Tag Archives: small business tax

Why JFK Said Avoiding Taxes is Patriotic & Good for America

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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

John F. Kennedy stated,  “My fellow Americans, ask not what your country can do for you, ask what you can do for your country.”

He also said that  “Every dollar released from taxation that is spared or invested will create a new job and a new salary.”

You, the business owner, are the only one that creates real jobs. The more you avoid taxes, the more jobs you can create. Continue reading

Why You Will Always Pay too Much in Taxes

Nothing is more complex than income tax. Yet, most small business owners meet with their CPA at year end with the fantasy that this will save taxes. At best, it reduces this year's taxes by increasing next year's taxes.

Einstein stated that “The hardest thing to understand in the World is the income tax.”  Yet, most small business owners meet with their CPA at year end with the fantasy that this will save taxes. At best, it reduces this year’s taxes by increasing next year’s taxes.

  Let’s face it; the income tax law is complex. Think of 1,000,000 pages written over 100 years by different people with different agendas.  Great Depression tax laws apply to international businesses.  World War II tax laws apply to small (and big) business.

Starting  50 years ago (1967), our Government began using  “patches” to get the Tax Code to make social changes (this is known as socialism).

Now, don’t blame anyone party.  Both sides jumped on patch bandwagon.  The result is 1,000,000 of pages of conflicting laws.

Most small business owners budget an hour or so of their CPA’s time for “year-end” tax planning.   Meanwhile, the news reports that firms like General Electric have 2.3% tax rate over the last decade.     GE’s tax department is larger than all of the IRS’s international tax department.

Great firms invest in their tax structure.   Tax planning fees are tax deductible. Here, in my lovely state of California, $10,000 in tax planning fees is only $4,700 of after-tax dollars (our marginal highest tax rate is  53%).

Conflicting laws are very complex.  They also created 1,000s of tax strategies.   Here are a few that your CPA may not have told you:
1.  Cash advance payments can be tax-free for decades (more on this link).
2.  Small business owners over age 57 have huge tax savings with private pension plans
3.  Importers can use the Bush administration contract manufacturing laws to avoid taxes (more on this link) legitimately.
4. The IRS has designed a new type of trust to help you avoid state income taxes and protect your assets (more on this link).
5.  President Reagan’s privately owned insurance company tax law allow you to have your insurance company.  You can self-insure and pay your domestic insurance corporation up to $1.2 million a year tax-free.  This is known as a captive insurance company (more on this link).
6.  Defer taxes (like Disneyland) with gift cards and other private money (more on this link).

Thousands of other tax strategies.  Your CPA does not have a book of these.  Your CPA must spend time with you and learn the details of your business.  Your tax loophole maybe your inventory method, your e-commerce website, your multi-state transactions, your business insurance (or the items that you are not insuring) and the list goes on.

For example, Bob has a successful web based business.   He has a few part-time employees and independent contractors assisting him.   He wants to be a tax haven. Yes, Bob, himself wants to be a tax haven.  He learned about the new solo 401-K tax law.  Bob can be the sole trustee, sign on the bank account, buy real estate that is financed, buy stocks, bonds, and stock funds.

He started the fund in November.  By January he placed more than $100,000 tax deductible dollars into the plan.  This saved him $50,000 in taxes.  Of course, the investment profits will be tax-free.  He hired a law firm to establish the plan and maintain the plan.  The cost over two years is $10,000 deductible dollars (so after tax $5,000).    $5,000  saves $50,000.

Bob also used a 1954 tax law on medical reimbursement plan.   He paid $15,000 to his attorney to draft the plan.  This plan does not have to file a tax return, so there is no annual cost.  The plan pays for all the supplements required by his doctor, his co-pay, and therapies not covered by insurance.   He saves $10,000 a year in taxes for a $5,000 one-time deductible ($2,500 after-tax) cost.  $2,500 saves $10,000 year after year.

If you would like to discuss your tax concerns, ,then call me Brian Dooley, CPA, MBT at 949-939-3414.  Telephone calls are free.

Why the Rich Pay Lower Taxes and How Can You Do the Same?

Smart business owners are not too busy to save taxes.

Smart business owners are not too busy to save taxes.

The Wealthy are not like us.  They are willing to spend money to make money.  They are willing to pay their tax team a $1 to save $10 in taxes.

This Wealthy (called the “one percent”) create most of the jobs in the U.S. They pay half of all income taxes.  But, at the same time, they usually in a lower tax rate than the rest of us.   For example, Democratic Senator Bernie Sanders is in 15% tax bracket on all his income, including his senator salary.    The topic of this blog, is what’s wrong with your tax planning?

The Wealthy use long-term tax strategies.  These strategies tweak their business structure.     Different parts of a business have different tax laws.  For example, if you have a sales force, they should be in a different corporation than your business. Continue reading

What Billionaires are doing that small businesses are not.

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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

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,