Tax Planning: Something Hardly Anyone's Noticed This Year
It's a New Year. Tax planning should be on your mind. Notice I said "tax planning," not just "taxes." We all know our taxes will be due in April, but doing your taxes isn't tax planning. The taxes you're going to file in April will be for the year 2009. Doing your taxes is looking back: you record what you did and figure out how much you owe.
Tax planning is looking forward: you try to see if you can minimize what you'll owe in April 2011. Now's the time to put your mind to how you're going to minimize your tax bill in 2010.
I know, it sounds obvious. But you'd be surprised how many people get confused here. It all plays into the IRS hands. The more confused we are about our taxes, the better for them.
Rich people tend to know this better than the average Joe. Rich people sometimes use tax planning that gets pretty complex. It involves a kind of web or series of companies, trusts, partnerships, etc. For many rich people, they're just following the advice of accountants and lawyers who advise them. The techniques are meant to keep their tax bill low - or at least minimize taxes.
So far so good.
But now beware the IRS. The IRS feels they need to burrow into these more complex tax planning schemes. I caught something they're up to that not many people have noticed. The IRS is forming a special unit the "Global Wealth Industry Group." These folks are looking to audit the really rich (they say they're focusing on people with "tens of millions") and find out more about how they're avoiding taxes. They don't exactly put it that way, but what else could they be trying to do. It's certainly not an academic exercise.
Now, there are some people who evade taxes. Tax evasion is illegal. But avoiding taxes is another story. Tax avoidance is perfectly legal. Evading is when you lie, commit fraud, or do anything illegal that reduces your tax bill. Avoidance just means you take advantage of every legal means possible to reduce your taxes.
I wonder why the IRS doesn't call it's new group the Global Tax Evasion Group or something like that. If their object is to catch tax evaders, why not call it that? And if they're not focusing on tax evasion, what reason could they have for these audits?
Ah, maybe it is, in fact, some sort of "academic" exercise. Maybe it's all about learning how the clever accountants and lawyers do their thing. Maybe the objective is to learn all they can about how people legally avoid (not evade) taxes - then what? Could it be that we'll see new laws and regulations that outlaw perfectly legal methods of avoiding or reducing taxes.
Well, we shouldn't be surprised. The government's broke. It's been bankrupt for years. It's on the hunt for more revenue. Taxing "the people" is a politically tough thing to do. Taxing the rich is easier. There aren't as many rich people. And they only get one vote each. There are a lot more of the rest of us - "the people" - and we all get one vote...a lot more votes.
Not that taxing "the rich" would be something new. But I guess they're not getting the results they want from just taxing the rich. Plus, in the end, the rich can just move somewhere else if taxes get completely ridiculous.
So if you're in that "tens of millions" group, look out. The IRS wants to know all about your tax planning. They want to know more about you.
How about the rest of us? Well, here's my concern. If the IRS may simply be on the hunt to figure out how to get rid of loopholes of any kind - not just the loopholes the rich use. If this signals a kind of desperation on the part of the government, look out below - below meaning us mere mortals who aren't especially rich.
You see, raising taxes is probably inevitable. But there really is a political limit to how much and how fast they can raise our taxes. So they're going to be looking for every possible means of getting more out of us without it "looking like" taxes.
The first example coming up will be the Bush tax cuts. It looks like they won't renew them. No need to pass new taxes. They just won't renew a previous tax break.
After that, the skies the limit for their creativity. And I'm guessing it won't be only the rich who'll be finding they're keeping less of their earnings in the years to come.
So...I hope you see why tax planning only becomes even more important.
Tax planning is looking forward: you try to see if you can minimize what you'll owe in April 2011. Now's the time to put your mind to how you're going to minimize your tax bill in 2010.
I know, it sounds obvious. But you'd be surprised how many people get confused here. It all plays into the IRS hands. The more confused we are about our taxes, the better for them.
Rich people tend to know this better than the average Joe. Rich people sometimes use tax planning that gets pretty complex. It involves a kind of web or series of companies, trusts, partnerships, etc. For many rich people, they're just following the advice of accountants and lawyers who advise them. The techniques are meant to keep their tax bill low - or at least minimize taxes.
So far so good.
But now beware the IRS. The IRS feels they need to burrow into these more complex tax planning schemes. I caught something they're up to that not many people have noticed. The IRS is forming a special unit the "Global Wealth Industry Group." These folks are looking to audit the really rich (they say they're focusing on people with "tens of millions") and find out more about how they're avoiding taxes. They don't exactly put it that way, but what else could they be trying to do. It's certainly not an academic exercise.
Now, there are some people who evade taxes. Tax evasion is illegal. But avoiding taxes is another story. Tax avoidance is perfectly legal. Evading is when you lie, commit fraud, or do anything illegal that reduces your tax bill. Avoidance just means you take advantage of every legal means possible to reduce your taxes.
I wonder why the IRS doesn't call it's new group the Global Tax Evasion Group or something like that. If their object is to catch tax evaders, why not call it that? And if they're not focusing on tax evasion, what reason could they have for these audits?
Ah, maybe it is, in fact, some sort of "academic" exercise. Maybe it's all about learning how the clever accountants and lawyers do their thing. Maybe the objective is to learn all they can about how people legally avoid (not evade) taxes - then what? Could it be that we'll see new laws and regulations that outlaw perfectly legal methods of avoiding or reducing taxes.
Well, we shouldn't be surprised. The government's broke. It's been bankrupt for years. It's on the hunt for more revenue. Taxing "the people" is a politically tough thing to do. Taxing the rich is easier. There aren't as many rich people. And they only get one vote each. There are a lot more of the rest of us - "the people" - and we all get one vote...a lot more votes.
Not that taxing "the rich" would be something new. But I guess they're not getting the results they want from just taxing the rich. Plus, in the end, the rich can just move somewhere else if taxes get completely ridiculous.
So if you're in that "tens of millions" group, look out. The IRS wants to know all about your tax planning. They want to know more about you.
How about the rest of us? Well, here's my concern. If the IRS may simply be on the hunt to figure out how to get rid of loopholes of any kind - not just the loopholes the rich use. If this signals a kind of desperation on the part of the government, look out below - below meaning us mere mortals who aren't especially rich.
You see, raising taxes is probably inevitable. But there really is a political limit to how much and how fast they can raise our taxes. So they're going to be looking for every possible means of getting more out of us without it "looking like" taxes.
The first example coming up will be the Bush tax cuts. It looks like they won't renew them. No need to pass new taxes. They just won't renew a previous tax break.
After that, the skies the limit for their creativity. And I'm guessing it won't be only the rich who'll be finding they're keeping less of their earnings in the years to come.
So...I hope you see why tax planning only becomes even more important.
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