LLC tax shelter strategies that work [With Pictures]

Last updated : Sept 20, 2022

What is the best tax option for an LLC?

Benefits of Corporation Taxation Classification LLC owners are sometimes reluctant to choose corporation tax status out of fear of double taxation or more complicated filings. However, corporation status is the best option for some LLCs and should be considered.

What are some strategies you can use to lower your tax liability?

• Earn tax-free income.
• Maximize deductions.
• Maximize tax credits.
• Contributing to a retirement account – 401k or IRA.
• Opening a health savings account.
• Contributing to employer-sponsored plans.
• Profiting from investment losses.
• Check for flexible spending accounts at work.

What are some of the best tax shelters?

Qualified retirement accounts, certain insurance products, partnerships, municipal bonds, and real estate investments are all examples of potential tax shelters.

What are the 3 basic tax planning strategies?

There are a number of ways you can go about tax planning, but it primarily involves three basic methods: reducing your overall income, increasing your number of tax deductions throughout the year, and taking advantage of certain tax credits.

How does an LLC avoid paying taxes?

A general Corporation making a Subchapter “S” Election or an LLC with or without a Subchapter S Election pays no federal tax on its taxable income and no employment taxes on its distributions to stockholders.

What are the 3 types of LLC?

• Single-member LLC for the sole-proprietorship (solo entrepreneur)
• Multi-member LLC (member-managed LLC or manager-member LLC)
• Domestic LLC and Foreign LLC.
• Series LLC.
• L3C Company (low-profit LLC)
• Anonymous LLC.
• Restricted LLC.
• PLLC and LLC.

How do high income earners avoid taxes?

Employer-based accounts such as 401(k) and 403(b) accounts allow you to lower your taxable income easily. That's because every dollar you put into these accounts is not taxed until you withdraw the money from your account -- and that reduces your tax burden each year you contribute.

How do business owners avoid taxes?

1. Account for Business Losses. Keeping track of business losses is a great way to reduce the amount of taxes you owe each year.
2. Consider All Expenses Such as Rent and Utilities.
3. Deduct Assets to Charity.
4. Utilize Startup Deductions.
5. Deduct Your Vehicle.

How do you reinvest profits to avoid tax?

1. Practice buy-and-hold investing.
2. Open an IRA.
3. Contribute to a 401(k) plan.
4. Take advantage of tax-loss harvesting.
5. Consider asset location.
6. Use a 1031 exchange.
7. Take advantage of lower long-term capital gains rates.

What qualifies as a tax shelter?

Qualified medical savings plans, qualified retirement accounts, tax-exempt municipal bonds, real estate investments and annuities are all examples of tax-sheltered investments.

Is real estate the best tax shelter?

Investors use real estate as a path to building wealth. This is mainly due to its generous tax benefits. Real estate offers tax sheltering through depreciation, operating expenses, long-term capital gains, and 1031 exchanges.

What is an abusive tax shelter?

What is an abusive tax shelter? Abusive tax shelters are transactions promoted for the promise of tax benefits with no meaningful change in a taxpayer's income or assets. These transactions typically have no economic purpose other than reducing taxes with predictable tax losses or tax consequences.

What is the kiddie tax rule?

The tax applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24) and works like this: The first $1,150 of unearned income is covered by the kiddie tax's standard deduction, so it isn't taxed. The next $1,150 is taxed at the child's marginal tax rate.

What are common tax planning strategies?

• Utilize Depreciation.
• Section 199A and the 20% Pass-Through Deduction.
• Timing Considerations.
• Accounting Method Planning.
• Utilize Charitable Contributions.
• Pass-through Entity Taxes.
• Reporting Foreign Assets.
• The Importance of Tax Planning.

How do you create a tax strategy?

1. Generate passive income.
2. Identify investments with the best return on tax savings and earnings potential.
3. Understand loopholes of the tax system.
4. Reduce their tax bill on their very next return.
5. Properly plan their finances for the future.

What is the downside of an LLC?

Disadvantages of creating an LLC Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office.

How much can an LLC write off?

If you have $50,000 or less in startup costs and are in your first year of business, the IRS allows you to deduct $5,000 in startup costs and $5,000 in organization costs from your taxes. If your startup expenses exceed $50,000, the total deduction will be reduced by however much your expenses exceed $50,000.

How do LLCs maximize tax deductions?

1. Take advantage of start-up costs and additional expenses.
2. Record legal and professional fees.
3. Deduct advertising expenses.
4. Include membership and educational expenses.
5. Track new equipment or software purchases.
6. Make interest work for you.

How can I avoid $800 franchise tax?

The only way to avoid the annual $800 California franchise fee is to dissolve your company, file a 'final' income tax return with the FTB and to submit the necessary paperwork.

Can I file my LLC and personal taxes separate?

The IRS disregards the LLC entity as being separate and distinct from the owner. Essentially, this means that the LLC typically files the business tax information with your personal tax returns on Schedule C. The profit or loss from your businesses is included with the other income your report on Form 1040.

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what is a tax shelter and how does it benefit you fiscally instead of seeking increasingly obscure and possibly shitty ways to reduce your tax liability why not stick to proven tactics like invest in a real estate itemizing your deductions and saving for your retirement or your kids college decisions made just to lower fiscal debt without factoring your overall financial health and goals into the equation tend to be sub optimal decisions anyway welcome back folks to another edition of sweetie kiwi how you doing today i hope you are doing fantastic i'm doing marvelous if you are doing as great as i am go grab a cup of coffee or tea or vodka and let's roll today i want to talk to you about a tax shelter tax shelters in general and how they benefit you fiscally a tax shelter is a place to put your money where it will be saved from the long arm of the tax man the irs and many state many state tax authorities many people think of tax shelters negatively but they are completely legal and legitimate ways to decrease your taxable income the you know congress has made things that way so it is legal it is legit common examples of tax shelters are home equity and 401k accounts now a tax shelter is different though from a tax haven because a tax haven is a place outside of the country where people can stash money in order to avoid paying u.s taxes or you know the taxes of the country where they're located now let's talk about two types of tax shelters here deductions now this is a tax shelter that allows you to minimize or eliminate your tax liability either permanently or temporarily for example if you make a donation to a qualified charity you can out and you itemize your deductions and deduct that donation reduces your overall tax liability in that particular year remember if you make a donation you have to itemize you can't just use the standard deduction you will never have to pay taxes on the money you gave to your favorite charity of course the charity has to be 501c3 in other words has to be approved by the irs you can also deduct extraordinary medical expenses mortgage interest and student loan interest to name just a few tax liability minimizing strategies right so the bottom line here is that those are tax shelters those deductions are tax shelters because they allow you to ultimately pay a lower tax amount to the irs and to state tax authorities let's go down to the second tax shelter i want to talk to you about retirement accounts now whether you're talking about an ira an individual retirement account or a 401k a tax deferred retirement account is also a tax shelter though not a permanent one so when you contribute to a 401k or a deductible traditional ira we've spent a lot of time on a lot of shows on iras and 401ks and roth iras and wrath 401k so you might want to double check our series on retirement personal retirement to learn more about that about that um topic so i was i was just actually talking about the fact that if you contribute to a 401k or a deductible traditional ira your taxable income is reduced by the amount of your contribution because the deduction is pre-tax so your money grows tax deferred meaning that it can accrue interest and earnings then are there not taxed from year to year this is not a permanent tax shelter though because you will need to pay taxes on that money at some point and the irs will collect income tax once you start taking distributions in retirement right now the thing here is that the the logic behind this the retirement account being a tax shelter is that authorities and most people experts believe that your income tax bracket in retirement will be lower than your income tax bracket in your active years so that you are paying less taxes on the overall amount you know the overall amount being deferred and being invested for retirement purposes a 401k and traditional ira are not the only retirement accounts that offer shelter for from tax liability you have something called a retirement account and this goes by the name tax shelter annuity so employees of public schools and certain nonprofits organizations are those who may have access to a 403b plan and similar to a 401k a 403 b lets employees contribute pre-tax dollars to a retirement account that grows on a tax-deferred basis again anything that is retirement oriented is not a permanent tax shelter it is a temporary one because sooner or later you're gonna have to pay taxes on them and this is different from a deduction a deduction is a permanent tax shelter once you deduct if you deduct your mortgage interest or your medical expense or your donation or your student loan interest this will reduce your tax liability asap and you know this is a one-time thing all right i'll be right back right after this don't go anywhere welcome back folks to another edition of the awesome sweaty kiwi show we are still having a conversation today around what a tax shelter is and how does it benefit you fiscally let me give you another tax shelter before i do this i just want to say if you love the content that you are hearing today you love the clarity and the quality please consider subscribing to our channel because we have much more many many more shows coming and turn on the notification bell so you are aware when we release a new show also like this content share and comment below home equity now home equity is a great tax shelter one of the reasons that buying a home is such an important financial milestone is that home equity increases your net worth so while paying down your home mortgage is liberating financially and emotionally if you never sell your house you will not reap the benefit of that home equity unless you take a home equity loan or home equity line of credit right so if you do sell though you'll see why home equity is such a valuable tax shelter home equity just for those who are not familiar let's say you buy a home you buy a house for five hundred and you buy this and after 20 years the house value jumps to 750 000 the home equity is the difference between the the market value of the house and the moment versus how much you paid for it or how much mortgage actually how much mortgage you have left in the home in the house so if let's say for simplicity sake if you owe 500 000 on the property and the property is worth 750 your equity is 250 000 so that's 750 000 minus 500 000 all right so the the irs exempt the first 250 000 or half a million for a couple of home sale profits from capital gain taxes you heard it right the irs the agency will exempt you so you that's just pure profit so you and your spouse could reap a half a million profit from a home sale and not pay taxes on it that's that's just beautiful this is just this is a great tax shelter i'm not even talking about the fact that you have already garnered other tax shelters while you had the house because you were paying mortgage interest right so that's just a double win let's talk about investments so if you let's say you are already on track with your retirement savings and you've taken all the relevant deductions and you still have money that you want to shelter from the

Thanks for your comment Renate Nasson, have a nice day.
- Chi Zella, Staff Member

hi lee phillips here i'm getting a little casual these days but hey you know i'm a li a a a lawyer and that uh i'm actually a united states supreme court counselor so uh any rate what i want to talk about is using your small business as a tax shelter what you've got to understand is there's very little you can do to actually lower your taxes we talk about in accounting what we call above the line and below the line accounting the line is the adjusted gross income line it used to be the bottom line of page one of your 1040 form before donald trump screwed around with the tax forms themselves but it's still the adjusted gross income line anything above the agi line either adds to or subtracts from your adjusted gross income chokes me all up and your agi is the magic number it determines what your tax rates are and well not really but basically yes and whether you get your deductions and your exemptions and whether the amt kicks in and alternative minimum tax and all of this stuff anyway it's the magic number so what we need to do is get your agi down as much as we can the only thing you can do as an individual to get your agi down is basically contribute to a standard ira not a roth standard and if you're a teacher you can buy supplies on the third sunday of the fourth month if there's a full moon and a bunch of stuff like that but you can't do anything bottom line your little business is a tax shelter because it comes in above the line and you can do things with your little business that you can't do as an individual we can deduct cell phones and computers and travel and all kinds of things that you can't do as an individual so your little business is a big deal the problem is you've never had your accountant come in and put his arm around you and say you know we need to teach you how to use your little business as a tax shelter if you use it properly it will give you a tax advantage that might be even bigger than your profit advantage so you need to plan every day of the year how do i get my track tax transaction so that it actually makes a difference or how do i do this transaction so that it makes a difference on my taxes at the end of the year and you've just got to start thinking like that but using your little business as a tax shelter can be huge somehow you know people who are little business people kind of tend to do better financially sometimes yes the business can fail but even if the business is just moderate if you use the business as a tax shelter it will give you a lot more money and if it's a great business and you use your business as a tax shelter you can make a lot more money i actually went out on the internet years ago to see how people could lower their adjusted gross income and there's nothing out there on it and so i started to think about it and i've actually written a book called the advanced tax tactics which gives you ten ways to lower your agi and i'm not talking a thousand or two thousand dollars i want to lower twenty five fifty a hundred thousand dollars and you can do that if you actually learn to use your little business as a tax shelter this is lee phillips don't forget to subscribe and uh look into the advanced tax tactics but this this concept of designing your tax numbers all year long so that you give the accountant dude his numbers at the end of the year and you get a great tax result this concept is something that needs to be ingrained in you and taught to you we have tax summits every once in a while where my you can't call him a business partner because lawyers and accountants can't can't mix but the guy that i work with uh he's a former irs agent special auditor and he's really good at taxes so we sit down and discuss how to use your little business as a tax shelter for a couple of hours and it's well worth your time lee phillips here use your business as a tax shelter

Thanks Hilary your participation is very much appreciated
- Chi Zella

About the author

Chi Zella

I've studied aerospace engineering at Cornish College of the Arts in Seattle and I am an expert in cataloging. I usually feel determined. My previous job was cook (fast food) I held this position for 16 years, I love talking about freestyle football and microscopy. Huge fan of Pierce Brosnan I practice equestrian: eventing and collect prizes.