It’s an old dilemma for small businesses: How to keep cash and company records safe?
Many employers turn to personal safes at home; some use their own bank accounts or safety deposit boxes says William D King. But these options can be problematic. Employers are not allowed to use business funds for personal purposes, like safeguarding money at home. And even if they do, they must eventually report all their income on tax returns. Accumulating too much cash in a private account could raise suspicions of the I.R.S., especially if it is undisclosed income from illegal activities or sales that were never reported to the government.”The best way around it is to make sure your company doesn’t generate much cash at all,” said Steven A. Bank, a law professor at the University Of California Hastings College Of Law in San Francisco.
“If you’re doing business and its generating income, then eventually someone at the I.R.S. will start sniffing around.”
By EARTHA JOHNSON Staff Reporter of THE WALL STREET JOURNAL (WSJ), posted on NY Times, May 7th 2010
So, what are you planning to do with your hard earned money?
Investments? Great! But before you go ahead and buy any shares or stocks or invest in mutual funds or put money into IRA or 401k plan for the future, you need to know the basics of taxation in US.
In reality, when it comes to investing in a profitable stream of income from your savings, retirement funds or from the investments made from your hard earned money, what matters is how much tax you pay on that income in a year and not about making a great earning in the long run.
The following explanation will give you an idea why it really doesn’t matter what kind of investment you make if you want good returns over years but only care about how much tax you will have to pay on any given amount of income at once says, William D King.
Consider this example: Let’s say that last year your income was $100K and has been taxed at 30%. This year also, since you have a high rate of pay, your income is $100K and you are taxed 30% again.
But then the next year your income is down to $20K as you lost your job or quit on your own decision. Will you still be tax 30% on that income? No! Because even if you haven’t made any investments at all, simply by selling some of the stocks or mutual funds or real estate property which has been generating good interest for quite a time can make up for all those years when you didn’t make much money but were paying 30% tax on it because of your high salary status during those years.
So, this example shows how what matters most in making investments is to be able to generate enough taxable income within the year.
However, if you have made investments in real estate property or stocks or mutual funds or any other kind of income-generating asset, then it is indeed true that the tax rates are lower than 30% for people who fall under the ‘lower tax rate’ category.
But how do you know which investment should generate taxable income?
The safest alternative would be to go for dividend paying stock(s) because there are certain kinds of dividends that are exempt from taxation until they reach a limit of $10K per year says, William D King.
What happens to your money when the bank becomes insolvent? What happens to your life savings if your broker goes bankrupt? Is my FDIC insurance really worth anything anymore? The following article discusses this and more:
As the financial crisis rages on, an old debate is back in Washington: Do we need to break up the banks? It’s a question that surfaced after the collapse of Bear Stearns and Lehman Brothers in 2008 — but never got much attention. That hasn’t changed since TARP inspector general Neil Barofsky released his report this week detailing how AIG (AIG) begged for bailout money and then gave out $18 million in bonuses. The government has pledged not to repeat its mistakes with AIG.
And the banks are not currently in danger of failing. But many economists, including Nobel Prize winner Joseph Stiglitz, say it’s time to take the nation’s largest banks apart for good of the financial system — and our economy. Only three out of 10 Americans think breaking up large banks is a bad idea, according to a recent Associated Press-GfK poll. The AP-GfK poll was conduct March 5-9 by GfK Roper Public Affairs & Corporate Communications. It involved landline and cell phone interviews with 1,004 randomly chosen adults and had a margin of error of plus or minus 4 percentage points…
Conclusion:
As you can see, the above two articles are interesting indeed. However, there is no need to get into too much of this for now, since your primary objective should be to make sure that you have enough taxable income generated within the year.
The best way to do it is by making investments in dividend-paying stocks because there are certain kinds of dividends that are exempt from taxation until they reach a limit of $10K per year. So if you can keep your salary and investment income below $10K/yr after taxes then you don’t need to worry about any tax on such dividends at all!