Using standard tax laws, one should be able to effectively increase spendable income by ten to twenty percent
Siesta Key, FL (PRWEB) May 25, 2012
“Federal Taxes are your major obstacle to financial freedom, and the only way to lower taxes is to use the IRS laws,” according to Orem Utah attorney, Lee R. Phillips.
The Washington based tax research organization, the Tax Foundation, each year calculates the US taxpayer’s Tax Freedom Day. It’s the theoretical date on which a person stops working to earn enough money to pay his or her taxes and starts earning money for themself. For the average taxpayer, Tax Freedom Day comes sometime in mid April or early May.
That means all of the time spent working up until Tax Freedom Day is spent earning money to simply pay the tax bill at the end of the year. “Most people don’t stop and think about just how much they work to pay federal taxes,” said Phillips.
“People know they want to lower taxes and they try lots of things to save taxes here or there, but a good knowledge of the law is the best way to lower taxes. In a way, there are two sets of tax laws. Rich people use one set, and the rest of the population uses the other set. Both are perfectly legal,” Phillips says.
Find out 10 way to lower taxes here
He explained that, "it’s a Rich Dad Poor Dad concept. How people think about money and how they earn their money makes a big difference as to how much money they pay in federal taxes."
Warren Buffet pays all his tax at capital gains rates. He owes a lot of taxes, but his tax bill is calculated at a lower rate of taxation compared to his secretary. His secretary’s wage is taxed at an earned income rate, which is a higher rate than the capital gains rate all of Buffet’s income is taxed at. "Of course, the President can make the statement that Buffet’s secretary pays a higher tax rate than Buffet does. It doesn’t mean she pays more taxes. It only means her taxes are calculated at a higher rate," Phillips stated.
There are lots of Federal tax deductions that taxpayers can take advantage of, and every deduction helps. However, the standard deductions people are used to considering aren’t the ones that really make a difference, because standard deductions don’t lower the taxpayer’s adjusted gross income.
Phillips has prepared a set of tax tips that help lower adjusted gross income. Go to his site to get all the details.
Phillips says, “Accountants that never talk about lowering adjusted gross income, probably aren't helping their clients like they should.” The standard tax deductions, such as the home mortgage deductions, charitable contributions, medical expenses and other such deductions, come off the tax bill after adjusted gross income has been determined.
“It’s all in how one thinks. Think like Buffet and figure out how to get a lower tax treatment. Change from earned income to passive income, because the tax rules are very different,” Phillips said.
He gave an example illustrating how to change earned income into passive income, that can be used by most self employed taxpayers. He said to take the depreciated equipment in the taxpayer’s business and move it to a second company. The second company will then rent the equipment back to the taxpayer’s business.
When the taxpayer’s business rents the equipment, the rent is deductable to the business as an ordinary business expense. The income comes into the second company as passive income. If the second company is a “tax pass-through” entity, the owners of the second company will be taxed on the income they receive as “passive” income. That will save about 13% on the money moving to the owners of the second company, as compared to what the taxpayer would have paid if he or she would have paid tax on the money as “earned” income.
If the taxpayer is the owner of the second business, money earned in the business has been moved to the taxpayer with a 13% tax savings. If the owners of the second company are family members in a lower tax bracket, money “shifted” to the family members will possibly be taxed at a lower rate.
“Using standard tax laws, one should be able to effectively increase spendable income by ten to twenty percent,” insists Phillips.