Who Wants to Reduce Taxes on Their Real Estate Investment Income?
May 24th, 2017 | top of page
I recently met someone who can help you combine the twin problems of business risk and high taxes and, as a result, make yourself more money!
Her name is Victoria Powell and I want to share just one of her insights with you.
Victoria likes to quote the negotiating master Chris Voss (www.blackswanltd.com/about/team/chris-voss): “Don’t be so sure of what you want that you won’t accept something better.” Maybe there IS something better you can do to reduce your taxes on your real estate investments.
According to the most-recent Price Waterhouse survey, 70% of CEOs say taxes are the greatest threat to business growth. I think we can all agree taxes are a problem. They hit successful business owners, professionals, and entrepreneurs harder than anyone else.
Here’s just one idea from Victoria …
Transition from Being Highly Taxed to Having a High Net Worth
Victoria works for The Highly Taxed. The highly taxed are definitely not the rich. They’re people like you who work hard and earn a good living. They’re trying to get from High Earning Power to High Net Worth.
The very wealthy and the ultra-wealthy have money that makes money. They have a huge advantage over those of us who work for a living. Those advantages are built into tax law. They’re not enshrined into the tax code for any good reasons. They’re there because no politician is worried about being fair to the 1%. However, it’s bottom of the 1% who are taxed like crazy while those in the top 0.1% pay very little (or nothing if you’re The Donald).
Your CPA Can’t Really Help You Pay Less Tax. You Need a Better Strategy!
So people who work hard and earn a lot are punished. That’s why they’ll dabble in tax savings areas like real estate or oil wells. Speaking about their CPAs, these hard workers say things like: “He’s good, but every year I ask him how can I pay fewer taxes, and he never tells me what to do.” Sound familiar?
It’s not that easy to know everything in the massive internal revenue code and regulations. Your CPA probably has his or her plate full just with your data and making sure it is properly organized and reported. After all, this is what you hired him or her to do.
That Better Strategy is Income Tax Avoidance Planning
This is what Victoria does. She’s not an accountant. She’s a tax lawyer and specializes in Income Tax Avoidance Planning. That’s avoidance, not evasion. Evasion is illegal. Victoria employs nice, legal, middle-of-the-fairway, use-what-they-allow avoidance techniques. This also means she thinks about all the things tax touches: your assets, your businesses, your family, your values, and your causes.
Is Your Commercial Insurance Company Really Your Friend?
Business is full of risks. The more risks you have, the more you have to lose. That’s what insurance is for. However, commercial insurance is a business; but it’s someone else’s business.
When you buy commercial insurance, your premium is covering your insurance company’s overhead, its administrative costs, shared claims, marketing, advertising, commissions, etc. Oh, and also the profit the insurance company earns.
Insurance companies have actuaries and lawyers who write policies that are a lot like Swiss cheese: they’re full of holes. Included with the cheese you can actually eat, you also get lots of air you can’t eat. The air in your commercial insurance policy are the risks you thought were covered, but aren’t.
What isn’t covered in your policies probably includes some scary stuff. Unfortunately, you don’t necessarily know what that uncovered stuff is. When you buy a policy, you don’t even know what’s in it because your insurance company doesn’t give you the whole policy. They give you a Declarations Page which summarizes your coverage. Unfortunately, summaries don’t count when it’s time for you to file a claim and that, of course, is when you find out what isn’t covered.
A Better Way to Insure
What if you could insure yourself using a better way than how you’re doing it now? You’re already assuming all the risks that aren’t covered. You just don’t know what those risks are! There is a better way. It’s called Self-Insurance.
Now self-insurance sounds risky and potentially expensive. However, that’s not necessarily so. It’s simply good business.
You might also think self-insurance is just for the wealthy. However, there’s actually a somewhat obscure section of the Internal Revenue Code, 831(b), that lets rather ordinary business owners form and own their own, small insurance company called a Captive Insurance Company. It’s simple to understand, but pretty technical to execute properly.
With Victoria’s help, you can form your own insurance company in one of the many states whose laws permit them. Then, you pay premiums to your Captive Insurance Company just like you pay insurance premiums for other business, property, casualty, and liability insurances. However, your Captive Insurance Company can write custom policies that fill the gaps left by your commercial policies and can be designed for your particular business risks. You might insure against Errors and Omissions, Directors and Officers Liability, Employment Practices, Legal Defense Costs, Copyright Infringement, Cyber Liability, Regulatory Audits, and Property Damage just to name a few.
The use of Captive Insurance Companies by small businesses to provide better coverage for themselves than they can afford or is even available in the commercial marketplace is encouraged by Congress because Congress wants businesses to succeed and provide for themselves.
Use Insurance Premiums to Avoid Taxes on Up to $2,200,000 Excess Income
This is why premiums paid to your Captive Insurance Company for property and casualty coverage are 100 percent deductible as ordinary and necessary business expenses provided those premiums are comparable to market-rate premiums charged for similar commercial insurance coverage.
More importantly, Section 831(b) of the Internal Revenue Code allows your Captive Insurance Company to elect to receive up to $2.2 million of annual insurance premiums without income tax. Only the investment income on the premiums is subject to income tax. The effect is to allow up to a $2.2 million annual deduction that is received tax-free in the same year by an affiliated company. Now if that doesn’t make you feel like you’ll be having Christmas in July, I don’t know what will.
A Captive Insurance Company is NOT for Everyone
Unless you have $200,000 or more excess cash you want to avoid paying taxes on, a Captive Insurance Company is probably not the best way for you to go. But, even at $100,000 of surplus income, you should be thinking about alternatives to the vanilla 401K. Victoria has other strategies for you to employ.
Start Now to Avoid Taxes on Your 2017 Earnings
There’s still time to form a Captive Insurance Company for 2017. If you qualify and want to start one, you’ll have to hurry and call Victoria ASAP because this is her busy time of the year, and this work isn’t for sissies.
After you engage Victoria, you’ll have to do some serious reading of her emails, provide the documents and data she requests without whining about how much work it is, and listen carefully on conference calls which she promises to keep as short as possible in the interest of your time.
Beware: not all Captive Insurance Companies are created equal. You’ll only want one that is fully compliant, meets all the state and federal requirements, and fills the holes in your current insurance portfolio. Victoria is more than a little strict about this.
Don’t Be One of the Highly-Taxed Again—Act Now! Getting Started Is FREE!
If you think you’re going to be highly taxed again this year, call Victoria at 602.324.7440 x4 now, or text “Victor” to 701.566.9898, and she’ll take a FREE look at your business for its potential 2017 tax savings.
Given our new president is trying to implement tax reform this year, you’ll want to stay nimble and handle tax reform with an eye toward keeping more of what you earn in 2017. In order to count on keeping more of what you earn in 2017, there’s a lot of proactive tax planning that needs to begin now. This is especially true if you’ll be setting up a new retirement plan or a Captive Insurance Company, or if you’ll be planning a charitable trip to a poor, but beautiful, Caribbean country. Unless you begin your tax planning with Victoria now, all you can count on is more tax pain.
And, by the way, a Captive Insurance Company is only one of the many weapons in Victoria’s tax avoidance, fee reduction, and loss avoidance arsenal. So, be sure to ask her about other ways to avoid paying tax. I’ll be covering these methods in future articles.
Find our more at www.victoriajpowell.com, email Victoria at firstname.lastname@example.org, or text her at 701.566.9898. You’ll be glad you did!
Dedicated To Multiplying Your Income
PS – If you are ready to begin to thrive again by getting off the sidelines and putting your money to work give me a call at 602-320-6200. I see lots of deals and may have just what you are looking for.