Show #343 Airing Sunday, 5/28/06
If taxes are raining on your financial parade, maybe it’s time to take shelter. A tax shelter, that is. Here to explain how the average tax payer can seek cover with tax shelters is Tony Mercuri from Ta-Check Tax Service.
Question: Do tax shelters really exist?
Answer: Yes, they do. And they're not only for the super rich, like many think. Average Americans can make investments designed to reduce or avoid incomes taxes.
Question: What exactly is a tax shelter?
Answer: A tax shelter, or "loophole" as many people call them, is an investment designed to reduce or avoid income taxes.
Question: And these are legal?
Answer: Yes. The IRS allows tax shelters, but they will not allow an "abusive tax shelter."
An abusive tax shelter offers inflated tax savings which are disproportionately greater then your actual investment placed at risk. In other words, the investment must actually strive to generate income.
Question: What types of tax shelters are available for average people?
Answer: Three of the best are investments in real estate, oil and gas, and equipment leasing.
Real estate is the most popular.
Let’s say you buy an investment property. As your property ages, you are allowed a tax deduction for depreciation, which means that each year you can deduct from your taxes part of the value of the property. Hopefully, the income generated from the investment covers all of the expenses and you get the deduction from your depreciation.
Question: How do oil and gas investments work as a tax shelter?
Answer:If you buy shares in an oil and gas company, the government allows the exploration costs of the company to be distributed (or passed through) to the investor as tax deductions. Investors are rewarded with instant tax savings and potential gains if the company discovers the gas or oil.
Question: Tell us about the equipment leasing tax shelter?
Answer:It works like the real estate shelter. You invest in a company that owns equipment that it leases out. As the equipment ages, it becomes less valuable. You are permitted to deduct part of the cost of the equipment each year
Question: What are some other examples of tax shelters?
Answer: HSAs, or Health Savings Accounts, can be considered a tax shelter. You can put away money tax free into an HSA and therefore pay for medical expenses tax free. They also allow a broad range of tax free withdrawals for doctors, dentists, hospitals, drugs, eyeglasses, etc.
Can a tax shelter protect some of your income? To learn more or for a free fact sheet, give Ta-Check Tax Service a call. My thanks to Tony Mercuri.
