Tag Archives: Canadian tax planning

Saving Taxes as the U.S. Goes to the Trump International Tax Plan

Will it be protectionism or something more dramatic?  International Tax Planners are shifting their client’s tax strategy now getting ready 2018.

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

Small Business Tax Planning. President Trump states “I fight very hard to pay as little tax as possible.”

Here is what’s happening.   First,  President Trump is proposing a 15%  U.S. business income tax rate.   The goal is to keep American businesses from going offshore.    The downside is this lower tax rate will apply only to corporations (excluding S-corporations).   When a corporate distributes its profits, it is called a dividend.   The shareholder pays tax on the dividend income.

 Budgets concern are big since Big Business killed the Trump important duty on countries that apply a duty on U.S. goods (which is Europe, the UK, Canada, Australia, China and most of Latin America).

 Second, small business will have a five percent higher tax rate .  Small business uses S-corporations and LLC’s.  They avoid the dividend tax that apply to publicly traded businesses.    It will effect my work load because at a 20 percent tax rate,  small business owners have little need for tax planning.  At last, I get to  slow down and smell the roses.

International businesses are starting to re-organize and eliminating cross-border joint production and cost sharing programs.

Currently, the average U.S. tax rate for international  publically traded corporations is 14% .   They get a unique tax savings with the foreign tax credit law.  The IRS  reimburses a domestic corporation the taxes paid by it or a subsidiary to a foreign government.    With the current high-income tax rate, the full amount of the foreign taxes were reimbursed.

But, with President Trump’s tax plan, the reimbursement will be reduced because the income tax rate is reduced to fifteen percent.   For example, if a foreign government tax rate is 30% and the U.S. business has a $1,000 of foreign income, the foreign tax is $300.   If the U.S. tax rate is 35% then the U.S. tax of $350 is reduced by the foreign tax of $300.   The net amount is paid to the IRS.

With President Trump’s tax law, the U.S. tax will be $150 (15% of $1,000).   The foreign tax will reduce only $150 of U.S.  taxes.    As a result, tax planners will want to avoid having plants, employees and “permanent establishments) in foreign countries unless their tax rate is less than 15%.

Currently, only Ireland and Canada fits a tax rate less than 15% and has the capacity to manufacture.  Both countries have good tax treaties with the U.S. 

What about tax havens like the Cayman Islands?  They are too small for manufacturing or productions.

Tax havens are ideal for the internet business and for firms that stream content.   But, where good electricity for big equipment is required, they are not the best choice.

Summarizing 2018 foreign tax planning

Cross-border multi-national businesses are gearing up for all in one production within the U.S. for their American customers.  With the British Exit from the Europe,  these firms are going to be all in one within the EU  or the British colonies.  As a result, three separate free trade zones will develop (the U.S., the EU, and the British Colonies, (the U.K., Australia, New Zealand and Canada with its new 9% tax rate).

International tax strategies are now being developed for each of the three free trade zones.

Latin America countries, China and the rest of Asia will find their markets are changing.   They will be caught fall out from  President’s Trump isolation protective tax laws.  American international firms will find the overall tax costs too high in these countries and their market to weak.

Tax planning is not so much about today’s tax laws.  Tax planners closely look at the economic and political trends.  These trends shape future tax bills and tax planning is only for the future, not the present or the past.

The Wall Street Journal “Think Tank” blog’s headline today is Donald Trump’s Foreign Policy Is ‘America Only,’ Not ‘America First’.     The import duty to keep out foreign products and the lower corporate tax rate to keep American businesses in the Country is an “American Only” tax program.

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

Cross-border tax planners have noted this and are shifting their tax planning into three economic segments- the United States,  the European Union and the British Commonwealth.

If you need help with your international tax planning, then please call me, Brian Dooley, CPA, MBT, at 949-939-3414. 

We will help you “fight very hard to pay as little tax as possible.”

 

U.S. International Tax Planning for the Canadian and U.K. Investor in U.S. Real Estate

Canadian and the United Kingdom citizens are caught in 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).

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 please call me, Brian Dooley, CPA, at 949-939-3414.

Cloud Continues to Disrupt Business – 1,000s of Robots Laid Off

International tax planning compares last century's tax laws to this century's business. Then , it exploits the differences.

International tax planning compares last Century’s tax laws to this Century’s business. Then, it exploits the differences.

Using your knowledge the 1990s and the beginning of this Century will cause you to pay more in taxes and it can put you out of business.

You have to compete with the future. Blockbuster’s demise is old news from the beginning of this century.   Just ten years later, the killer of Blockbuster is dying.   Redbox has closed (laid off) 1,000s of it robotic DVD rental kiosks in the U.S.

 In 2015, it closed all of its DVD rental kiosks in Canada.   Netflix and other video streamers are slaying the king of the DVD rental kiosks. Redbox’s $1 a night became too expensive. Netflix is $10 a month, and you can watch as many hours as you want with 50,000 choices.   With Redbox, you had to rush to the kiosks to return the DVD.

American international tax laws were written and were designed for a 1930 economy.

Offshore tax planning compares the out of date concepts in our tax laws to 21st Century business. Then, it exploits the differences.  Your tax planner must forget last century’s tax planning and learn this century’s.  Even the first ten years of this century is partly obsolete.  

If this was 2005, you would not have a smartphone. Yep, no apps.  I don’t know about you, but I use my iPhone and iPad for business more than I use my landline and my computer combined.   

Great tax planning sees the trends and changes.

With the iPhone came the  streaming of music.  If the computer server hosting the music was located in the Cayman Islands, the income would be foreign source income and not U.S. source regardless of the location of the customer.

Look at banking.   Are ATM’s the next to be laid off?  Do you want to deposit your checks like this,  in the dark watching over your shoulder?

Internet businesses can decide who is going to tax them just by using the cloud.

Internet businesses can decide who is going to tax them just by using the cloud.

Or like this- At home with a smartphone app where it is safe. By changing your business, you not only survive, but you can also completely shift your tax profile.

For example, if you distribute a product, spend some time learning about 3D printing or using a fulfillment center.   If you have an e-commerce business,  consider streaming your product versus providing a mp3 file or a pdf file.  Internet tax planning starts with shifting the source of the income.

For some, it is merely a move to Nevada or Texas to escape California or New York taxation.  For others, it is outside of the U.S., such as Canada (yes, it is an internet tax haven) or Ireland.  By the way, California tax planning and New York tax planning just became more important.  State income taxes are no longer deductible. 

If you want to brainstorm your idea and dream about your future, then call me, Brian Dooley, CPA, MBT, at 949-939-3414 for a free one-hour consultation with you and your CPA,