Taxes For Dummies!
THERE EXISTS A LOT OF UNCERTAINTY AND CONFUSION OVER HOW WE SHOULD APPROACH
EACH OF OUR TAX ISSUES RELATING TO THE COMING INTEREST WINDFALLS.
SOME ARE DETERMINED TO AVOID TAXES ALTOGETHER. (NO JUDGMENT HERE!)
SOME WISH TO PAY ABSOLUTELY AS FEW TAXES ALLOWED BY LAW AND WILL GO TO GREAT
LENGTHS, (LLC's, OFF-SHORE AND SWISS ACCOUNTS, ETC.), TOWARD THIS GOAL. (GO
FOR IT!!!)
THEN THERE ARE THOSE "LESS AGGRESSIVE" TYPES WHO COVET A GOOD NIGHTS SLEEP TO
COMPLEMENT THE COMING WEALTH.....HEY....THAT'S ME!!!!
SOOOOOOOOO....OVER THE RIVER AND THROUGH THE WOODS TO MY CPA I GO!
AND THIS IS HOW IT WENT....
Q. SHOULD IT BE A MAJOR CONCERN THAT THE IRS. WILL BE "ALERTED" WHEN A DEPOSIT
OF $10K OR MORE IS DEPOSITED INTO MY DOMESTIC BANK ACCOUNT?
A. FIRST OF ALL, ONLY WHEN A DEPOSIT OF $10K+ "IN CASH" ARE YOU REQUIRED TO
FILL OUT AN 800 SERIES FORM DESIGNATING THE ORIGIN OF THE CASH.
Q. SO, WITH A FUND TRANSFER, SAY A BANK WIRE, SHOULDN'T SEND UP RED FLAGS WITH
BELLS AND WHISTLES?
A. NO. THE FACT THAT THERE IS A SUDDEN INCREASE IN AN INDIVIDUALS INCOME,
ACCOMPANIED OF COURSE BY THE CORRESPONDING TAX RESPONSIBILITIES, IS NOT CAUSE
FOR THE IRS TO CAST A SUSPICIOUS EYE.
Q. WELL, COULDN'T THAT AT LEAST TRIGGER AN AUDIT?
A. NOT NECESSARILY. THE RED FLAGS THAT MOST INTEREST THE AGENCY ARE
DISCREPANCIES AND ANOMALIES BETWEEN INCOME, DEDUCTIONS CLAIMED, AND NET TAXES
PAID.
Q. OKAY...I THINK. NOW TO THE QUESTION OF MY TAX BURDEN, SAY ON $650K AND
BEYOND. WHAT ARE THE TAX RATES AND OBLIGATIONS ON THIS INCOME?
A. FROM WHAT YOU HAVE SHOWN ME THE PAYOUTS FROM SOLID INVESTMENT IS "PASSIVE
INTEREST INCOME". IT BELONGS IN THE CATEGORY OF "CAPITAL GAINS".
A. THE TAX REQUIREMENT ON CAPITAL GAINS IS 15% FEDERAL AND THE STATE TAX HERE
IS 6.5% WHICH COMES TO A TOTAL OF 21.5% ON ANY INTEREST PAYMENTS RECEIVED.
Q. OKAY...SO ON $650K MY "TOTAL" TAX OBLIGATION WOULD BE...LETS
SEE...$139,750. JEEEEZ, THAT'S A LOT OF TAX... BUT THAT WOULD LEAVE ME
$510,250...RIGHT?
A. CORRECT. AND WITH FULL DOCUMENTATION ON THE ORIGIN OF YOUR INCOME...YOU ARE
KEEPING GOOD RECORDS, ARE'NT YOU?
---YOU BET....HAVE COPIES OF EVERY SINGLE DEPOSIT AND WILL OF EVERY SINGLE
"SPEND" TRANSACTION AND BANK WIRE.
A. OKAY, GOOD. SO WITH FULL DOCUMENTATION AND YOU FULFILLING THE TOTALITY OF
THE TAX REQUIREMENTS AN ANALYSIS OF YOUR FINANCIAL SITUATION JUST REALLY WON'T
BE ALL THAT INTERESTING AND WOULD BEAR LITTLE FRUIT FOR AN AUDIT EFFORT.
Q. NICE TO KNOW. NOW BACK TO MY $650K. WHAT WOULD MY TAXES BE IF THIS WERE
PAYROLL OR SALARY DERIVED?
A. WELL, LETS SEE...IN ROUND NUMBERS...FEDERAL WOULD BE, IN YOUR CASE,
28%....THEN 6.5% FOR THE STATE....THEN 13% FICA WITH AN ADDITIONAL 1.5%
MEDICARE, ETC. TOTALS A WHOPPING 49% TAX ON YOUR $650K.
Q. AHHHHHH....WHAT'S THE DIFFERENCE IN MY SITUATION VERSUS SALARIED INCOME?
A. 49% OF 650,000 MEANS A $318,500 TAX VERSUS THE $139,750 TAX ON YOUR CAPITAL
GAINS. THE DIFFERENCE IN WHAT YOU RETAIN IS $510K VERSUS $331K. YOU'LL PAY
HALF THE TAXES YOU NORMALLY WOULD ON INTEREST INCOME VERSUS PAYROLL OR SALARY.
Q. OKAY, SO TO RECAP...
1. I WILL PAY A TOTAL OF 15% FEDERAL AND 6.5% STATE TAX ON MY IFGC.
INCOME...WHETHER I HAVE AN LLC. OR NOT.
2. DEPOSITS OF OR IN EXCESS OF $10K WILL NOT PUT ME UNDER THE MICROSCOPE OF
THE IRS.....
3. PROVIDED I FULFILL MY ENTIRE TAX REQUIREMENT ON THE INTEREST INCOME.
4. KEEP COMPLETE RECORDS/COPIES OF ALL MY TRANSACTIONS.
Q. ANYTHING ELSE?
A. WELL, ONE MORE THING. IT IS ADVISABLE TO HAVE A SEPARATE BANK ACCOUNT FOR
THE PAYING OF YOUR TAXES ON THESE RETURNS. IT'S EASY AND STRAIGHT FORWARD TO
CALCULATE YOUR TAX....THEN PUT THAT AMOUNT AWAY IN THE ACCOUNT AND DON'T TOUCH
IT FOR ANY OTHER PURPOSE.....AND REMEMBER...IF YOU ARE AUDITED I WILL BE THERE
AT THE AUDIT TO DEFEND YOUR SITUATION IN ACCORDANCE TO THE DOCUMENTATION YOU
HAVE PROVIDED.
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OKAY, GROUP
THAT'S HOW IT WENT ALONG WITH SOME ADVICE ON PLACEMENT OF THE POSSIBLE
MILLIONS THAT MAY FOLLOW IN THE NEXT YEAR (A TOPIC FOR ANOTHER POST).
I KNOW THAT THIS TYPE OF ADVICE WILL BE A STINKER FOR YOU MORE AGGRESSIVE
FINANCIAL WIZARDS OUT THERE. AND ALL IMAGINATIVE AND LEGAL IDEAS ARE FAIR
GAME.
BUT THERE ARE MANY HERE WHO MAY WANT TO ENJOY THIS WEALTH WITH A MINIMAL
AMOUNT OF SHIFTY ALL-BE-IT LEGAL MANEUVERING CAPABLE OF THE FINANCIALLY
SKILLFUL MEMBERS PRESENT.
MY POINT IS THAT WE CAN BRING THE WEALTH HOME FROM IFGC. WITHOUT BEING FEARFUL
OF THE AMOUNTS WE TRANSFER, THE IRS BREATHING DOWN OUR NECK, OR HAVING
UNEXPECTED TAX IMPLICATIONS TOO COMPLEX TO UNDERSTAND.
THATS A SIMPLE APPROACH BUT ONE, I BELIEVE THAT CAN GIVE ONE PEACE ALONG WITH
THE WEALTH.
MY ADVICE IS TO KEEP IT SIMPLE, HAVE IMPECCABLE DOCS AND PAY YOUR TAXES.
THE MODS CAN MAKE THIS A STICKY IF THEY WANT. IT'S TO DATE THE ONLY DIRECT
ADVICE FROM AN ACCOUNTANT I HAVE NOTICED SO FAR.
THIS IS NOT INTENDED TO BE THE ONLY APPROACH...ALL OTHERS ARE WELCOMED. BUT
THIS WAS ADVICE FROM A PROFESSIONAL CPA AND WORTH A LOOK
