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It’s tax time again, which means many people will be writing checks to the Internal Revenue Service. But not a lawyer in Los Angeles, who last year put all of his earnings, $840,000, into a tax shelter and plans to put $1 million in this year. He doesn’t have to pay any income tax.
In fact, he was able to borrow back some of the money to live on and write off the interest on the loan.
The attorney accomplished this feat by putting his earnings into a captive insurance company, a vehicle that allows companies to insure themselves against risks that are too expensive to buy coverage for in the regular insurance market or to cover events that are unlikely to happen but would be costly if they actually did.
Until a decade or so ago, most captives, as they are known, were set up by large companies.
Wealth Matters Insights from Paul Sullivan on the mindset and strategies of the affluent. With an Eye to Impact, Investing Through a ‘Gender Lens’ AUG 14 Navigating Tougher I.R.S. Rules for Family Partnerships AUG 7 Modern Families and Modern Money Worries JUL 31 How to Snag a Reservation at That Oh-So-Popular Restaurant JUL 24 When Impact Investing Stays Local JUL 17 See More »
But captives have gained in popularity among small-business owners who see another benefit: They can be designed so that the risks they insure are so unlikely that the captives will never pay out a claim and all those premiums will go back to the business owners or their heirs with little or no tax.
It’s tax time again, which means many people will be writing checks to the Internal Revenue Service. But not a lawyer in Los Angeles, who last year put all of his earnings, $840,000, into a tax shelter and plans to put $1 million in this year. He doesn’t have to pay any income tax.
ReplyDeleteIn fact, he was able to borrow back some of the money to live on and write off the interest on the loan.
The attorney accomplished this feat by putting his earnings into a captive insurance company, a vehicle that allows companies to insure themselves against risks that are too expensive to buy coverage for in the regular insurance market or to cover events that are unlikely to happen but would be costly if they actually did.
Until a decade or so ago, most captives, as they are known, were set up by large companies.
Wealth Matters
Insights from Paul Sullivan on the mindset and strategies of the affluent.
With an Eye to Impact, Investing Through a ‘Gender Lens’ AUG 14
Navigating Tougher I.R.S. Rules for Family Partnerships AUG 7
Modern Families and Modern Money Worries JUL 31
How to Snag a Reservation at That Oh-So-Popular Restaurant JUL 24
When Impact Investing Stays Local JUL 17
See More »
But captives have gained in popularity among small-business owners who see another benefit: They can be designed so that the risks they insure are so unlikely that the captives will never pay out a claim and all those premiums will go back to the business owners or their heirs with little or no tax.