We are all looking for ways to ensure our hard work, earnings, and property are protected. Oftentimes we look to the wealthy and think they are somehow cheating the system, but in reality, they are using the law and tax codes to their advantage--and you can, too. With an array of asset protection strategies available, we can help make sure your assets are safe.
Wealthy individuals equip themselves with advisors (lawyers, CPA’s, etc) who direct them on how they should structure their business or where they should place their assets to reduce their taxes and, ultimately, earn more money. Essentially, many wealthy individuals choose to put their money into corporations so that it is protected, which is how they pay minimal taxes--if any at all.
Asset protection is a strategy designed to protect your assets by putting them in a company’s or trust’s name so they are not vulnerable to creditors by being in your own name.
Tax rates are based on how much you earn, and your income (as an employee) is taxed prior to you receiving it. Whereas for business owners, income is received prior to taxation, making their earned income potentially much lower than it may have been, further increasing their wealth.
For employees, the sequence of income is as follows:
1. Earn 2.Taxed 3.Spend
So, if an employee is paid $40,000 per year, by the time taxes are taken out of it, it may be down to $30,000.
If you pass your income through a corporate entity first, the sequence of income is as follows:
1. Earn 2. Spend 3.Taxed
By passing income through a corporation, you can expense much of the earnings before being taxed.
It is important to differentiate control and ownership here. Ideally to protect your assets and increase your wealth, you should work to control your assets (through a corporation or trust for example) rather than own them outright. This way, if you should ever end up in litigation, your assets aren’t in your name, they’re in the company’s or trust’s name.
“Billionaire Warren Buffett, CEO of Berkshire Hathaway, has repeatedly pointed out the disparity, advocating that rich Americans pay higher taxes. To make that argument, he famously noted that he pays fewer taxes, on a percentage basis, than his secretary and other employees, since a bulk of his wealth is in stock rather than wage income … ‘For wealthy people, tax planning is not something done at the end of the year,’ said CPA Lisa Featherngill, a member of the American Institute of CPAs’ Personal Financial Planning Executive Committee. ‘It’s top of mind throughout the year.’” - CNBC
One key thing to remember in asset protection is that it is not only available for wealthy individuals. You have the ability to protect your hard work, earnings, and property, too. Anyone--including you--can create a separate legal structure, such as a corporation, partnership,and/or trust to protect your assets. A few types of corporations you may choose include C corporations, S corporations, and limited liability companies.
If you need help determining the best asset protection strategy, we can help. Audra Simovitch, Esq. is a solo practitioner in Boca Raton, Florida. She has been practicing in both Massachusetts and Florida for the past twenty-two years and has lectured, on numerous occasions, on issues regarding asset protection.
Call us today to discuss the best asset protection strategy for you as well as how you can avoid probate, creditors, loss of assets, and have a smooth transition of assets to your beneficiaries.