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Top earners looking at closely held businesses concerning taxes
Many top earners throughout the United States are looking for strategies to reduce their tax load. While businesses are always making such attempts, this year appears to be especially important due to tax hikes put into place by Congress.
The top marginal rate is now 39.6 percent instead of 35 percent. Long-term capital gains and dividends will now be taxed at 20 percent rather than 15 percent. There is also in place a 3.8 percent tax on investment income.
Depending on what state one resides in, the tax rates could be pushed much higher. Kentucky, for example, will have its own unique set of tax rules. "There are many, many high-income taxpayers now who are finding themselves facing tax rates in excess of 50 percent," said one tax strategist.
Tax strategies for this year are particularly focusing in upon closely held businesses as a means of getting around the higher rates. For example, high earners are now looking at S corporations and other flow-through entities to become active participants. This may prevent the individual from being subject to a particular surtax. There are also other ways that the setting up of these sorts of businesses can lead to tax savings as well.
In any event, those contemplating starting a small business may wish to speak with an experienced business attorney who can advise concerning startup companies business and tax strategies. Tax strategies in particular can result in savings for both an entrepreneur and a new business. The tax laws in place are extremely complex and that is why such consultation may be necessary.
Source: Bloomberg, "Higher Tax Rates Give Top U.S. Earners Year-End Headaches," Margaret Collins and Richard Rubin, Nov. 7, 2013