Tax Strategies from Essex and Associates
"Tax strategies or tax loopholes are any method of reducing taxable income resulting in reduction of the payments to tax collecting entities, including local, state and federal governments", explains Wayne Essex, tax strategist in Dayton, Ohio.
Tax strategies arise out of the very complex and convoluted tax code. There are 100’s of changes to the tax code every year. In 2010 alone there were 509 significant tax code changes.
A tax strategy legitimately takes advantage of tax code changes.
It is not unusual for tax strategies to modify each and every year due to the ever changing code.
Tax avoidance is completely legal.
Tax evasion will cause you problems.
Our firm deals with only legitimate tax strategies.
Dr. Wayne Essex, owner of Essex & Associates, who has taught personal and corporate taxes for many years, is the author and proponent of 100’s of different tax strategies.
Not only does our firm advocate potentially hundreds of tax reducing or delaying strategies, we also provide a checklist of deductions for our clients.
The proprietary checklist is a listing of over 300 deductions for individuals and business owners.
When you combine 100’s of possible tax strategies with a deduction checklist of 300 items, our firm literally gives you well over 500 ways to reduce your taxes.
Our firm in 99% of the cases can reduce your tax liability.
One must be careful when engaging tax strategies.
Many companies market their ability to minimize your taxes.
Unfortunately, the techniques that they use are questionable at best and illegal at worst.
A couple of examples of illegitimate tax strategies are listed below:
Due to differing tax rates and legislations in each country, tax benefits can be exploited.
If Import Co. buys $1 of goods from India and sells for $3, Import Co. will pay tax on $2 of taxable income.
However, tax benefits can be exploited if Import Co. is to set up an offshore subsidiary in the British Virgin Islands to buy the same goods for $1, sell the goods to Import Co. for $3 and sell it again in the domestic market for $3.
This allows Import Co. to report taxable income of $0 (because it was purchased for $3 and sold for $3), thus paying no tax.
While the subsidiary will have to pay tax on $2, the tax is payable to the tax authority of British Virgin Islands.
Since the British Virgin Islands has a corporate tax rate of 0%, no taxes are payable.
By paying unreasonably high interest rates to a related party, one may severely reduce the income of an investment (or even create a loss), but create a massive capital gain when one withdraws the investment.
The tax benefit derives from the fact that capital gains are taxed at a lower rate than the normal investment income such as interest or dividend.
The flaws of these questionable tax shelters are usually that transactions were not reported at fair market value or the interest rate was too high or too low.
In general, if the purpose of a transaction is to lower tax liabilities but otherwise have no economic value, and especially when arranged between related parties, such transactions are often viewed as unethical.
The agency may re-evaluate the price, and will quickly neutralize any over tax benefits.
However, such cases are difficult to prove.
A soft drink from a vending machine can cost $1.00, but may also be bought in bulk for $0.25.
To prove that the price is in fact unreasonable may turn out to be reasonably difficult itself.
Actually the state and federal governments support many tax strategies in the name of public policy.
Retirement plans are a perfect example.
The government encourages tax payers to take advantage of private retirement plans in order to lower the burden of government sponsored retirement plans such as social security.
These tax shelters are usually created by the government to promote a certain desirable behavior.
Home ownership and charitable giving are two more prime examples.
The fact that mortgage interest and donations to nonprofit groups are tax deductible enforces the behavior the government wishes to promote.
In general, a tax shelter is any organized strategy in which many individuals, rich or poor participate to reduce their taxes due.
Tax strategies, when properly applied will make your taxes lower.
Most tax preparation individuals are not well schooled in the proper application of tax strategies.
To properly engage a tax strategy, you must be inside the tax code.
Many times an appropriate tax strategy needs the involvement of outside professionals such as an attorney or financial planner.
It is important to have all the professional on the same page as you engage these tax reducing techniques.
One of the unshared secrets about most CPAS’s is that their tax knowledge can be extremely limited.
Most accounting majors that go on to become CPA’s have not had to take more than two tax classes in all their sic years of accounting education.
A good tax advisor is hard to find.
There are really only a very small percentage of tax preparers in the United States that has sufficient knowledge of the tax code to properly implement what you need to minimize your tax liabilities.
Fortunately, Dayton, Ohio has on of the best tax strategists around at Essex and Associates, Dr. Wayne T. Essex.