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Sa ve Money with These Tax Stra tegies

owner actually works in the business. Unlike individual sole proprietorships
and general partnerships, you can save significant amounts of self- employment

tax by utilizing these entities because an S corporation shareholder is only
liable for self-employment taxes on the amount he or she pays themselves in

salary. This creates an opportunity to provide significant savings, compared
with the “default” status of individuals and general partnerships.

C Corporations

C corporations provide an opportunity to save taxes by utilizing a concept
called income splitting . The taxes you pay grow as your income increases. C cor-
poration income is taxed at 15 percent on income up to $50,000, which means
that if you are in a 35 percent personal tax bracket, the possibility exists for sav-

ing significant tax dollars by redirecting some of that income into a C corpora-
tion. You can save on taxes by using a C corporation, but consult with a tax
professional before you decide this is right for you.

LLC Members

This chapter would not be complete without a brief mention of limited lia-
bility corporations (LLC). An LLC is a combination of a partnership and a
corporation, but unlike other types of taxpayers, state, not federal, law cre-
ates LLCs. This poses significant problems for state and federal entities in

determining exactly how LLCs are taxed, but don’t get too excited. You still
have to pay tax on LLC income. Currently, the IRS views LLCs in the same
context as general partners, and that puts taxpayers in situations where little
tax savings occurs. What I am telling you may contradict what your tax pro-
fessional has said, but that is how the IRS views LLCs. This arrangement,
however, is effective for passive income (e.g., renting property), but not good
at all for a business in which you actually perform services.

Implementing My Tax Secrets

I hope I’ve given you a good introduction to realizing that there are many
ways you can significantly reduce your overall tax bill. The IRS looks at the

different types of taxes, and taxpayers, differently, which is why you need to
understand the distinctions before putting a strategy into place.
My final advice: Start today! It’s time to move from complaining about to

reducing the taxes you pay, and making more of your money work for you.

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