In anticipation of the election and in response to public demand, Hillary and Bill Clinton have released their 2015 federal tax return. Tax returns have been a hot topic this year, as candidate Donald Trump continues to refuse to release his tax returns.
What can you learn from reviewing the Clinton’s tax returns about how to set up your business to save money on your own taxes?
Have a Plan
First and foremost, plan ahead and plan well, and this is the time of year to do it. If you have not already scheduled your year-end tax planning session with a CPA you love, contact us for a referral.
And if you are on one of our top-tier VIP membership programs, we’ll even attend the meeting with you.
So, what can you learn from the Clinton’s returns to save on your own taxes?
A few of the things they overlooked (or chose not to utilize due to potential public scrutiny or political backlash), that you can benefit from:
1. Incorporate your business
Incorporate your business and have it taxed as an S-corporation. Then pay yourself a small, but reasonable salary, and take the rest of your income via profit distributions. In this respect you can save big on self-employment taxes.
Most self-employed business owners are missing this major tax saving opportunity, including the Clintons (which cost them over $348,000).
2. Maximize your retirement plan contributions each year, either to an IRA or self-employed 401k
Not using a plan like this, likely cost the Clinton’s more than $40,000. However, it’s not too late for you to set up a retirement plan. This will will allow you to defer taxes on income you are saving for retirement, if you begin planning now.
Once the end of the year has come and passed, it will be too late for this year. Contact us to support you with the right kind of retirement plan for you and your business.
3. Consider changing your state of residence.
If you are self-employed or retired, be flexible about where you establish yourself as a resident. The Clinton’s could have benefited substantially by planning their state of residence. Currently their state of residence is listed as New York. New York has nearly 9% state income tax rate.
State tax rates vary considerably, from 0% in some states, such as Florida and Texas, to 13.3% in California. It is important for high net worth taxpayers to actively plan their state of residency. Perhaps after the Clinton’s are done with politics, they’ll consider spending more than half their time in one of those states. This move could save them more than $1,000,000 per year. This is not the first time the Clinton’s have been criticized for paying more tax than was due. It also isn’t the first time it has cost the charities they support, as a result.
3. Consider how you handle charitable contributions
In 1998, the New York Times ran an article that showed how the Clinton’s could have structured book royalties from “It Takes a Village” slightly differently. If they had sent the royalties directly to charity, rather than to Hillary Clinton first. Instead, an additional $32,000 went to the government because they didn’t limit the total deduction to just half her income. Don’t make the same mistakes as the Clinton’s and let your tax bill get the better of you. This is the time of year to be considering how best to save on the taxes you’ll pay next April.
If you have written a book or created another service or product with the proceeds going to charity, ensure that the income flows directly to the charity, and not to you. We can help you with this as well.
It’s always best to consult with an experienced legal and tax adviser to maximize the tax savings for your business.
Discuss Your Taxes with the Income Tax Law Professionals at Bridge Law LLP
As your lawyer, we take the time to get to know you and the things that are most important to you. Through this ongoing relationship, we are able to help advise you about the best ways to preserve and protect your assets for life.
This article is a service of Bridge Law LLP. We are an award-winning law firm that specializes in business and estate planning for clients like you. The goal for every family is to stay educated, avoid probate, avoid estate taxes, and build a legacy for you and your loved ones. What sets our firm apart is that we build lasting, lifelong relationships with our clients. They rely on us to keep them updated and provide sound legal counsel. Lastly, we are there for them immediately if any problems should ever arise. Not to mention, we don’t charge hourly fees to our families. You will never have to worry about speaking to us. If you’re ready to keep your family out of Court, contact us today to schedule an initial consultation.