The Investment Scientist

Posts Tagged ‘tax

(I got this from Cal Klausner, a CPA friend of mine.)

Small Biz TaxAfter recent tax changes, owners of small businesses face a question: Should the business continue to function as an S corporation, or should the entity revoke its election under Subchapter S of the Code?

Despite a number of statutory constraints, conventional wisdom has generally favored an S corporation classification. An S corporation is a pass-through entity whose shareholders are subject to personal income tax based on the income of the corporation. A C corporation, by contrast, is taxed as a separate entity at corporate rates, and its distributions to shareholders are subject to the personal income tax. A small business corporation electing under Subchapter S may have no more than 100 shareholders, and may not have more than one class of stock. There are no similar constraints on C corporations. Nevertheless, an S corporation classification provides business owners a superior degree of flexibility and is therefore generally preferred. Specifically, by having its income flow directly to its shareholders, an S corporation is not subject to the double taxation that a C corporation may be unable to avoid.

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As a small business owner, you are caught in a conundrum. On the one hand, you need to offer good health benefits to your employees to attract and keep talent; on the other hand, you can’t afford to lose an arm and a leg doing so.

There is a simple option that enables you to kill two birds with one stone—Section 125 Premium Only Plan (POP).

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Today, my friend Jiefei Yuan of Givology.org passed on to me a message asking for help. The message was from Nasrine, who runs an inspiring women’s organization in Afghanistan called Kabultec that is the training ground for women’s rights, studies and education. The message starts like this

As many of you know, every year my non-profit organization, Kabultec, assists ten needy schools and three orphanages in Afghanistan.  We gather goods (mainly used) here in the US, ship them to Afghanistan, and distribute them to schools and orphanages across the country. The goods are raised through donations like the drive some of you helped with last year.

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[Adapted from my post on Physicians Practice]

“Laws are like sausages …” Otto Von Bismarck, First Chancellor of Germany

Physician Wealth

Doctor and Monday

The last Congress, the one that received a “Shellacking” in November election, was actually very good at making “sausages.” As the result, there are many tax law changes that have come into effect. I asked the tax specialist in my wealth management network to give me a list of tax law changes in 2010. As I went through the list, I identify these seven that are relevant to physicians and their practices.

Don’t take this as legal or tax advice; don’t even take this as complete information. To avoid putting you to sleep before you get to item 7, I simplify much legal minutia. Consult your own tax and legal experts before using any of these:

  1. If you have a practice of less than 25 employees, you maybe qualified for health insurance credit.  Read the rest of this entry »

Roth Conversion

As 2010 comes to a close, one time sensitive wealth management move affluent individuals and families should consider is converting an existing traditional IRA into a Roth IRA.

It is not a trivial decision, and there is no one-size-fits-all answer. What I hope to accomplish below is to give you a framework to help you make the best decision for you and your family.

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Roth-conversion-opportunityStarting from tax year 2010, the Tax Reconciliation Act permits all taxpayers to make Roth IRA conversions, regardless of income level. Previously, taxpayers with a modified adjusted gross income of $100,000 (or more) were not permitted to make Roth IRA conversions.

With a stroke of the pen, many affluent Americans can increase their wealth by 10-20% in their lifetime. If circumstances are right, they may even double their wealth for their family.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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