“It’s a tax,” they said. That got me thinking – and researching. According to a Forbes article published late 2012,
only 200,000 small businesses will be affected by these changes because over 96 percent of small businesses fall below the 50-employee threshold.
Only 200,000 businesses? I don’t know about you, but I think 200,000 is 200,000 too many. Sure, some small businesses might welcome the new regulations. It’s weird, but some businessmen actually feel guilty about their success. They may feel comfortable bowing in to the government – providing health insurance to all employees that don’t have it.
But that’s not you. You hate being told what to do. You don’t want to pay for everyone’s health insurance. You might be fine with offering the coverage, but paying for the bulk of it? Your company can’t afford it. Even if it could, it saps the cash out of your bank account that’s needed for R&D, marketing, and whatever else you want to spend it on.
Don’t Try To Skirt The Law
I covered this in the last post, but I’d rather repeat myself than be remiss. It’s probably a bad idea to try to skirt the law – “get off” on a technicality. No, let me rephrase that. It’s a very bad idea to rely on “technicalities” as an Obamacare strategy. Mainly because, that’s not much of a strategy. As of this writing, the government is still sorting out a few of the details as to how to enforce the insurance mandate.
However, even now, there are strategies that the IRS has spoken out against. If you try them, you will be targeted for an audit. Some of these strategies include converting all of your employees to 1099 “independent contractors,” reducing employee wages or hours, and farming out work to temporary agencies or employment agencies. Basically, if the IRS suspects that you might be trying to avoid the law, it wants to audit you and force you into compliance.
If the agency discovers that you’ve been non-compliant, you’ll be slapped with fines and back premiums that the agency thinks you should have paid but did not.
I can’t possibly cover all of the cute little tricks that business owners might try, but use this as a general guideline: if you try “attacking” Obamacare directly, you’re running a high-risk strategy with a high probability of failure.
Call Your Tax Specialist
If you already have a tax specialist, now’s the time to start investing in him. By “tax specialist,” I don’t mean your run-of-the-mill tax guy. I’m not talking H&R Block, the guy whom you contact once per year to do your corporate taxes. I’m talking about the firm that you work with year-round, form a comprehensive tax-reduction strategy with, and pay thousands of dollars to so that you’re protected from the IRS.
I’m talking about the guy that’s aggressive in his tax strategy. Aggressive but not dangerous or reckless.
Rethink The Way You Use Your Retained Earnings
Retained earnings are the unsung hero of your company. They sit in your corporate bank account, earn interest, and are the target of the tax man – except that those retained earnings will end up saving your ass. How?
In my personal and professional opinion, the only financial strategy that’s going to be effective going forward is one that makes full use of the tax code to dramatically reduce your tax burden. It’s going to be a comprehensive business strategy that sets you up to pay little to no taxes this year – completely offsetting the current and future costs of the insurance mandate. It’s going to be a long-term business strategy that builds your retained earnings, going forward, without building a bigger tax bill.
How is this done? Well, one way is to do some aggressive tax planning – more than the usual business tax deduction stuff. Then, start strategically shifting the burden of all of your expenses to tax-advantaged investments held by the corporation. That’s a strategy that will effectively discount all of your future expenses – thus saving your corporation hundreds of thousands – millions – of dollars. If you set up the strategy properly, your tax-advantaged investment will be “laddered.”
Laddered. That’s an ancient financial strategy used by old school financial planners. You see, when a retired person wanted to preserve his investment capital, the adviser would “ladder” the person’s retirement income using annuities (some planners still use this strategy today). Part of the total savings is converted to a stream of monthly payments while part of it is left alone to grow at interest.
Eventually, the untouched portion of the savings will be fully restored to the original principal amount. Then, the process can start all over again. Here’s how it works:
Total: $100,000
$25,000 converted to monthly payments.
$75,000 left to accumulate interest.
After a period of time, the $75,000 grows to $100,000 thus restoring the principal amount. Then, another $25,000 can be converted to monthly payments. The cycle is repeated forever until the person dies.
Endless income. The problem is that:
- Annuities generate taxable income
- Annuities can’t be used very efficiently by you prior to retirement age and;
- The untouched savings takes a while to build back up
What you need is a strategy that takes advantage of the benefits of “laddering” without the disadvantages, and that’s what I’ve developed. It’s an “expense shifting” strategy and a new way to look at income generation, investing, insurance, capital preservation, and business planning. It also happens to be an excellent way to dramatically reduce your corporate and personal taxes. But it’s not just a clever tax dodge. In fact, it would make good business sense even without the tax benefits – and that’s why it will withstand the scrutiny of the IRS.
It’s Your Move
What’s your plan? No, seriously. Do you have a good financial strategy to cope with the oncoming storm? Even if you’re fine with shelling out additional funds to pay for your employees’ health insurance, you can’t escape the fact that this puts you at an economic disadvantage to everyone else who doesn’t want to bear the full effect of those costs. While your competitors are busy becoming more competitive, what will you be doing?
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May 19th, 2013 | by David | No Comments
