The new GOP tax bill has created new hidden tax savings. While preparing Form 5471 for the Controlled Foreign Corporation, you want to make important elections.
Starting in 2018, Form 5471 is full of international tax planning and tax savings. As you prepare Form 5471, carefully look at the instructions. They hint at the hidden tax savings. (If this is the first year or a late filing, then please see this link.)
It is here, in the fine but dull print, that you will find your tax savings. Preparing Form 5471 for the Controlled Foreign Corporation is an art form.
For example, does your tax preparer know that an offshore corporation acting as a captive finance company can avoid U.S. taxes?
Or that a foreign contract manufacturer related party sales are tax-free?
Or the special foreign investment fund (such as a foriegn ETF) and controlled foriegn corporation tax plan on this link.
Video on Preparing Form 5471 for the Controlled Foreign Corporation
My video below is from an international tax class that I gave to the California Society of CPAs on preparing Form 5471 for the Controlled Foreign Corporation
If you want to start to save taxes while preparing your Form 5471, then contact me, Brian Dooley, CPA, MBT at [email protected]
International tax treaty planning for the resident alien that are citizens of Canada, the U.K., Australia, New Zealand, the European Community start with the tax treaty. Many have a unique tax advantage, Tax treaties with these countries provide a unique and little-known tax savings.
This video is an audio clip from my tax radio show, Tax Talk. You will learn why resident aliens are paying more in taxes than they should.
They pay tax on their worldwide income including income from interest, dividends, wages, other compensation for services, rental property, and royalties. The resident alien must report these amounts whether from sources within or outside the United States. Depositing of income outside the U.S. is taxable.
If you are a citizen of a country with a tax treaty, the treaty decides if you are a resident or non-resident. Otherwise, if you have a green card or spend too many days in the U.S., you are a resident alien.
Nonresident aliens are usually subject to U.S. income tax on U.S. source income. In some cases, foreign source business income can be subject to U.S. tax. You will learn more in my book, International Taxation in America for the Entrepreneur.
A dual-status alien is an individual that is both a resident alien and a nonresident alien in the same tax year. This can occur when you obtain your green card.
U.S. Investment income is taxed at a flat 30% of the gross income. If the non-resident alien resides in a treaty country, the tax rate is usually between zero and 15%.
Business income is taxed on a net income basis. The alien has the same tax rates as an American. In some cases, an NRA’s foreign business income is taxed by the U.S. This occurs when the NRA has an office or some other type of business facility or is in the U.S. on a business trip.
Tax Withholding on Foreign Persons
Payments of U.S. income to foreign persons are subject to the withholding tax rules. In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income. This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.
The NRA that comes to the U.S. for business meetings owes U.S. tax on his foreign salary if he or she is paid more than $3,000 by his employer.
Taxpayer Identification Numbers (TIN) for the non-citizen
Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN). Also, non-citizens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.
Sale of Real Estate
Non-Resident Aliens are hit with a fifteen percent withholding tax on the sale of U.S. real estate. In some cases, the withholding tax applies to refinancing. The withholding tax does not replace the income tax. Aliens must file an income tax return. The tax withheld is a credit towards the total tax. If the total tax exceeds the tax withheld, they get a refund.
Saving Taxes with Tax Treaties
The U.S. tax liability of non-resident aliens is determined primarily by the provisions of tax treaties. If the non-citizen is not a national of a treaty country, then the U.S. Internal Revenue Code applies.
Many foreign countries have tax treaties with the U.S. Tax treaties override or modify the provisions of the Internal Revenue Code. Tax treaties allow you to pay less tax.
All though you are a resident alien for income taxes you may be a non-domiciled alien for estate (death) taxes. Non-domiciled aliens are subject to estate taxes on all of their U.S. property (including stocks, bonds, and property) except bank accounts and life insurance. They are not entitled to the $5,000,000+ exemption that is allowed for Americans. Accounts with brokerage firms are frozen upon the alien’s death. Tax treaties may allow the alien to avoid U.S. gift and estate taxes.
Become an Expert
Become an expert with my book, International Taxation in America for the Entrepreneur, available on this link and feel free to call me with any questions that you have.
The new GOP tax laws start in 2018. Here are the Five Best Tax Saving Plans For Small Business Owners.
Saving taxes will require some changes in your entity structure. You want to focus on the low corporate income tax rate. However, you need to keep certain assets out of corporations. These assets are your trade name, trademark, copyrights and patents, if any.
Big Business uses many tax plans that are not well known. The five best tax saving plans for small business owners are:
1. Have one use the accrual basis of account. This allows you to avoid taxes on prepayments (more on this link) and expense costs before they are paid. Have one entity be a corporation. Corporations can be taxed as a separate entity (which means they pay their own taxes) or a pass through (by election subChapter S of the tax code).
Each of these corporate taxation methods has a unique advantage. For a start-up, the separate entity has the benefit of allowing you be late on paying income tax on the profits. Thus, you have more money to invest in growth.
Have one corporation doing business in a tax-free state such as Nevada.
2. If you have only part-time employees or no employees, then fund your business with the little-known tax savings of a solo 401K plan(more on this link). This works only if you have no full-time employees. Big businesses use the ESOP retirement plan. It is a fantastic tool but most small business can not afford the annual compliance cost.
3. If you make sales via your website, place your website on a server in atax-free state(learn more here), Also, have the server and website owned by a corporation in the same state. If your website sells a service or another intangible item, use a tax haven corporation to own the site. The server needs to be in the same country as the corporation.
4. Use an irrevocable non-grantor trust to own any passthrough entities. Of course, have the trust in a tax-free state such as Nevada. A non-grantor trust has almost no audit risks. This type of a trust files its own tax return (Form 1041) and pay its own taxes. By moving income to this return, you have a lower “adjusted gross income.”
A lower adjusted gross income allows you larger itemized deductions and more tax credits. It also reduces your chances of a tax audit.
5. Don’t rely upon year-end planning. It is a suckers move. Usually, you end up spending money to be able for a deduction. Big Business plans a year in advance and not a month before year end. Each time they add a product or service, they think about tax planning. The most effective tax planning looks at income and not expenses.
If you need help creating a strategic tax plan, then contact me, Brian Dooley, CPA, MBT at [email protected] A recent Government study showed that tax planning businesses are taxed at 14%. For every one dollar spent in tax planning, ten dollars are saved in taxes.
The goal of the U.S. International Tax Planning for the Canadian and U.K. Investor is to a double tax issue. On one side, there is income tax. On the other hand, there is inheritance tax (for the U.K. citizen), estate tax in the U.S. (which will be repealed but only for a few years) and the Canadian deemed sale at death tax.
We all want the American 20% long-term capital gain tax rate. However, this means the foreign investor can’t own the U.S. real estate in a corporation. Both a domestic corporation and a foreign corporation incur two U.S. income taxes. For the domestic corporation, the second tax is called “the accumulated earnings and profits tax”.
For the foreign corporation, the tax is called the “branch profits tax”. Foreign shareholders of a corporation owning U.S. real estate are subject to the U.S. estate tax (but not the gift tax).
U.S. International Tax Planning for the Canadian and U.K. Investor uses a Nevada Trust
Wealthy Americans have the same tax problem. They solve the problem by using a special type of a trust. Here is a short video on reducing U.S. taxes with the use of a trust. If you want to learn more about a Nevada Self-directed trust for your tax planning, then contact me, Brian Dooley, CPA,MBT at [email protected]
A Nevada is one of the few states that have a special trust law. It is called a “self-directed” trust. As the name implies, you can direct the trustee. The IRS has issued favorable rulings on this type of trust.
A new U.S. Senate study reported that business with International Tax Planning are taxed at only 14%. The report explains why small businesses pay more than the legal share. Here is why you will always pay too much in taxes. This is the report that your international tax accountant needs to help you save taxes.
Applying for an IRS ruling on your international tax planning will save you taxes in the long run.
Fantastic IRS International Gift Tax Plan
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.
Amazing IRS Avoidance of state income taxes with this new IRS designer Nevada trust. IRS tells how to use a Nevada trust to avoid state income taxes. Here’s what’s happening, on this link.
New- Department of the Treasury letter to the U.K. tax authorities on U.S. tax planning for UK and EU companies. Here is the letter from the U.S. to the U.K.
Be an IRS tax planning wizard with our new custom Google search, on this link. This custom search reads 300,000 pages deep inside the IRS’s website and the tax court’s website. It is free!. Find the answers to your tax question quickly and accurately.
18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a significant 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 Supreme Court Doctrine used by the IRS to blow up an offshore life insurance plan.
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 changed much except the ‘King” takes only half.
Trusts are the most efficient tax tool. International tax planning should start with a Nevada trust to own a foreign company. Learn trust tax planning and asset protection in this easy to read blog post. It has the blueprint for successful trust tax planning. Get the IRS memo on asset protection and tax planning with an offshore trust on this blog post.
Saving taxes with the offshore cloud computer.
Cloud tax planning. Learn how businesses are using the cloud to avoid taxes on this link.
E-commerce companies are avoiding state income taxes and in some cases deferring U.S. taxes.
Here is how it works. A computer service that can provide a service (such as a tax research program) or a product (such as music, e-books, video) has special sourcing rules. The income can be foreign source income when the computer server in a foreign country.
Is the U.S. a tax haven for citizens of the UK, Sweden, Belgium, Canada, Luxembourg, and Austria? Yes, says the IRS in its Publication. Learn the magic Tax Treaty words for these lucky citizens of The UK, Sweden, Belgium, Canada, Luxembourg, Austria on this link.