Welcome to episode two of the Wealth Breakdown podcast!
I’m Billy Amberg, your host, and today, we’re diving into a topic that could save you significant money: buying tax credits.
Let’s explore how James leveraged tax credits to slash his tax liability and reinvest in his growing business.
Meet James: A Successful Business Owner with a Heavy Tax Burden
James, 45, is married and files jointly. He owns a logistics company that generates $3 million in annual profits. Here’s the breakdown:
Salary & Bonus: He pays himself $1.5 million.
Retained Earnings: Another $1.5 million is reinvested into the company.
Despite his success, James faces a hefty tax bill:
Personal Tax Liability: $600,000 annually ($75,000 state + $525,000 federal).
Business Tax Liability: $300,000 annually.
The Problem: High Taxes Eating Into Profits and Personal Income
James expressed frustration about his tax burden, despite understanding it comes with earning high income. Watching hundreds of thousands leave his accounts every quarter was a painful reality. That’s when Bloomwood, working alongside his CPA and a tax credit firm (Monarch Capital), can step in to help.
The Solution: Using Tax Credits to Offset Taxes
What Are Tax Credits?
Tax credits directly reduce the amount of taxes owed, dollar-for-dollar, unlike deductions, which lower taxable income. Even better, tax credits can often be bought and sold.
How It Works:
Purchasing Tax Credits: Credits are typically purchased at a discount, between 85 and 90 cents on the dollar.
Example: James bought $75,000 in state tax credits for $63,750, saving $11,250 instantly.
Real-Life Savings: Personal and Business Benefits of Tax Planning
Personal Savings - James could only use tax credits to offset his state tax liability of $75,000. By purchasing credits at a discount:
He spent $63,750.
He saved $11,250.
Business Savings - The logistics company bought $300,000 in federal tax credits for $255,000:
The company saved $45,000, nearly equivalent to an entry-level employee’s annual salary.
The ROI: A 4x Return on Investment
Between personal and business tax savings, James and his company spent $12,000 in fees but saved over $56,000—a 4x return on investment.
Comprehensive Planning for Future Success
As part of this strategy, James also received ongoing support, including:
Financial Planning
Tax and Estate Planning
Life Planning
Knowing that all options were explored gave James peace of mind and a stronger financial footing.
Take Action: Explore Your Tax-Saving Opportunities
If you found this case study insightful, please reach out to us:
If you want even more information on buying tax credits, here is another one of our informative blog posts:
Disclosures
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