In the 2012 presidential election, Mitt Romney’s tax returns were the subject of contentious debate. Namely how he could take home more of his money than the average secretary. There was suggestion that Romney was a borderline tax evasion artist, but the reality is that carefully structured donations and money management helped Romney maintain his wealth.
If you want clear, legal strategies to manage your money then read on for a simple tip that has helped the wealthy for generations.
Give Things Away
Your charity can have a strong impact when the tax man calls his due, effectively lowering the income that you claim each year. Visit a tax relief attorney to figure out which donations would be most beneficial to your tax rates.
When you own property, it comes with an intrinsic value. Let’s say the government claimed your house as eminent domain. You would receive compensation for your home based on the fair market value of the property. Charity works on a similar level, but the act of giving effectively lowers your income for the year. It’s like you never made that money to begin with.
Why not sell?
You wouldn’t give away a home, especially not after you’ve put your own money out of pocket to cover the costs of repair. Selling is also hampered by fair market value, which is hard to find in this day and age. As an example:
Say that you pay the highest marginal tax rate of 35%. If you had an antique that was appraised for a higher value than what you bought it for, you try to sell it at that price.
An income tax attorney might suggest that you donate instead. The sale price of $10,000 would be a part of your income for the year. If you decided to donate the dresser, you could get the same market value applied to your taxes. Assuming your appraisal was conducted by a certified appraiser. The result might shave off a few percentage points from your tax bill. En masse, you’re looking at big discounts.
So when does selling make sense?
Mostly, selling makes sense when assets are liquid. There are many in the higher income brackets who would opt for selling just to pocket the extra revenue, especially in situations where there are back taxes owed. Sure, the income is taxable, but the gains may outweigh the costs at the end of the year.
This guest post on tax benefits was written on behalf of the Law Offices Of Jeffrey B. Kahn, P.C. Kahn is a tax attorney specializing in helping clients get in compliance with the offshore voluntary disclosure program.