There are many proven strategies employed by the country’s wealthiest families and corporations to reduce taxes. And yet most people still don’t use them. The fact is probably the single most powerful way to explode your investment returns is to stop giving half of what you make away. We have been very busy this year helping clients set up platforms that allow them to defer and in some cases avoid paying taxes on their income or corporate profits. These are not questionable strategies that when the IRS comes looking will collapse and have you owing huge backtaxes. These strategies use specific sections of the tax code expressly written to provide these tax benefits. One of the strategies I’ll mention today is used by the majority of Fortune 500 companies and could be used by any profitable business. When you find out about this strategy you will wonder why on earth everyone doesn’t do it. For a business owner who is generating strong annual profits they can easily have to pay over 50% in taxes. This strategy allows the owner to dramatically reduce corporate taxes. Everyone is familiar with insurance and that premiums are a deductable expense. However did you know that there are specific sections of the Internal Revenue Code written that allow you to create your own captive reinsurance company that can sell insurance coverage to your primary business. Obviously there are well defined rules and laws that need to be followed. But imagine if you could take a substantial portion of your company earnings and pay a premium to another company you own to get valuable insurance. You can insure against risks that traditional companies wont cover such as the loss of revenue from a major referral source. Not only do you substantially reduce your taxes but you benefit from profits in the captive company you own. There are over 5000 captive insurance companies in existence. Fortune 500 companies and very wealthy families have accumulated millions in reserves and saved taxes. These savings and benefits could easily be enjoyed by small and medium sized businesses. There are many other strategies that can benefit individuals and companies in saving taxes. Like all financial strategies they are not a panacea, they work well given the right situation but all have pros and cons. But if you are not at least asking your advisors for ways that you can save or defer taxes you are leaving a lot of money on the table or more accurately allowing the IRS to take your money off the table when you don’t have to.

By Simon Leach

Mickelson Capital Consulting

This entry was posted on Friday, July 2nd, 2010 at 1:24 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.