Phillip B. Chute, EA was a licensed stockbroker for 20 years and held NASD Series 7 License [General Securities}, Series 24 License [Principal. AOSJ and branch manager], and a Series 63 [Registered Investment Adviser]. Mr. Chute has current insurance licenses with California; Accident and Health Agent, Casualty Broker-Agent, Life -Only -Agent, Property Broker-Agent, and a Variable Contracts Agent.
Planning concerns not only investments but tax considerations for both individuals and businesses.
Individual planning for investments involves risk and return. The higher the risk, the bigger the return or losses. As a stock broker and supervisor for twenty years [now retired], we advise our clients on their investments as part of our tax preparation. We also offer insurance annuities for some.
Corporate planning for investment involves limited investing of excess cash. Some of our corporate clients hold California tax-free municipal bonds [same as individuals]. All business investments should be readily convertible to cash. A corporation should avoid re-classification as a holding company if too much cash or investments are accumulated. The IRS would prefer to see some of it distributed as salaries, or dividends which are not deductible by the business as a business expense]. The best investment is to put funds back into the operating business.
Tax planning for individuals involves issues concerning estate planning, setting up family trusts, and how to avoid more taxes at year-end. Transfers of wealth to family as loans will never become an investment loss unless it is documented and formal collection attempts are made. Without proper loan documentation, it becomes a gift. With proper documentation, it becomes a capital gains loss subject to offset other capital gains before limits against reducing taxable other income, Avoid the Usury law which would invalidate your contracts. At this time the California individual limit on interest rates is 10%. As you know by the high credit card interest rates, the banks have their own deal. I worked with a business that won a lawsuit because they borrowed money at interest rates above the Florida interest rate limits. They got off without paying the principal back. These guys were very smart operators.
Business planning for taxes concerns the purchase of capital equipment [and section 179 or accelerated depreciation of these assets], year-end write-offs of unsaleable inventory and uncollectible receivables, accrued officer bonuses payable in the next year, purchases of supplies and tools on the "wish list", repairing of equipment in use or not, and other considerations to reduce taxable income when needed. Sometimes it works in reverse when businesses have losses or lack the cash to do much of the above. Equipment that is non-operative or obsolete should be disposed of to avoid property taxes. It is amazing how hard property tax auditors will look for equipment not on the books when they visit.
The above is endless and because individuals and businesses are all different, this is only an example of what a good financial adviser/tax consultant can do for you.
* Phillip B Chute is an Enrolled Agent, tested, licensed, and appointed by the IRS directly. He has prepared or supervised over 25,000 tax returns over 30 years.