Saving taxes after this year will require a new approach!
Both parties plan to limit itemized deductions. They “story” is that they have not increase taxes because the tax rates are the same. Here is what is going on.
The two parties are working together to:
1. limit total itemized deduction to $50,000 .For example, your mortgage interest, real estate taxes, state income taxes, donations and medical cost are $75,000. Your total allowed deduction is $50,000. If your income exceeds $250,000, the $50,000 is reduced. The higher your income the lower your itemized deductions.
2. lower the tax rate on active business income. The rate will be 25%.
Both parties want the USA to create jobs by grabbing European businesses. So, they have decided to reduce the corporate tax rate to 25%. U.K. and EU small businesses work in corporate form. The average corporate tax rate in Europe is 25%. The US corporate rate is 40+%. The US is higher because we have state income taxes.
International tax planning will shift with more European firms moving to the USA to avoid the EU value added tax. An international tax plan using a related U.S. entity will be a big change. If you want to brainstorm your international tax planning, please call me, Brian Dooley CPA, for a free one hour consultation.
Foreign tax planning looks at the U.S. for one major tax advantage. It is the best value added tax haven. This tax is charged to when a business buys inventory and other goods and services. The rate average VAT is 22%.
How to save taxes in 2014:
1. You want to move income from your individual return to related party corporate return. Corporate taxes start at a 15% tax rate. The lower in Form 1040 income, the more you get in itemized deduction and tax credits.
2. If you have investment income, you will pay an excise tax of 4% on your investment income. The excise tax does not apply if your total income is less than $250,000.
Here are some ways to use a corporation to save taxes:
1. Have the corporation provide your business administrative support such as payroll, inventory control and computer services. Charge a fee for this activity. Take advantage of a tax haven state such as Nevada.
2. Use health reimbursement arrangement (“HRA”) tax law from last century. This plan does not need to cover everyone. The IRS provided easy to use in IRS Notice 2002-45. If you need a copy, then please call me at 949-939-3414.
3. Corporate retirement plans can be funded with shares in the corporation versus money. This is known as an ESOP.
4. Consider have a corporate defined benefit plan to save taxes and to protect assets. If you are older then fifty years old, your tax savings will be large.
5. Learn how to save taxes with this episode of my Blog Tax Talk below. This audio is about 12 minutes.