Tag Archives: best small business tax

Small Business Tax Planning Strategy Using the Trump Tax Laws

The Trump Tax reform lowers the corporate tax rate to 20%.

This blog discusses a second corporate tax that applies to a corporation that keeps money just to avoid paying a dividend.

If you want to brainstorm your tax planning using the Trump tax law, then give me, Brian Dooley, CPA, MBT a call at 949-939-3414.   If your international tax accountant or CPA, needs help, have him or her call me. 

Because corporate earnings are taxed a second time when they are distributed to shareholders (as a dividend), the small businesses may retain the profits to avoid this tax.   

The tax law deals with this bias through the imposition of a tax on unnecessary accumulations of earnings.[1]   This tax is in addition to the regular corporate income tax.

 “Unnecessary” is the key.  This tax only applies if it is unnecessary for the business to retain the profits that it is accumulating.

The differential also induced shareholders to cause their companies to keep earnings as long as possible so that further earnings on those earnings would be taxed at the lower corporate rates.

To force a corporation to pay a dividend, the tax is charged on the accumulated taxable income at the top rate of tax on individuals.  

In theory, the section 531 accumulated earnings tax is assessed if a company has allowed earnings to accumulate beyond its reasonable needs, the determination of the reasonable requirements of business.

The courts and the IRS have developed a variety of approaches to determining reasonable needs..

Despite this, the decision remains highly factual, subjective, and uncertain in the result.  

 Once accumulations are established beyond the reasonable requirements of the business, however, the issues become quite technical in computing the corporation’s accumulated taxable income and the accumulated earnings credit.

Although the tax law does not exempt publicly held companies from the tax, the legislative history expressly limits the application of this tax to privately owned corporations.

What You Can Do and Should Not Do

  1. Do not pay yourself a large salary.  The new low 20% tax rate does not apply to wages, interest or rents.
  2. Do have a written plan on why you are not paying a dividend.   To create this plan have a meeting of the corporate Board of Directors.  Place in the  plan in the minutes of the meeting.
  3. Do hire an attorney to draft the minutes.
  4. Do include a financial forecasts of the use of the accumulated profits.
  5. Do update this every six months.  I understand that you will be paying your attorney.  Remember, his fee is a tax deduction while paying tax on the dividend is not.
  6. Do hire your CPA to help draft the financial forecast.  Update the forecast every six months.

 

Footnote

[1] Section 531 called the accumulated earnings and profits tax

Learn How to Pay Less Tax with Tax Talk on Blog Tax Radio

Listen to provocative and innovative tax planning on my radio show, Tax Talk. We support a subscription-free internet content supported by advertising.  

Each episode as a 60-second commercial by the company hosting our radio show.

The first episode is the new IRS designer trust… designed by the IRS to screw your state out of state income taxes.  California tax planners and New York tax planners can use this new Nevada self-directed trust to save state income taxes.

Next, Protecting yourself from the IRS’s Big Brother Supercomputer exposes the IRS “financial DNA” of each of us stored in its new Big Data computer.

Find Additional Business Podcasts with Provocative Tax Planning on BlogTalkRadio.

If you need to up the quality of your tax planning, then contact me, Brian Dooley, CPA, MBT, at [email protected]

What Billionaires are doing that small businesses are not.

best tax plan, small business tax,

Small business pays more in taxes than Big Business due to a lack of tax planning. Small business thinks of year-end tax plans.  Big business thinks of tax strategies. The average tax rate of big business is 14%.

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 linkand  50% of tax planning business paid no income tax.   

  For decades fools used 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  fewer 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.

Continue reading

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.

 

 

President John Kennedy – Our Obligation to Avoid Taxes and to Use Our Talents for the Benefit of Society

Just a short blog post that I hope we provide what I call “staple news”.   The chaos not only between the two parties but in the two parties can cause us to forget the tried and true course.   I picked President John F. Kennedy because he is the darling of the Democrats and those that call themselves liberals.

small business tax planning,

President John Kennedy (Democratic) is the most important president of last century. The President and Supreme Court Justice Holmes agreed… it is your duty to pay the least amount of taxes.

Yet, many of those same people have hatred towards independent voters that support the dreams and economic policies of this great President.

The photograph on the left says it all. While a government job is better than no job, it requires the Government to take (also known as steal) money from a non-government worker. A government job does not create a car, food or exports. The ideal job for a country is one that makes the country wealthier.

If you have a small business, this link has five sophisticated tax plans that your CPA may not have explained to you.  They are used the wealthy and the rich to avoid taxes so that they can create more jobs.

And there is more. Those the have the advantage of a higher education have an obligation to protect the Country by helping the population become educated. I have heard complaints about those that voted for President Trump. If you do feel that way, then please listen to JFK in this video below.