Tax Shelters for Middle Class Families

Life Insurance Premiums Tax Deductible - Tax Shelters for Middle Class Families

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The phrase "tax shelter" has always carried an unsavory connotation. Just like "lobbyist" or "Congressman," the words propose something vaguely illegal or immoral to be discussed only with sleazy con men in smoke-filled rooms and not at all in diplomatic company. Certainly, some tax shelters deserve this prestige and many cross the line between something legal and something that lands you in the federal penitentiary at Leavenworth.

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Life Insurance Premiums Tax Deductible

There are, however, many perfectly legal ways to shelter earnings from federal taxation. They are written into the tax code because Congress wants to promote singular outcomes determined useful to society. From a corporate perspective, the tax code is loaded with so many loopholes that any firm with reasonably competent tax counsel can indubitably reduce its tax burden under approximately any circumstances. This is, in fact, often one of the main considerations behind the decision by some high-wealth families to place all assets and earnings sources into a family-owned entity commonly known as a "sub-chapter S" corporation. This allows the house to deduct many coarse house operating costs (vehicles, for example) as firm expenses and greatly reduce their uncut tax bite. Note that the label "sub-chapter S" does not necessarily mean "small" in all cases. Some very large family-owned businesses are organized under this provision of the tax code.

The typical middle-class house does not have as many options. Fortunately, the same Congressional interest in promoting societal outcomes is at play in this arena as well. The mortgage interest deduction is a perfect example. By granting homeowners a tax deduction for mortgage interest, Congress allows them to reduce their tax liability while the government encourages uncut homeownership. This is determined useful to society as a whole. The mortgage interest deduction is just one of any tax shelters ready for the middle class. These house kindly deductions and credits include:

Roth or customary Ira 401K plans Childcare expenses Medical expenses Education savings account Flexible Spending inventory for health expenses

Using these vehicles, a house with two children and a typical mortgage at 5.25 percent can shelter thousands of dollars every year from federal taxation. The customary Ira and the typical 401K venture accounts are particularly absorbing since they supply tax shelter in the current year and allow the venture to grow tax-free until withdrawals begin, at which time the inventory owner is likely to be in a lower tax bracket.

The difficulty most families face in taking advantages of these shelters is the lack of liquidity - no funds ready to take benefit of Congressional desire to promote savings and investment. That's why truthful planning is vital not just for major businesses but also for families. You need to have cash ready to fully fund as many of these shelters as you can. It's all perfectly legal and perfectly ethical. As Judge Learned Hand said in Commissioner of Internal earnings v. Newman," Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everyone does so, rich or poor; and all do right, for nobody owes any collective duty to pay more than the law demands."

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