Tax Planning Made Simple™
Every dollar your clients receive goes into one of three income funnels
Non-Taxable
This is our favorite funnel. It doesn’t have any tax leaks. Unfortunately, the Internal Revenue Code defines taxable income as “income from whatever source derived.” There are some exceptions provided later in the tax code… but not many.
Capital Gains
If income must be taxed, we’d prefer it go through the tiny holes of the Capital Gains funnel. However, only income generated from the sale of appreciated assets or qualified dividends go through this stingy funnel.
Ordinary Income
By default, income most is “regular” or “ordinary” which means it passes through this funnel. Wages, pensions, taxable Social Security benefits, interest and traditional retirement plan distributions all gush through this funnel where the tax leaks can grow to almost 40%. These expanding leaks result from our progressive tax system in which higher dollar incomes are taxes at incrementally higher rates.
