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International tax planning for contract manufacturing

International tax planning for contract manufacturing

Amazing tax savings for importers of contracted manufacturer of their products.  This new IRS law gives tax savings to small businesses. Learn more on this link and send it to your CPA.  For additional small business tax savings get my book International Taxation in America for the Entrepreneur  on sale for $9.50 on this link.

International tax planning

Small business are now reaping big tax savings.  Importers, exporters and e-commerce business can use the same loopholes as big business. I wrote my book to teach you these loopholes in an easy two hour read.

But, I did more.  I had an audiobook created.  It downloads onto your smartphone so that you can listen while you are commuting.   Get the 2016 edition of  International Taxation in America for the Entrepreneur for $9.50 at Amazon on this link.  

id theft, identity theft IRS refund, IRS refund, brian dooley,

Tax planning and saving taxes does not work when you IRS deposits are stolen. Use the “Safe Lock” to protect yourself.

Protect your tax refund from ID thieves with the free “Safe Lockon this link.  Until the Obama’s Attorney General Holder was robbed twice, the Administration did little.  Then they got Michelle’s Obama’s social security number.

Local drug gangs have turned into tax refunds thieves.   60 Minutes reported that they have “laptop parties” where they get together and chit chat as they steel your money.   Often they have a friend or a mole working at a doctors office. The mole gets your information.

saving taxes, how to save taxes, tax planning,

Saving taxes with an IRS approved tax plan is called a private letter ruling.

International Gift Tax Plans with this IRS internal letter on this link. Fantastic legal tax avoidance for the foreign person with family in the U.S. is explained in this letter.

  • Avoiding state income taxes this new IRS  designer  Nevada trust.  IRS tells how to use your Nevada corporation as your trustee to legally stop paying state taxes on your investment income. Here’s what’s happeningon this link.

New- Saving international taxes with this letter from the U.S. Department of the Treasury letter to the U.K. tax authorities on tax planning in the U.S. for UK and EU companies.

Tax planning, with the Supreme Court common tax laws

Tax planning with Supreme Court common tax laws

18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a big defeat.  Here is what happen.   The Supreme Court is the “law of the Land”.  It rules over the IRS and Congress.   

It works both ways.  The blog on this link explains the most missed Supreme Court Doctrine use by the IRS to blow up this offshore plan.

international tax planning, international, tax, planning,

International tax planning and international tax savings with this Treasury Department report. 

The U.S. Department of the Treasury (a branch of the White House) issued a secret report on tax savings international tax plans that the IRS cannot stop.

They reported the successful foreign tax plans of international businesses. We have obtain a copy.  It is on this link.   Here you will learn the legitimate foreign tax plans that Congress likes. 

offshore trust, foreign trust, nevada trust, estate planning trust, esbt,      Since the Middle Ages, the wealthy have capitalized on trusts to avoid paying taxes. During the Great Crusades, upon the death of a knight, his entire estate went to the king. 

Nine hundred years later, things have not change much except the ‘king” takes only half.

Trust are the most effective tax tool. International tax planning should start with a Nevada trust to own the foreign company.  Learn trust tax planning and asset protection on this easy to read blog post.    It has  the blueprint for successful trust tax planning.   IRS memo on  assets protection and tax planning with an offshore trust.  Get it now on this blog post.

internet tax planning, saving taxes, cloud tax planning ,

Saving taxes with the cloud based

Cloud tax planning: Learn how businesses are using the cloud to save taxes on this link.  E-commerce businesses are avoiding state income taxes and in some cases deferring U.S. taxes.

Be an IRS tax wizard with our new custom Google search, below .  I personally programmed this custom Google app to read 400,000 pages deep inside the IRS’s web site and the tax court’s web site.


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Great Tax Savings using the New IRS Regulations on Debt versus Equity

tax planning, avoid taxes, small tax business,

President John Kennedy (Democrat) is the most respected president of last century. The President and Supreme Court Justice Hand agreed that patriotism does not mean paying more than your legal share.
Supreme Court Justice Holmes said tax planning means you get as close to that legal line as possible.

If you were a tax nerd, like me, you would have read many many articles on the new IRS section 385 regulations (debt versus equity transactions).  Nobody like change and that applies to most tax planners.   But for every action there is an equal reaction.

While corporate tax planning will be more complex with these regulations, small business tax planning is improved.

his blog looks at shifting income and wealth by valuing a promissory note.  For estate tax  planning, you want the note to have a low  value.

For small business income tax planning, you want the note to have a high value.  The high value provides for income shifting.

The is blog will provide the methods and rules that you tax planner can use in valuing a promissory note.   If you want to brainstorm tax strategies, then just give me call me, Brian Dooley,  CPA, MBT, at 949-939-3414.

The tax law provides that  the fair market value of a note is a factual question.  It is  be determined by taking into account all relevant circumstances, including the note’s rate of interest, its date of maturity, and the financial responsibility of the maker of the note. [1]

Forty years ago (when the U.S. has hyper inflation) the IRS required a comparison should between the interest rate on the note and the prevailing rate of interest for similar transactions in the market place. [2]   Back then short term deposits were paying 20% per year.

A note’s stated interest rate (or, implicitly, the lack of a market rate of interest) is one of the most common bases for deviation from the general fair market valuation standard.[3]  Other factors are:
(1) the collectability of the note based on the maker’s financial  strength.  This brings the concept of thin capitalization into the determination or a debtor with little net worth;

(2) the marketability of the note, or lack thereof (as in the case of related party loan);
(3) any security such as a deed of trust (related party loans are usually unsecured) and
(4) any legal problems to the enforcement of the note.[4]

For income tax purposes, the fair market value of a note is included in the recipient’s gross income if it is deemed to be a cash equivalent. [5]   For example, my domestic corporation owes my offshore corporation $750 for management fees.  A few  years before, my domestic corporation loaned to me a $1,000.  Based upon the factors discussed above, the note is now worth only $750.

My domestic corporation pays my foreign corporation the note for the management fee.  When I pay off the $1,000 note, my foreign corporation gets the $250 profit tax free.

According to the Tax Court, for gift tax law, all loans at the IRS interest rates are not taxable gifts.  The concept of the credit worthiness of the borrower is not important.[6]

If the loan is below the IRS interest rate, the loan is part gift  and part loan.  However, if it is above the IRS interest rate, there is no gift tax issue.

For estate tax purposes, the fair market value of a note is can be the unpaid principle plus  accrued interest (see Reg. Section 20.2031-4).  However, the common law (i.e. court cases) look at the facts. As I discussed above, you look at  the interest rate, maturity date, collection risk, maker solvency, collateral sufficiency, or other causes warrant a lesser value.

The burden of proof is on the taxpayer.  This means you want to get an independent study to keep in your file. [7]

FOOTNOTES

[1] Estate of Gribauskas v. Commissioner, 116 T.C. 142 (2001), rev’d on other issue, 342 F.3d 85 (2d Cir. 2003). See also Reg. Sections 20.2031-4, and 25.2512- 4.

[2] Rev. Rul. 81-286, 1981-2 C.B. 177, citing Blackburn v. Commissioner, 20 T.C. 204 (1953), and Rev. Rul. 77- 299, 1977-2 C.B. 343.

[3] Estate of Gribauskas v. Commissioner, 116 T.C. 142 (2001), rev’d on other issue,  342 F.3d 85 (2d Cir. 2003).

[4] See, for example, Estate of Hoffman v. Commissioner, T.C. Memo. 2001-109, where the Tax Court allowed a 12.5 percent discount in valuing promissory notes held by the decedent..  The Court used common sense. It reasoned that  a willing-buyer would take into consideration the factors that you would if you bought a bond.  These factors were interest rate and accrual, and maturity date, in determining an appropriate rate of return on an investment in the notes.

[5] 1.61-2(d)(4)

[6] Frazee v. Commissioner, 98 T.C. 554 (1992)

[7] Estate of Hoffmann v. Commissioner, T.C. Memo. 2001-109, citing Estate of Pittard v. Commissioner, 69 T.C. 391 (1977); Estate of Berkman v. Commissioner, T.C. Memo. 1979-46.

Trump- “I try very hard to pay as little tax as possible ”. So, why aren’t you?

Small Business Tax Planning. Try very hard to pay the least in taxes

Small Business Tax Planning. It is time for you “To Get Tough” on taxes.  

In a recent report, Congress blamed Americans for paying too much tax.  Congress reported that the average tax rate of tax planning businesses is 14% (more on this link).   Matter of fact, Congress reported most tax planning businesses  paid no  income taxes.  

  For decades fools bought  tax shelters.  They “invest” their money   and  are told that the investment will give them deductions or a tax credit. These fools do no work hard to pay the as little taxes as  possible.  They just wrote a check.

 This is not what Billionaires do.  Billionaires work hard to pay  less taxes. 

They avoid taxes by structuring their business deals in what is known as a “tax efficient strategy“.    This allows all of their profit to be used for growth or for saving for that “rainy  day”.  

So, why is the small business owner not taxed at 14%?
– Are they too busy for tax planning?
– Can’t find the right CPA or attorney?
– Don’t want to spend money on professional fees?

Congress’s report has some answers.

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International Tax Strategy for Importers with Contract Manufacturing

International tax planning for contract manufacturing

International tax planning for contract manufacturing

A new contracting manufacturing international tax law is allowing small business to reduce taxes.  If you import products into the U.S., you want to look at this new law.

Briefly, you form and control a foreign corporation where you contract your manufacturing.  The corporation manufacturers products for you.  It sells these products, at a profit, to your U.S. business or directly to your customers.

The tax law does not tax you on the profit made by this corporation.

The tax provides that the shareholder of a  foreign corporation is not taxable on the income from the sale of personal property (including inventory) manufactured by a corporation formed in the same country as the manufacturing.[1]  In other words, tax on this  profit from manufacturing is not taxed.[2]

The sale of the property takes place outside the U.S. This means title to the property occurs anywhere other than the U.S. Usually, the sale takes place when the property leaves the factory of the contract manufacturer.

You or an employee must only do one or more of these activities either via the internet or in person:
(1) Oversee and direct the activities or process which the property is manufactured, produced, or constructed or
(2) Select the materials or the vendor or
(3) Control the raw materials or the work-in-process or the finished goods or
(4) Manage the manufacturing costs or capacities or
(5) Control of manufacturing logistics or
(6) Control the quality such as overseeing the sample testing or establishing the quality control standards or
(7) Develop and/or direct the use or development of the product,design and specification.

This is an amazing tax law.  Importers are reaping big tax savings.

I know that you are busy and   I wish I could place all the tax breaks on a few paragraphs.   However, to have a blog post for as many different types of businesses, this post is a few pages.

If you want to schedule a time to talk, then email me Brian Dooley, CPA, MBT [email protected],

Here is how contract manufacturing tax avoidance works  You do not pay income tax on your controlled foreign corporation income that is not classified as “subpart F income”.  Subpart F is the location in the tax code that talks about the taxable income.  You want your controlled foreign corporation to earn income that is not Subpart F income.

Subpart F income does not include income from the sale of personal property manufactured, produced, or constructed by foreign corporation.[1]

For example, Ford Motor manufacture in England.  These cars are sold in the U.K. and Europe through independent dealers.  None of the income is Subpart F income.  The income is not taxed by the United States.

Avoid U.S.  taxes for Big Business like Ford is easy.  They can afford to build a factory.

Now, small businesses have the same opportunity for tax planning.  Contract manufacturing allows the small business to manufacture its products.
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Ancient IRS Regulation Creates New International Tax Savings for the Cloud Computer and the Internet business

Thousands of small business are legally avoiding taxes by following an ancient IRS regulations.   If you sale a PDF file, a MP3 or a video that is downloaded, creating foreign income is easy because of this tax law the IRS wrote in the 1990s.  

Under this old law, when your website download the file, you are treated like an exported of property.  If title to the property taxes place outside of the United States, the income is foreign income.  Yep, it i just that simple.  below is the technical stuff for your CPA.

Here is what’s happen: The 21st Century has a new paradigm in business.  We all use and love it. E-commerce, cloud computer, internet business or “i” business, we all enjoy streaming music, Netflix, shopping online, and Kindle book (by the way, please check out mine).

Back to the IRS regulation.   You have to read this so that my explanation will make sense.   However, if you would like, just give me, Brian Dooley, CPA, MBT, a call and we can discuss the tax strategy.  Call me direct at 949-939-3414.

EXAMPLE 18 from IRS regulation 1.861-8

(i) Facts.

(A) Corp A, a U.S. corporation, transfers a disk containing
Program X to Corp E, a country Z Corporation. The disk
contains both the object code and the source code to
Program X and the license agreement grants Corp E the right
to–

(1) Modify the source code in order to correct minor
errors and make minor adaptations to Program X so it
will function on Corp E’s computer; and

(2) Recompile the modified source code.

(B) The license does not grant Corp E the right to
distribute the modified Program X to the public. 

(ii) Analysis.

The right to  modify the source code and recompile the source code in
order to create new code to correct minor errors and make
minor adaptations is a de minimis component of the
transaction.  Because Corp E has received a copy of the
program it has received a copyrighted article and not the copyright itself.
( At the time this law was written, the concept is that a copyrighted article is a computer program kept on a floppy diskette.)

Taking into account all the facts and circumstances,
Corp E is properly treated as the owner of a copyrighted
article. Therefore, there has been the sale of a copyrighted article rather
than the grant of a lease of . (Underline by your author, this is
important).

The term “copyrighted article” is tax jargon for tangible personal
property.  Unless you were around in the 1990s, this tax law seems odd.
The best example is buying music on a DVD.  You can touch it and you pay sales tax because it is tangible personal property. 
  

If you need help with your tax planning, contact me, Brian Dooley, CPA, MBT [email protected]