While taxes can be quite beneficial for the community, state, and country, they can sometimes be overarching to the point of putting you in a pinch. Running away from taxes is frowned upon and illegal, but there is no doubt that looking for legal ways to lower the taxes that you have to pay.
Protecting your assets is a very essential step in the portfolio of any investor, affluent individual, or even people who are undergoing a divorce.
Finding ways to protect your assets while ensuring that you aren’t bleeding money through taxes is a step in the right direction. We’ve collected a few of the most tax-friendly ways that are popular with those who want to protect their assets.
Separation of Business and Personal Assets
A lot of people fall into the mistake of leaving both their personal and business assets under the same financial umbrella. This can foreshadow a risk when creditors are trying to come after your personal assets for any business downfalls you may have had.
Creating a separate bank account that exclusively handles your business transactions is the safest way to mitigate such a risk and protect your personal assets from liability, not to mention reducing the taxes that you have to pay for your personal assets.
Asset-protection trusts are an umbrella term for many types of trust that are specifically designed to provide a way for people to hold funds in a discretionary way. Such a type of trust is mainly used to make sure that the heirs of your financial holdings and assets are able to safely receive them after the event of death.
For an asset-protection trust to be complete, the owner of the assets transfers all the assets they want their beneficiaries to receive to a settler while naming the beneficiaries who the settler is supposed to provide with the assets. In a city like Atlanta, a living trust can help you avoid probate.
As mentioned by The Atlanta Estate Law Center, a reputable estate company can ensure that lawyers work hard to preserve the assets and benefits that you and your family have. This isn’t just a way to reduce the taxes you’ll be paying on such assets, but it can also provide complete protection from creditors who want to claim your property through a lawsuit. Depending on the type of assets, domestic or foreign trusts can be used.
It is completely logical to explore and try different options to reduce tax bills. This, by no means, to go about this randomly to the extent that your deductions end up looking suspicious to the IRS. People who own small businesses might think that they are in the clear since the IRS is always focusing on larger corporations, but this is simply not true.
The IRS recently has switched their focus to small businesses. If your business is categorized as a sole property, LLC, partnership, and S corporation, then you should know that you might be under microscopic security, even more than your bigger and more established competitors.
Incomes are the most valuable assets that need some focus and attention to protect as it can be taxed in different ways including Medicare, Social Security, and both federally and at a state level. There are different ways to protect your income from getting shredded by taxes, here are some of them.
- Long-Term Gains: Investments can be a powerful tool to grow your wealth, protect your funds from running low, and enjoying long-term capital gains. You can invest in stocks, bonds, mutual funds, and real estate. There is a difference between short-term and long-term capital gains as the latter only starts coming in effect after the investor has been holding their assets for more than a year.
- Starting a Business: If people have learned anything from 2020, it is that the worth of liquid money is constantly sinking. If you have always wanted to enjoy some personal and financial freedom, then starting your own business might be the best way to enjoy all these benefits and much more. Using income for starting and growing a business reduces tax obligations.
- IRS Credits: There are different IRS tax credits to reduce taxes. For example, people with no children who receive low incomes and pay their taxes might receive up to $530 in credits. People with children can get more credit that reaches up to $6500.
There are numerous ways to protect your assets, whether it’s for your beneficiaries or in the case of an unfortunate event like bankruptcy. You need to evaluate the type of assets that can be scrutinized by creditors or the ones that can be overtaxed to ensure that you aren’t unnecessarily losing money in the wrong area.