Posted in Taxes on Feb 7th, 2008 3 Comments »
Its tax season again, and there have been quite a few new rules added to our million-plus lines of IRS code.
- Forgiven home debt is now non-taxable.
But there are a few restrictions:
1. There is a limit on the forgiven debt: up to $2 million or $1 million for a married person filing a separate return.
2. The tax break also has a time limit. It only applies to mortgage debt discharged by a lender in 2007, 2008 or 2009.
3. The loan also must have been taken out to buy or build a primary residence, not a second or vacation home. If debt is forgiven on those additional properties, the owner will owe cancellation of debt income as usual.
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I dislike paying taxes as much as the next guy. But instead of complaining I’ve put my money in investments that give me tax breaks like real estate and oil drilling programs.
However, some people hate paying so much that they’re willing to live below the poverty level just to avoid “qualifying” for taxes. Here’s a war protester that refuses to pay for the Iraq war and has decided to live on less than $12,000 a year.
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Posted in Taxes on Apr 15th, 2007 3 Comments »
It’s general belief that wealthy people don’t pay taxes. While this is not necessarily true, what is true is that they usually pay a lot less as a percentage of their income than a single guy making $85,000 a year.
A single guy making $85,000/year pays Federal Income Tax and Social Security Taxes. Assuming he has no deductions, his tax for 2006 comes out $15,766 or about 18.5% average tax rate (and a 28% marginal tax rate).
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Posted in Taxes on Apr 13th, 2007 5 Comments »
One of ways people save on their taxes is by splitting their income. You set up a separate legal entity for tax purposes and it pays its own taxes.
If you’re a regular w-2 wage earner (an employee working for someone else) you won’t have this option available to you.
But if you’re doing some consulting work on the side, if you’re self-employed or if you’re a small business owner, setting up a separate corporation can save you a lot of money.
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A lot of people think that you only form a corporation if you’re establishing a business at a physical location. However, if you’re doing anything that generates some income like consulting or even investing, you can form a corporation and you probably should do so. There are several good reasons to incorporate but the main benefits are asset protection and tax savings, both of which are necessary to create and preserve your wealth.
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One of the basic criteria for the perfect investment is the ability to shelter your profits from taxes. If you can compound your money without having to pay taxes on it every year, you’ll become wealthier much quicker.
Normally investments like stocks, mutual funds and CDs are subject to taxes. But stocks and mutual funds can be sheltered from taxes by investing in retirement plans. Plans like a 401(k) or an Individual Retirement Account (IRA) avoid the tax hit when you put money into the account where it can grow tax-free until retirement. At that point, you must pay taxes on the withdrawals. However an account like a Roth IRA is the opposite. You pay taxes on the deposits, but the withdrawals are tax-free. Not only that, you need not wait until retirement either. After 5 years you can withdraw your deposits (but not the gains accrued) without penalty or taxes.
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