Federal Income Tax Bracket

Tax Elimination, Wealth Strategies and Your Children

Executive Summary About Tax Elimination, Wealth Strategies and Your Children By Tom wheelwright

Tax elimination is my favorite type of tax planning because it permanently reduces taxes. A lot of tax planning is focused on just temporarily reducing taxes, this means you pay less tax today but will pay more in the future. Tax deferral has its place in a tax strategy but first I like to look for ways to eliminate tax and create permanent tax savings.

- How to Create Wealth with Tax Elimination Strategies
Even greater than the tax savings from eliminating taxes – which are substantial – is the potential of what to do with those tax savings. Tax savings and wealth creation are two powerful tools that create amazing synergy when used together. Whenever I do wealth coaching with a client, one of the first steps is to create their tax strategy because the tax savings work to supercharge their wealth creation.

- More Tax Elimination Strategies
Here is my C Corporation tax elimination tip in case you missed it:
Use a C Corporation’s initial tax brackets of 15% and 25%. If you are in an individual tax bracket of 25% or higher, then there could be an opportunity to eliminate taxes by shifting some of your income to a C Corporation.
What other taxpayers do you have in your tax strategy that are in lower tax brackets?

- Get Your Children in the Game
Of course, the IRS has special tax rules for children age 18 or younger (and in some cases age 23 or younger) but understanding these rules can provide opportunity to legally reduce your taxes.

These special rules tax unearned income received by your children at your tax rate. This means your children’s earned income is taxed at your children’s tax rates.
What is so exciting about using your children’s tax rates is that they can be even better than C Corporation tax rates! Your children’s tax rates start at 0%!
Are you ready to use this tax elimination strategy to reduce your taxes?

Hire Your Children in Your Small Business to Save on Taxes

Executive Summary About Hire Your Children in Your Small Business to Save on Taxes By Kristine Mckinley

Hiring your children in your business can be a great tax savings strategy, as well as a way to teach your children about business and money.
Wages paid to your children (between the ages 7 and 17) are a valid business deduction, as long as they do bona fide work, and they are compensated fairly.

Your children can earn up to $5,450 (the standard deduction amount for 2008) before they will owe any income tax. Because you are getting a business deduction for the wages paid to your child, this is income that you also will not pay taxes on.

In addition, if your children are under age 18, you don’t have to pay Social Security or Medicare taxes on them. You do not have to pay unemployment taxes on them as long as they are under age 21. This is a huge tax savings since you would have to pay these taxes on any other employee you hired.

Even if you pay your children more than the standard deduction amount, you will still come out ahead. In most cases, your children will be in a lower tax bracket than you, so by paying them a wage, you are shifting income from your higher tax bracket to their lower tax bracket.
Strategy: If you are paying your children more than the standard deduction, they can shelter even more income from taxes by opening an IRA account.

Hiring your children does not raise a red flag with the IRS, but you should document your children’s salary and services provided to audit-proof your tax return. Note: You may have heard of the “kiddie tax”. Earned income, including wages that you pay your children, are not subject to the “kiddie tax” rules, regardless of their age.

You get a business deduction for the wages paid to your son, saving you $1,400 (28% of $5,000). In addition, this reduces the amount of profit that is subject to self employment taxes (15.3% of $5,000 = an additional tax savings of $765). Your total tax savings in this example is $2,165.

Since your son’s earnings are less than the standard deduction amount, he does not owe income taxes on his earnings. You will need to keep time sheets showing the dates, hours and services performed. Filing Guide: You will need to file quarterly payroll tax reports (Federal Form 941, state payroll tax forms) for your children (even though no taxes are due). Sources: IRS Publication 15, Chapter 3, Family Employees

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