# Money!

#### gilly1980

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I know there will be some of you who will reply to this thread with statements like "It's not about the money" and "doctor's don't make that much" but I was doing some calculations and I have a financial plan that would work...I will be using the Ontario tax system which has higher rates than the US so assume a little more income if you are in the US..

Let's say that you are a doctor that makes \$200,000/year before taxes but after overhead and malpractice insurance. Let's also say that your significant other is a pharmacist that makes \$95,000/year before taxes.
Also, assume that your parents are alive and receiving a pension of \$800/mth each. That would be \$9600 per year per parent. You could give (on paper) each parent \$32200 and still keep there income at \$34000 after their \$7800 personal tax free deduction and therefore have to pay tax at the lowest tax rate of 21%. Here is the breakdown:

-\$7800 (personal tax free deduction)
-\$32200 (give to parent)
-\$32200 (give to parent)
-\$32200 (give to parent)
-\$40000 (retirement savings plan (tax free))
_________________________________________________________________

-\$7800 (tax free personal ded.)
-\$32200 (parent)
-\$25000 (retirement savings plan)
________________________________________________________
Your spouses taxable income is \$30000

The first \$34000 of your income is taxed at 21%.
From \$34000-\$60000, the rate is 25%.

The \$128800 that you technically gave to your parents is taxed at the 21% since it is divided by the four parents.

\$34000*0.21%=\$7140
\$21600*025%=\$5400

\$30000*0.21%=\$6300

The tax on the parents is 128800*0.21%=\$27048

Therefore the total tax paid is \$45888.

You are left with \$184112 for the year or \$15342/month!

After 25 years of work putting in \$65000/year at a compounded interest rate of 6% in a retirement savings account, your total saved will be \$3,780,164 earning \$226,809 interest per year which you could live off without touching the principal ever again! You would pay taxes on whatever you take out from this savings account but you will still be close to around the \$15000/month that you were used to. Also, don't forget all of the money which you didn't spend out of the \$15000/month that you were earning throughout your life.

With this financial plan you only end up paying 15% taxes!
Good luck!

OP
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#### jeffsleepy

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1) I don't know about others, but I'm sure my parents will still be earning some sort of income from investments after retirement. Also, most people have siblings who might want to do the same thing.

2) I don't know too much about taxes but isn't there a gift tax or something?

#### SaraL124

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In the US, you can give a non-taxable \$10,000 gift each year.

That's all.

#### palminator2003

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Remind me NOT to let gilly1980 do my taxes I'll let my CPA do it instead

#### sunnyjohn

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Gilly1980 will land us all in jail!

#### Law2Doc

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SaraL124 said:
In the US, you can give a non-taxable \$10,000 gift each year.

That's all.

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#### gilly1980

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I didn't mention that your practice would be incorporated which allows you to have shareholders (family members...i.e. parents, children)...this would be the way to transfer your income to people who are being taxed at a lower late...why are you people so darn negative about everything...you really need to learn to be more open to ideas...

#### Law2Doc

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gilly1980 said:
I didn't mention that your practice would be incorporated which allows you to have shareholders (family members...i.e. parents, children)...this would be the way to transfer your income to people who are being taxed at a lower late...why are you people so darn negative about everything...you really need to learn to be more open to ideas...
To continue with the negativity , it may not be permissible for a non-physician to be a shareholder in an incorporated medical practice. I know it is certainly illegal for non-lawyers to own shares of a law firm... You'd better check on this one before you try it.

Edit: To bolster my above statement, you may want to check out the following article: http://www.physiciansnews.com/business/1299.html , which clarifies, several paragraphs down, that in a medical practice PC, "First and most important, is the requirement that all PCs be owned only by physicians." Thus, unless your family members are all docs, your plan here won't fly. (At least in the US).

#### sunnyjohn

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Don't get too upset gilly1980.

The IRS has most folks scared stupid. Trying "creative" approaches to tax reduction, however smart and legal, is still not something most people are willing to try.

Agape.

#### Law2Doc

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sunnyjohn said:
Don't get too upset gilly1980.

The IRS has most folks scared stupid. Trying "creative" approaches to tax reduction, however smart and legal, is still not something most people are willing to try.

Agape.
Well, creative is fine, smart is fine -- illegal is not. I'm all about being aggressive in saving taxes, but you can't run afoul of the well defined and spelled out parts of the law. Trying to lower your income tax earnings/rate with gifts to family is simply not permitted by the US tax code and is thus, frankly illegal. I seriously advise you to consult a CPA or attorney first if you want to try and get so creative.

#### japhy

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law2doc is right. i am mired in my federal income tax class right now. what gilly is proposing is straight up illegal.

but from what i hear, prison isn't all bad. apparently it is a great way to lose weight gilly, just ask martha.

#### gdubb

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japhy said:
but from what i hear, prison isn't all bad. apparently it is a great way to lose weight gilly, just ask martha.

#### Ross434

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If you're going to do a breakdown of income, at least dont spend any on your parents, and dont save for retirement. I think i'll spend my 65k a year (that you put into your pension) on a new mansion and a car, and my parents can live on whatever they've saved up. Geez. How unselfish. You definitely shouldnt be a doctor. . Also. it is all about the money, and , no, doctors will make more than 200k. Psh.

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#### gilly1980

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You don't have to be a physician to hold shares in an incorporated medical practice in Canada...I have to find some more information...My whole idea isn't that creative...it is straight out of the Canadian Medical Association website...so it is defintiely not illegal....nice try to you my friend...

#### gdubb

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Law2Doc said:
Well, creative is fine, smart is fine -- illegal is not. I'm all about being aggressive in saving taxes, but you can't run afoul of the well defined and spelled out parts of the law. Trying to lower your income tax earnings/rate with gifts to family is simply not permitted by the US tax code and is thus, frankly illegal. I seriously advise you to consult a CPA or attorney first if you want to try and get so creative.

i was just waiting for you to find this thread law2doc...good info

#### Law2Doc

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gilly1980 said:
You don't have to be a physician to hold shares in an incorporated medical practice in Canada...I have to find some more information...My whole idea isn't that creative...it is straight out of the Canadian Medical Association website...so it is defintiely not illegal....nice try to you my friend...
I don't purport to know what's what in Canadian law, but am certainly skeptical. Can you please link to that website you are citing? Thx.

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#### gilly1980

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I already posted the link...no problem...I am glad that we are discussing the different rules and tax codes...it should be helpful to many of us...

#### sunnyjohn

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Hmmm...... Maybe what's legal in Canada is illegal in the U.S.?

ayehh?

Anyway, I am poor so I don't think I will end up at "Camp Cupcake" with Martha. I'd end up at a hell hole somewhere!

#### Law2Doc

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gilly1980 said:
Okay thanks. You win on this point. That type of corporate ownership definitely not permitted by law in the US.
So where is the cite that says you can give your folks money before paying income tax and thereby lower your tax rate?

#### Ross434

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Law2Doc said:
Okay thanks. You win on this point. That type of corporate ownership definitely not permitted by law in the US.
So where is the cite that says you can give your folks money before paying income tax and thereby lower your tax rate?
Incorporation is permitted in the US too!

You may not be able to gain the same type of benefits in the US. But incorporating here is still very beneficial, and there are a ton of tax breaks you can achieve, legally. (Although im not sure if the scope matches what's possible in canada)

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#### gilly1980

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I am looking for the article that breaks it down but the site that I posted is a start...

If your parents are shareholders in the practice, you would be paying them from the corporation's funds, thereby reducing how much money you would have been paying at the higher tax rate...I will get back to you with more info...if you find any more info, please post it...thx

#### Law2Doc

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Ross434 said:
Incorporation is permitted in the US too!

You may not be able to gain the same type of benefits in the US. But incorporating here is still very beneficial, and there are a ton of tax breaks you can achieve, legally. (Although im not sure if the scope matches what's possible in canada)
Obviously incorporation is permitted. But in the US (at least in most states I've dealt with), you simply can't incorporate a medical practice as a professional corporation and have the shareholders be NON-PHYSICIANS. Similarly non-lawyers can't own shares of a law firm. As I have just learned from the OP, in Canada the rules are different in this respect. I concede this point, but am still holding my ground on his original tax rate assertion.

#### Law2Doc

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gilly1980 said:
I am looking for the article that breaks it down but the site that I posted is a start...

If your parents are shareholders in the practice, you would be paying them from the corporation's funds, thereby reducing how much money you would have been paying at the higher tax rate...I will get back to you with more info...if you find any more info, please post it...thx
Ok, thanks. My guess is that there must be some practical limit as to what percentage of your income your corporation can dividend away without running afould of the taxing authority, and we are assuming that dividends get taxed to the parents at regular ordinary income rates in Canada ... but it appears from your article that you can, in fact, do some of what you plan in Canada. I question your parenthetical ("on paper") in your original post -- I suspect the transactions will need to be real, and the parents will certainly have tax liability on the dividends, albeit perhaps at a low rate, in any event. But how about the other spouse who is purporting to give a chunk of her income to a parent pre-tax as well... Another corporation? I guess this is doable in Canada. Totally not the law in the US. No jail for you then...

At any rate, while this was an interesting study of international corporate and tax law I wonder whether it is losing its appeal to the rest of SDN.

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#### Law2Doc

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Ross434 said:
Hey gilly. That may be a plan, but the majority of the people here are not in canada . Just a heads-up
I'm shocked by how liberal canada is with its income tax loopholes. Nearly none of the transactions described in that last article would be doable in the US. Quite impressive -- I may need to relocate .

#### Ross434

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Law2Doc said:
I'm shocked by how liberal canada is with its income tax loopholes. Nearly none of the transactions described in that last article would be doable in the US. Quite impressive -- I may need to relocate .
It usually turns out that high tax rate systems have more loopholes. (at least, sometimes ) . I think thats a better way to go - tax people with power and intelligence a lot less. The US used to be like that, before the 70's/80's. It all ends up the same in the end. Now we have lower taxes but fewer loopholes.

#### palminator2003

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I believe the trend now is to incorporate as a PLLC (personal limited liability corporation). It provides you with the liability protection of a corporation, but you are only taxed once for your income.

#### vinisew

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interesting topic...

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My brother is a chartered accountant in Canada. Your idea is absolutely ilegal. There are strict tax guidelines in terms of "gifts". I believe my brother said you have a one time allowance of \$25000. Sorry man, you are not the first person to try to swindle the government.

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