you have taken steps to keep your personal reported income below the level where the tax increases will take effect.
How is the best way to plan for this future? The proper use of business entities will give you many ways to help you reduce your income levels while still giving you total control over your income and other assets. The proper use of these entities will give you not only the tax benefits you seek, but also liability protection for your assets, so that if you are sued, your assets are beyond the reach of your creditors. Here are some of the steps you should take in these uncertain times:
First, thoroughly analyze your income sources. Separate your direct income (salary) from your indirect income sources. If you have stocks and bonds which pay dividends, this income is indirect, or passive, income and should be treated differently from your salary. Each source of income should come from a different legal business entity. If you have a job that pays a salary, stocks and bonds paying dividends and real estate paying rental income, you might want to consider forming at least 2 business entities to handle the flow of income. Use of the proper business entity will reduce your personal tax rate substantially.
Second, after you have separated your income sources, determine what the best business entity should be for each income stream. Your choices are several. You may decide to use a C corporation, an S corporation, an LLC, a Limited Partnership and/or a land trust. Each business entity has its own characteristics and will provide both asset protection and some tax benefits. You may find that a combination of business entities will provide you with the best asset protection and the greatest tax benefits. You may want to discuss the various options with an expert in asset protection.
Third, discuss the prospective business structure with your financial and legal experts. A word of caution is helpful here. You may find that your accountant or your attorney has no specific knowledge in the field of asset protection. Neither CPAs nor attorneys are trained in the field of asset protection, and the number of people in these fields with this specific area of knowledge is extremely small. Your attorney or CPA may simply say, for instance, “you don’t want to use a C corporation, it has double taxation.” In that case, you should take the advice given by Robert Kiyosaki, author of Rich Dad, Poor Dad, when he said, “Get another attorney.” You may find that people working for asset protection companies, such as CSS Nevada, have the specific knowledge you are looking for in this field.
Fourth, after you have mentally formed your asset protection structure, contract with an individual or business which has expertise in the field of entity formation in order to form your structure. Choose a company with whom you can work and make certain that they are as concerned about protecting your assets and getting you the best tax benefits as you are. Make certain the company you work with will provide consultation in the future because as you implement your business structure, you will have many questions concerning the use of the structure. Without the ongoing consultation, you will have done nothing other than form a few business entities. You must understand how the entities work together to provide you with the best asset protection and greatest tax benefits.
Finally, you will want to maintain the entities so that they retain their asset protection and tax benefits and will permit you to obtain your personal goals. This is extremely important, for a business entity which is in default because you failed to file the annual fees will not give you any protection, for the courts may very well disregard the entity if it is not in current status with the state of formation.
The use of the various business entities can help you reduce your personal tax to a level that will not be subject to future tax increases. Also, the proper use of these entities will protect the assets from a lawsuit against you or against one of your business entities. As a result, if you are the defendant in a lawsuit where you may otherwise lose everything you have, the use of these business entities will protect them from the reach of these creditors and may very well save all that you have worked for over the years.