KCO Financial Services
Tax Advisory Unit
Comprehensive Tax, Financial And Estate Planning
Introduction To Tax Planning
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By Igor Krishtul, ChFC, EA
one point, Americans were free from income taxes. Federal and local
alike. Not to mention of course, Social Security, payroll and sales
taxes. Don’t forget the gift and estate taxes, as well as other
changed, though, and they don’t remain the same ever since. Now,
taxes are as American as apple pie. They simply can’t be
eliminated from our lives. But, excessive taxation is purely voluntary.
evasion is a crime punishable by law. Even very powerful individuals
have been imprisoned for evading taxes. Tax avoidance, on the other
hand, is 100% kosher. Not only that, but every prudent individual
should strive to reduce taxes to their rock bottom minimum.
government bureaucrats claim that out system of taxation is
“voluntary”. In reality, it is forced upon American
citizens, residents and even some non-residents. This should not stop
you, however, from reducing your taxes by any means the law permits. It
is possible to build a greater wealth by saving taxes than by making
planning should not be limited to federal, state and local income
taxes. It must also include other taxes, such as gift and estate. To be
truly meaningful, all planning must be done in advance. Once liability
is incurred, it is generally impossible to recover money lost to taxes.
addition, the time horizon for tax planning must be long-term. It is
quite unfortunate, but in great many cases the taxpayers limit their
strategies to short-term solutions. Such solutions are temporary and
often backfire at the end.
bonds and mutual funds escape taxation. But, they normally generate
substantially lower returns than their taxable equivalents. Often, they
can barely keep up with cost of living increases.
deferral strategies may alleviate the current tax burden. But, such
solutions are temporary. In many instances, the eventual tax
liabilities that are far greater than the previous tax savings. Such
strategies cannot avoid the inevitable - payment of tax by you or your
heirs. The payout rates may be much higher than previous temporary
mega IRA and qualified pension balances defers taxes. But, postponing
payouts to avoid current taxes often boomerangs. Eventually, the
government will still get their share in form of income and/or estate
taxes. At the end, these taxes may be more than the savings.
everything to a spouse upon death can postpone estate tax. IRA and
qualified pension money can also be rolled over by a surviving spouse.
In such cases, the taxes can also be postponed. But, one day, the
property will pass to future generations. Your children may end-up
paying more in taxes than you originally saved.
the taxpayers, have unwanted partners. They are imposed on us against
our free will. They come in the form of federal, state and local
governments. They want their share when income is generated. Same goes
when wealth is transferred to heirs by gifts or bequest after death.
We cannot eliminate them from collecting taxes. Yet, it is within our power to minimize their share of our income and wealth, and even completely disinherit them.
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