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Income Tax & Capital Gains Tax

First, we need to understand the difference between income tax and capital gains tax. Let’s start with income tax.  Income tax is paid on earnings from employment, interest, dividends, royalties, or self-employment, whether it’s in the form of services, money, or property.

Next, Let’s Look At The Capital Gains Tax.

Capital gains tax is paid on income that derives from the sale or exchange of an asset, such as a stock or property that’s categorized as a capital asset.

The U.S. uses a progressive tax system. Lower income individuals are taxed at lower rates than higher income taxpayers on the presumption that those with higher incomes have a greater ability to pay more.

Capital gains tax rates depend on how long the seller owned or held the asset. Short-term capital gains for assets held for less than a year are taxed at ordinary income rates. However, if you held an asset for more than a year then more preferential long-term capital gains apply. These rates are 0%,15%, or 20%—depending upon on your income level.

We are aware that tax planning opportunities are not limited by state or national borders. Some of the most effective tax planning solutions are found in other states or in the U.S. territories.

Our staff will guide you through the application process and then help you manage the complex rules that govern the businesses that participate in these programs. Our professional staff understands the policy behind the laws that permit significant tax credits designed to support economic growth in our nation’s territories. As government employees, we regulated these programs.

What Are My Options?

We provide our clients with a unique set of solutions that can, in the right situations, significantly reduce the impact of the Income Tax and the Capital Gains Tax.

  • Tennessee & Alaska Community Property Trusts
  • Puerto Rico and U. S. Virgin Islands Tax Benefit Programs
  • DING/NING Trusts
  • Private Placement Life Insurance

Captive Casualty Insurance

A captive insurance company, typically referred to as a “captive,” is an insurance company that you own. It’s a risk management insurance structure that, when set up and operated in compliance with state regulations and IRS guidelines, can provide substantial risk mitigation, economic, tax, and estate planning benefits.

A captive insurance company issues policies that protect you against business risks for which coverage from commercial insurance carriers may be unavailable or unaffordable. Instead of paying premiums to a commercial insurance carrier, you pay premiums for coverage to your captive company. Any unused premiums your business pays accrue to your benefit as equity in the captive instead of going out the door to a carrier. The premiums paid to the captive may qualify as deductible for the business or professional practice.

There Are Ways To Protect Yourself From Capital Gains Tax. See Below!

  • consider undoing a trust. Assets that were gifted into trust are not part of an estate, but putting them back into the estate could avoid capital gains taxes.
  • Consider [upstream gifting]. This is a strategy that involves transferring an asset up the generational chain to an older family member (like your parent) or a trust for the benefit of the older family member.
  • For highly-appreciated assets, consider using a special type of trust. It’s a Joint-Exempt Step-Up Trust (JEST). It lets the surviving spouse sell an appreciated asset without the imposition of any capital gains tax after the first spouse’s death. In effect, they provide the benefit of a step-up in basis to current market value upon the passing of the first spouse, so the surviving spouse can sell the appreciated asset without owing any capital gains tax.
  • Consider the home sale tax exclusion. It lets homeowners exclude up to $250,000 of capital gain ($500,000 for a married couple) when they sell if they’ve owned and lived in the home for at least two out of the past five years before the sale.
  • For real-estate investment or artwork purchased as an investment, use a 1031 Exchange. This is a strategy that lets you delay capital gains taxation by rolling over the sale proceeds from the original asset into a new, similar property or piece of art — known as a “like-kind” investment.

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