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Five Best Tax Saving And Smart Planning Tips For Small Business Owners

No,  this is not another blog about lame tax ideas.   Big Business has many tips that are not known by most CPAs.   The best five tax planning tips are:
1.  Use more than one entity.  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 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 a tax-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 949-939-3414.  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.

 

 

How the IRS Taxes Australian, Candadian, U.K. and Europeans Companies and Citizens Doing Business In The United States

french tax, french tax planning, job loss.

French businesses are profiting by avoiding the VAT by manufacturing in the U.S.

This blog is for Australian, Canadain, U.K. and Western European companies and citizens planning to have a business in the U.S. or business income from U.S. customers.

The United States is courting U.K., Western European, Canadian and Australian citizens to move their businesses.  The U.S. doesn’t  have a VAT (value-added tax).  The absence of this tax gives a 25% increase in a company’s purchasing power (assuming a VAT of 20%) of inventory, machinery and employees.  Business makes more money due to the additional working capital.   

Labor unions are weak in the U.S. Employee rights are limited compared to the U.K., the EU, and Australia.

This blog explains how citizens (and their companies) from a tax treaty country are taxed in the U.S.

I am using the U.S. Model Income Tax Convention (the “U.S. Model Treaty”) for this blog.  I will highlight the articles that apply to business.  I will make the treaty easy to understand by removing the tax jargon. 

If you would like to discuss a U.S.’s tax treaty, then please call me, Brian Dooley, CPA, MBT at (U.S.) 949-939-3414.

 Next, I will explain the U.S. tax law on doing business in USA.  

Lastly, I will have some questions that I am frequently asked and the answer.

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Internet Tax Planning – Saving Taxes with the Cloud

tax planning, saving taxes, cloud tax ,

Saving taxes with the cloud-based business requires innovative tax planning,

Internet tax planning provides fantastic tax savings. 

The Internet-based business decides which country or state has the best tax advantage.  Saving taxes is easier than ever.  You will learn how to save taxes on this blog.

International e-commerce tax planning starts with placing your computer server in a low tax or no tax jurisdiction.  Web-based business tax planning provides big state and federal tax savings. 

To learn how big international companies are using the internet to legitimately avoid taxes, please view the California Society of CPAs 40 minutes seminar on this link or listen below on my blog Tax Talk radio show.  You can also download the show as a podcast from iTunes.    

Don’t miss out on our new e-commerce tax planning book.  Learn more on this link.
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Getting the Best of Both Worlds – International Tax Planning for S Corporations and their Alien Shareholders

Dual residents are citizens of nations that have a tax treaty with the U.S.  Most tax treaties have a “tie-breaker” rule that favors the country of citizenship.  

International Tax Planning for S Corporations and their Alien Shareholders – Getting the Best of two tax Worlds

Okay, here is the general rule. A general rule is that dual resident residents are treated as U.S. residents for purposes.  This link provides an IRS legal memorandum on the topic of the dual resident process.    For tax planning, the dual resident will use its home country tax treaty to elect to be a non-resident alien.  This way, he is not paying U.S. tax on his worldwide income. 

Dual residents are often shareholders of S corporation. Here the dual resident international tax planning needs to be cautious.

Until recently, the  IRS regulations provide that if a dual resident taxpayer is a shareholder in an S corporation and the alien claims a treaty benefit as a non-resident alien, the taxpayer is a non-resident alien for the S corporation’s rules.  As a result, the entity’s S corporation election will be terminated.[2]

Most tax planners will tell you that this continues to be the law.   If they do, then you know that you have the wrong international tax planner.

The dual resident alien usually wants to elect to be a non-resident alien.   The tax savings are huge.  For example, no self-employment tax, no controlled foreign corporation tax, no tax on foreign income, no passive income tax, no tax on U.S. bank income and no tax on gains on the U.S. stock market.  Yes, all of this is tax-free.

But here is the problem.  How to invest into a U.S. business.  The easiest is to invest using a domestic limited liability company.   But for the dual resident, his/her home country may not recognize the LLC for asset protection. Thus, why you are protected in the U.S., you are not protected outside the U.S.  The alternative is a corporation. A subchapter S corporation allows a single tax structure.

The IRS issued Treasury Decision 8733 provides that a  dual resident is allowed the best of both tax worlds.   First, he/she remains a non-resident alien legally avoiding the taxes mentioned above.

Next, the dual resident alien can elect to pay U.S. income tax on the S-corporation’s income as if the income was U.S. business income.  If he does, he is an allowed to be a shareholder of the corporation.

For example, the S-corporation is a retail store.  Mr. Wilson a U.K. citizen and a dual resident is a shareholder.  He has not elected to be U.S. resident.  However, he has elected to follow the IRS rules in Treasury Decision 8733.   The S-corporation also earns interest income on its bank deposits.  Mr. Wilson earned $100,000 investing in the U.S. stock market.

The income from the store and the interest income are taxable as business income.  However, the dual resident alien continues to avoid self-employment tax.   The $100,000 gain in the stock market is not taxable by the IRS. 

The IRS  Treasury Decision 8733    states “under section 7701(b) provide that for purposes of determining the U.S. income tax liability of a dual-status alien who is a shareholder of an S corporation, the trade or business or permanent establishment of the S corporation shall be passed through to the dual status alien pursuant to section 1366(b).”

Here is what is happening. The taxpayer and the S corporation entering into an agreement to be subject to tax and withholding as if the dual resident were a non-resident alien partner in a partnership.  This means that the S-corporation withholds tax on his share of the income.  The tax is withheld at the highest tax rate.  This tax is refundable when the dual resident alien files his income tax return.

If the dual resident taxpayer does this then:
1.  the character and source of the S corporation items included in the dual resident shareholder’s income are determined as if realized by the shareholder and
2. the dual resident shareholder is considered as carrying on a business within the United States through a permanent establishment if the S corporation carries on such a business.[4]

This exception is not available if the S corporation was a C corporation[5]

Special IRS reporting: A dual resident taxpayer who is an S corporation shareholder must:
1. comply with the filing requirements and
2  must include an additional declaration indicating that he understands that claiming a treaty benefit as a non-resident will terminate the S corporation’s election unless the exception applies. [6]   IRS Form 8833, Treaty-Based Return Position Disclosure (under Section 6114 or 7701(b)) is required if the payments or income items reportable because of that determination are more than $100,000.

By the way, this blog article is the only article on this topic.  It represents on of the many innovations international tax plans found only in my book, International Tax Planning in America for the Entrepreneur, on this link.  You will learn many tried and true tax plans that no one else knows.

We recommend that you work with the IRS and get their okay of your tax plan with a private letter ruling (get more information on this link).

[1] Warning:  The regulations 301.7701(b)- 7(b).  state that the filing of a Form 1040NR by the dual resident taxpayer may affect the determination by the Immigration and Naturalization Service as to whether the individual qualifies to maintain a residency permit.

[2] Regulation 301.7701(b)-7(a)(4)(iii).

[3] Regulation 301.7701(b)-7(a)(4)(ii).

[4]  Regulation 301.7701(b)-7(a)(4)(iv).

[5]  Regulation 301.7701(b)- 7(a)(4)(iv).

[6] Regulation 301.7701(b)-7(c)(3). In part 10 FSA (field service advice) 1992-50 states   “[10]  A dual resident taxpayer who is assigned residence to the treaty partner’s country and claims to be treated as a resident of that country will be treated as a nonresident of the United States solely for purposes of computing their U.S. income tax liability. For purposes other than the computation of their U.S. income tax liability, the individual will be treated as a U.S. resident under the Internal Revenue Code. To take advantage of the treaty “tie- breaker” rule exception, a dual resident taxpayer must timely file a completed Form 1040NR tax return with a statement in the form required by section 301.7701(b)-7(c) of the regulations, attached to the return. The filing of a Form 1040NR with the attached statement is required under section 301.7701(b)-7(b) whether or not the individual has any income subject to U.S. tax.”

By Far, the Best International Tax Planning Book on the Planet

Here are the first few chapter of my easy to read book International Tax Planning in America for the Entrepreneur.   The book is a quick two-hour read. 

The book explains the unique tax savings for the web base business, tax planning for importers and exporters and the best tax structure for the foreign investor coming to the U.S. 

You can get the book on Amazon on this link.  The Kindle is only $9.50.  The book is also available in paper and audiobook. 

International Taxation in America for the Entrepreneur is the fastest tax answering publication in America. Both the  Kindle and PDF edition have our exclusive quick search function. Just type your topic and find the answer to any international tax planning question.  The audiobook is perfect for those on the road and traveling. 

No other foreign tax book is updated via the internet. You can be assured that you have the best foreign tax planning book on the market.

Cross Border families have special needs because America’s laws differ from every other country. The multi-national family risks paying taxes in more than one country.  

 A cross-border business has a similar problem.  Multi-national businesses often experience double taxation on one item.  American tax laws are different from the rest of the World.    

Using  “plain English” my book provides solutions to issues regarding cross border taxation.  For those looking for advance tax planning, the hundreds of footnotes and hyperlinks to court cases and tax planning articles are just a mouse click away.

Please take a five minute test drive of the audiobook, below.