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Could Your Tax Plan Harm Your Family?

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How to use permanent tax strategies to protect your loved ones

We all know how important reducing taxes can be for our family finances, especially during difficult times. But are some tax strategies better than others? Are there some that can provide benefits to our children for generations to come while others may actually hurt our loved ones when they need the money most?

The answer is a resounding yes!!! Most tax plans focus only on you and your current situation. Tax planners often don’t take into account the trouble that a temporary tax plan can cause your spouse, your family or even yourself years down the road.

More than anything, you don’t want your family to have any hassles when you die. You want everything to go smoothly. It’s enough that they'll have to deal with your death. You don’t want them worrying about how assets will be distributed, or dealing with courts over a contested will.

Let me tell you a quick story to illustrate this point.

John, one of my early clients at ProVision, was advised to defer as much money as possible into his retirement years by contributing as much as possible to the pension plan of his corner grocery store. It seemed like a great idea at the time. But years later, when his family needed the money after suddenly died, they discovered that they had to pay an enormous amount of taxes because of the money in John’s pension plan. In the end, this client’s temporary tax plan ended up preventing his family from living the comfortable lifestyle they were used to.

This all could have been avoided and the family spared this crippling tax burden if the client’s tax strategist had focused their efforts on permanent tax benefits. Don’t let this happen to your family.

Permanent Tax Benefits

Permanent tax strategies can include:

  1. Making your business a family business. Then, when you travel for business, your family’s travel is deductible. And you can shift income from your higher tax bracket to their lower tax bracket. This creates permanent tax savings.
  2. Employing children and contributing their nontaxable wages to a Roth IRA
  3. Set up a trust for charitable contributions. This way, the charity gets that asset when you die, and you can get a tax deduction for the contribution.
  4. Using a corporation to make medical expenses deductible and converting taxable income from ordinary income to capital gains.

How to include tax planning in your wealth strategy

When I create a tax strategy for a client, I also want them to be in control of their money and their taxes. In my firm, we focus almost entirely on permanent tax savings. By permanent, I mean tax savings that we never have to give back to the government.

Too many people ignore taxes when investing and planning their wealth strategy. They look at the return on investment as the return before they pay taxes on their investment income. This makes no sense. With taxes as your biggest expense, wouldn’t you want to look at every return on every investment after taxes? When you do, you may find that you are making a lot less on some investments than you thought and you are making more on others in comparison.

The challenge comes with getting your estate set up just right so that you get to choose who gets your wealth. That includes choosing how much of your wealth the government gets when you die. Like my mother, I don’t want to leave anyone with my debts. Nor do I want the government to have my assets. You know by now how I feel about the government getting anything more than I have to pay them. This includes when I die.

To learn more about tax strategies, get my book Tax-Free Wealth.

Original publish date: May 06, 2019

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