We're likely going to see some big tax changes over the next 4 years. The government has been spending a lot of money lately and that money has to come from someone.
We’re likely going to see some big tax changes over the next 4 years. The government has been spending a lot of money lately and that money has to come from someone. And, somehow, it’s always easiest to tax that other guy. In this case, that other guy might just be you.
One of the questions that is coming up regularly from my clients at my tax firm is, “How do I prepare for the tax changes?”
First of all, don’t panic. We’ve seen some law changes go through very rapidly in this past month, but even then we had plenty of notice as to what was going to happen. I don’t recommend making any dramatic changes right now, as long as you have a solid tax strategy and asset protection plan. If you don’t, you might want to contact your tax advisor to do review of your current plan.
There are three secrets to surviving tax law changes.
1. Keep your business structures as flexible as possible.
The two hardest business structures to change later are C Corporations and irrevocable trusts. Both have their place, as long as you realize the potential drawbacks.
For example, let’s say you have your private practice in a C Corporation (generally not recommended) and, in the same structure, also have the building that houses your practice. Later you discover that this can create a lot of liability, and you realize you should pull the building out of the C Corporation structure for asset protection purposes. But you’re stuck. When you take a distribution, you have to take it at fair market value. That means there is taxable gain you pay tax on, even though there is no sale. Additionally, taking the distribution means it’s a taxable dividend to you with no deduction for the C Corporation. The right structures should give you plenty of flexibility for tax law change and growth of your business and investments.
2. Make sure you have accurate, current financial statements.
In times like these, when we can expect a lot of tax changes coming along, you might need to quickly assess whether you need to make a change to your tax strategy. The first thing a qualified tax strategist is going to request will be current financial statements. Without those, you’ll just be guessing as to the impact of law changes on your personal circumstances.
3. Focus on what you do best and hire top notch advisors to help with the rest.
If you’re like many people, there is a real temptation to “do it yourself” when it comes to financial and tax matters. Face it, nobody cares about your financial future as much as you do. But if you want to go it alone for your planning, there is a lot you’ll have to know and watch. This is especially true when there are likely to be wide-sweeping changes in the tax laws.
What you don’t know, or your advisors don’t know, can really hurt you in the coming months. Make sure you’re working with qualified people who work with you in a way you like.
One more thing: Stop by my website, www.TaxLoopholes.com, to register for free tax updates. There’s no obligation and it’s absolutely free.
Diane Kennedy, CPA is the author of the best-selling Loophole of the Rich and Real Estate Loopholes, along with 5 other books. For more tax-saving information, see her websites www.LessTaxForDocs.com and www.TaxLoopholes.com.