A Tax Haven in the USA? What You Don’t Know Could Save You Millions in Income Tax.
Across the board, everyone from entrepreneurs and savvy small-business owners to hospitals and nonprofit companies are increasing their reliance on captive insurance companies. A captive insurance fund, like the rainy day fund you store on top of your fridge, is a tax-deductible insurance fund that covers uninsured risks like coverage for litigation, workers compensation payments, and a host of other extreme circumstances.
Captive insurance companies are most beneficial for small-business owners whose business profits flow directly through to their personal income tax. Today, when high income tax is threatening the lifeblood of small businesses across the United States, captive insurance companies are becoming an ever-popular way for business owners to save on their personal income taxes.
How does this differ from a conventional insurance company? Captive insurance funds are set up by financial firms to literally capture insurance money not being claimed. For example, if your business pays $1 million to an insurance company yet had only $500,000 in claims, your business would be out $500,000. On the other hand, if your business had put the same million into a captive insurance company, the remaining $500,000 would remain untouched, left growing over the years. These funds are not only tax-free up to $1.2 million – they’re tax deductible.
Be aware however, that it’s not like these funds are totally risk-free. Once your fund exceeds the $1.2 million benchmark outlined by the IRS, the remaining assets are treated as taxable income.
But if you’re a business owner with more than $700,000 in taxable income and more than $1 million in insurance premiums, you’ll need to set up a captive insurance fund to save your hard-earned assets from being wasted on unused insurance claims.
Call Charles Massimo, wealth management professional and president of CJM Wealth, to learn how your small business can take advantage of this “on-shore tax-haven” today.