High Income Earners Can Protect Their Earnings

by Bruce Givner on January 27, 2012

Despite the slate of negative press, such as Kim’s 72 day marriage and Khloe’s paternity, according to Forbes magazine, the Kardashian clan is still a cash cow machine and may be for some time to come.  And with an annual income of $65 million in 2010, Kris, Kourtney, Kim, and Khloe each have high earnings that put them in the top 10 percent of the top 1 percent of U.S. high income earners. Expert asset protection plans for these high earners can prove invaluable.

According to the IRS, in 2009 the top 0.1 percent of high income earners generated an average federal income of $4.4 million, a decline from 2008.  However, their average federal tax rate of 24.3% or $1.07 million was an increase from 2008 and due to the “diminished capital gains and dividend income on high-income tax returns, income sources that are taxed at lower rates”  With the 2011 tax deadline rapidly approaching, high income earners such a celebrities, entrepreneurs, physicians, and athletes should ensure they have used the federal tax laws to minimize their federal taxable income.

 Here are two tips to protect those high earnings:

  • Set up a SEP.   Self-employed high income earners with a business of any size qualify for a simplified employee pension (SEP).  For 2011, employers can contribute the lesser of 25% of an employee’s compensation or $49 thousand (This amount goes up to $50 thousand in 2012).
  • Deduct Investment Interest.  If you borrowed on margin and itemize your deductions you are probably eligible to deduct the interest you paid on taxable investments.  While your deduction may be limited by the amount of your taxable income from such passive investments as interest, royalties, capital gains (short-term), and annuities, any interest not deducted can be carried over and offset against income in other years.

If you are a high income earner, begin your income tax planning early by contacting an expert tax and asset protection attorney. Call us at (310) 207-8008.

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