How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask socrateaser Your Own Question

socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33914
Experience:  Retired (mostly)
10097515
Type Your Tax Question Here...
socrateaser is online now
A new question is answered every 9 seconds

Im coming into a large sum of cash ($6 million plus) from

Resolved Question:

I'm coming into a large sum of cash ($6 million plus) from an investment, hopefully by years end. My wife and I are looking for as many places as possible to invest this money to lower our tax liability. I am 43 and self employed. My wife is 33 and employed with another company. We have 2 children. Any suggestions?
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.
Investing cannot lower your tax liability, unless your investment produces large immediate expenses, and you materially participate in the business.

If you open a restaurant and you are the Maître d', then your expenses will reduce your income, and that will produce a tax deduction on your return.

But, if you're simply buying stocks, bonds, and CD's, then you won't lower your taxable income at all.

So, unless you're planning on starting a business venture and materially, you really cannot reduce your tax liability in any meaningful way.

Hope this helps.
Customer: replied 3 years ago.
What about investing in Roth Ira's, setting up a couple of 401K's, buying tax free muni bonds, etc?
Expert:  socrateaser replied 3 years ago.
A Roth IRA does not reduce your current taxable income -- it may reduce future taxable income.

Contributions to an IRA or 401(k) must come from "compensation," as defined in the following table:

Includes ... Does not include ...
earnings and profits from
property.
wages, salaries, etc.
interest and
dividend income.
commissions.
pension or annuity
income.
self-employment income.
deferred compensation.
alimony and separate maintenance.
income from certain
partnerships.
military differential pay.
any amounts you exclude
from income.
nontaxable combat pay.

You stated that your income is from an "investment." If so, then that income is not compensation, and cannot be contributed to an IRA or 401(k).

Purchasing tax-free munis also may reduce future taxable income, but it will not reduce your current income from the investment that you are receiving.

What you may want to consider is that at the moment, the federal capital gains tax and ordinary income tax is set to rise to ordinary income tax rates on Jan 1, 2011. Absent Congressional action, if you can receive your investment prior to year end, then you will almost certainly save at least 5% in taxes, because the current Democratic plan is to limit the capital gains rate to 20%. And, if the battle between Democrats and Republicans continues after the election tomorrow, then that 5% is probably the best that you can hope for. Therefore, receiving the income this year is probably the single most optimal action you could take.

The second most optimal action is to relocate your permanent residence immediately to a U.S. state jurisdiction which has no personal income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.). You only have to permanently reside in one of these jurisdictions during the tax year in which you receive your income. This could additionally reduce your overall tax liability considerably.

In my view, the most optimal tax arrangement is to live in Washington State, but on the Oregon border, because Washington has no state personal income tax, and Oregon has no state sales tax. Therefore, if you receive income in WA and shop in OR, then you will have a zero state tax liability.

Hope this helps.
Customer: replied 3 years ago.
Ok, last question. I purchased this investment through my LLC, which is based in Nevada. If I use the LLC purchase and return the dividend to the LLC, does that make it exempt?
Expert:  socrateaser replied 3 years ago.
This issue is extremely complicated.

In general, however, your personal liability for LLC receipts is based upon (1) your right to receive income from the LLC, not whether or not you take actual receipt of that income, and (2) the right to the accruing while you are resident in a particular statet jurisdiction. When both elements are satisfied, you are subject to tax under the laws of your state of residence.

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33914
Experience: Retired (mostly)
socrateaser and 3 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.