I have a former investment partner who makes a lot of money; my guess is over $3 million a year. Last week she was telling me about minimizing taxes and she covered a few tactics that I’d like to share.
Salary Selection
She told me that she only earns $51,000 in taxable salary. She said, “Politicians say they want to tax the rich but they physically cannot do it. How can they tax the rich like me when the most they can attack is just $51,000?” I asked how she chose that amount and she replied, “You determine all of your personal expenses that cannot be deducted for any business or investment purpose. Add those up for an annual basis to select your annual amount. Another component in selecting a salary amount is to find out how much you are allowed to put into various qualified retirement plans. Then include this amount in your salary because only earned income can be placed into qualified retirement accounts.”
Entity Selection
“Your business income must flow into the correct corporate structures to maximize the tax benefits. By keeping and spending your money in the business, you can also build your corporate credit, put money into the best retirement structure, a Solo 401(k), and all the while protect your assets by holding them in the most appropriate layers of legal entities.”
Investment Selection
“Your investments should include the top-3 most tax-advantaged investments: direct gas & oil, direct real estate, and direct aviation. They offer the best depreciation schedules to reduce your taxable income. Of course, only invest if you’re well-educated on these asset classes and perform strict due diligence on them.”
I don’t think these are common tax-planning strategies for many business owners, let alone employees. However, business owners may want to investigate these methods to increase their after-tax cash flow to increase the amount of money available for spending and investing.