Irrevocable Trusts and Taxes

[JoshDom1898]

What is the name of your state? CA and AZ

I am a sole member of an LLC and I get hit hard this year on taxes (30K). One of my friends suggested that I look into an irrevocable trust because it is the best for tax avoidance. My question is how is it so good for tax avoidance?

Say, if I amended the LLC to make the Trust the sole member, the proceeds I make from the company will be distributed to the Trust, and the beneficiary of the trust (me) will distribute the trust (estate)?

Could someone clarify? I would like to know what's the best way to sheild myself from paying so much in taxes if I can avoid it or mitigate it.

Thanks

 

[LdiJ]

What is the name of your state? CA and AZ

I am a sole member of an LLC and I get hit hard this year on taxes (30K). One of my friends suggested that I look into an irrevocable trust because it is the best for tax avoidance. My question is how is it so good for tax avoidance?

Say, if I amended the LLC to make the Trust the sole member, the proceeds I make from the company will be distributed to the Trust, and the beneficiary of the trust (me) will distribute the trust (estate)?

Could someone clarify? I would like to know what's the best way to sheild myself from paying so much in taxes if I can avoid it or mitigate it.

Thanks

Your friend doesn't know what he/she is talking about. Tax rates for trusts are far higher than tax rates for individuals. Therefore following his advice would just cost you MORE money, not less.

A single member LLC can elect to be treated as a sole proprietor for tax purposes, or a corporation....and in your case, specifically an S-corp.

What might be best for you is to make an S-corp election. Then, as long as you pay yourself a reasonable salary for the work that you perform (therefore with proper withholding and proper employer taxes) the rest of your pass through earnings would not be taxed for social security and medicare.

That would mean setting yourself up with a payroll service to handle your "paycheck" (believe me that's the most efficient/less costly way to handle it)

Go get yourself a consult with a local tax professional. If you owe 30k in taxes for 2006 you can't afford NOT to do so.