Business Is Now Making 7 Figures - Taxes are killing me - Advice?

[LibertyForMe]

Be careful everyone, we aren't there yet but this is veering towards a political discussion.

I am interested to hear what others say about strategies to reduce taxation though...

 

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[thehawkman]

I don't think the party will last much longer. The leeches in governments are doing everything they can to take everything you have.
In my country, if your company receives a bill for services from a country which they have no agreement for information exchange about company and bank account ownership with, they slap a 50% tax on it (so if a firm from Virgin Islands for instance bills you 100 dollars per month for web hosting, you are forced to pay 150 dollars. And the amount will be withheld by the bank, so there is no way around it, unless you want to fly over there with the cash every month, which as you can imagine is not practical). If however, that invoice is issued by a company in a region that they have an information exchange agreement with, Western Europe, Australia, etc, you still pay 16%. At least that’s what the tax code which was passed one or two months ago says. Since I pay for my hosting in Australia, I will find out in June if I pay 16% on top of that invoice. So I can either pay 16% or 50%, or I can keep my money “safe” in my soon to be EU member country, so it can be raided whenever they feel like it under the pretense of a banking crisis, like they did in Cyprus. And make no mistake this will happen. The sheep believe whatever the politicians tell them. If they hear it’s a crisis, they’ll say “oh well, it’s a crisis, we have to do our part”. Besides even if they don’t agree, can you really fight the government?

The government in Luxemburg has announced that it will begin conducting data exchanges with the other countries in the European Union (UE) concerning the accounts owned in its banks by European citizens, thus changing its policy on banking secrecy. Prime-minister Jean-Claude Juncker made the announcement on Wednesday night, during a speech on the state of the nation, the Wall Street Journal reports.
The decision represents a first step through which Luxemburg is distancing itself from the tradition of banking secrecy, which has helped it become one of the most important world financial centers.
According to the European Central Bank, (ECB), the assets of the banks in Luxemburg are 22 times bigger than the country's GDP.
The impact of the decision is still uncertain, because the new desecretization policy concerns interest payments for funds owned by EU individuals, not for the money held by investment funds or companies incorporated in Luxemburg. Also, the operations of foreign companies conducted through the financial center of Luxemburg will not be affected.
The Banking Association of Luxemburg estimates that over half of the customers that have deposits in the country come from the European Union.
Germany, France, Great Britain, Italy and Spain have agreed on Tuesday to develop a system for exchanging information which would make it easier to identify the persons or companies that are avoiding the payment of taxes by moving the money abroad. The five governments have announced the European Union that they hope the system will become a template for a similar initiative in the EU, then on a global level. "We can, without suffering any major damages, introduce a system which would allow the automated exchange of information, starting with January 1st, 2015", Jean-Claude Juncker, said. "If this is a change in our position, it is not happening due to the European pressure, but because the Americans leave us no choice. The Americans only do financial business with those countries that agree with the automated information exchange". Also on Wednesday, French president Francois Hollande made a harsh attack on tax havens, promising that "he would eradicate them, in Europe and all over the world". The French government was recently shaken by a tax evasion scandal which led to the resignation of the Budget minister Jérôme Cahuzac, who was indicted for tax fraud, after transferring funds to bank accounts in Switzerland. Luxemburg is cooperating with the United States on the implementation of the law for fiscal compliance of foreign accounts, which was passed in 2010 in Washington, as a measure for preventing tax evasion by American citizens. The law requires foreign banks to identify American depositors and to send to the US government information about the transactions they make and the balance of the accounts. Several European countries, including Germany and Great Britain, have already entered bilateral agreements with the US for exchanging such information.
Once Luxemburg will implement the announced measures, the automatic exchange of information about EU citizens that have accounts in the country will become possible, in order to fight tax evasion. The decision will not apply to foreign companies headquartered in Luxemburg, and the tax on corporate earnings will not be increased, said Jean-Claude Juncker.
Most countries will offer "on demand" information about depositors, but that involves that the authorities in the countries making the request to suspect illegal activities, which makes the effectiveness of the procedure in finding irregularities to be limited. The European Commission has announced that "it warmly salutes" the decision announced by Luxemburg and has advised Austria to follow its example. Austria is the only EU member state that refuses to abandon the banking secrecy, but the government in Vienna has announced on Tuesday its intention to conduct negotiations in that regard.

 

[GlobalWealth]

I just wanted to add some clarification to the statement. In a business I'm sure you can work your wife into the earnings and divvy it up but if the income is coming from one partner and you're married, you are not exempt to 180ishK. I'm married and qualify for the exempt status but having a wife doesn't double my exemption.

I didn't want someone to read the statement and think being married automatically doubled their tax exemption.

You can double your exemption. Actually you can do even better.

You qualify for the FEIE (foreign earned income exclusion) in 2 ways:

1- be physically outside the US 330 days in a 12 month period.
2- become a bona fide resident of another country

With option 1, you can only be physically in the US, including travel days), 35 days per year.

With option 2, you can be in the US up to 120 days per year, maximum of 90 at a time.

Ideally you establish residency in a country like Panama that does not tax foreign income, thus as long as your business is not registered in Panama you can pay no tax there.

The FEIE is about $97k per year. As a self employed person you also get from $30-115K per year in housing deduction (depending on which country you live in - there's a chart on irs form 2555 instructions _ http://www.irs.gov/pub/irs-pdf/i2555.pdf).

Then you establish your company offshore in no tax jurisdiction like Anguilla or Seychelles. Then your company has no tax, you have no tax in your place of residence and you have the FEIE in the US.

Pay yourself the max of about $97k, pay your spouse $97k and take your ~$50k in housing deduction. Voila, your first $250k is tax free.

To top it off, you can defer any tax owed by leaving it as retained earnings in your company - which you notice has not corporate tax.

 

[Trivium iz rC]

Maybe I missed it, but scanning through all the post's real quick I didn't see it. I though I read it somewhere in a article. Do it how they do it on wall st. Give yourself a bonus. Last time I checked it's a flat tax if you use the "percent method". 0-999k Bonus Flat 25% tax , Anything over 1m is taxed at 35%. <-- Can anyone validate?

 

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[Worldisyours]

move your business to a tax free country, especially if its just a site.

 

[kwes]

move your business to a tax free country, especially if its just a site.

Sounds good until you try to bring the money back to the U.S.
In fact, so far all of the ideas here sound good until I actually try them with my accountant and there is always a problem.
I have joined a group of other 7 figure earning businesses and we all have the same problem. It seems like you either have to make nothing or billions in order not to get raped by taxes in the U.S.
I am at the point of just throwing in the towel and going back to being poor. I really can't stand working this hard to give 70% of away so the government can spend it to build things to spy on me more... it's a shame we've come to this. Small business owners work the hardest, do the most for the economy, yet get it the worst. Lame.

 

[Worldisyours]

Sounds good until you try to bring the money back to the U.S.
In fact, so far all of the ideas here sound good until I actually try them with my accountant and there is always a problem.
I have joined a group of other 7 figure earning businesses and we all have the same problem. It seems like you either have to make nothing or billions in order not to get raped by taxes in the U.S.
I am at the point of just throwing in the towel and going back to being poor. I really can't stand working this hard to give 70% of away so the government can spend it to build things to spy on me more... it's a shame we've come to this. Small business owners work the hardest, do the most for the economy, yet get it the worst. Lame.

Hey,

Try not be so negative. there is a solution.

Dont bring money back to the U.S, open an account under your business, not personal in a foreign country with no taxes. Site HQed in the same country,

You can also give up your citizenship, many have done it.

 

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[Bigguns50]

@kwes ... would you let us know what you end up doing...even in a 'general' way if you need to ?
Good luck man. You've been pursuing this a while now I see.

 

[RogueInnovation]

I totally agree with Vigs article,
Don't be "afraid" and try to pinch every damn penny.
"Omg, I've never made money before, how do I stop them from taking it!"
By growing a pair.

Better question is how do you organise you finances, so that you are composed about paying taxes, so you can get out there and make more improvements. Vigs link has a good portion of that I feel.

Cheer up.

 

[GlobalWealth]

Sounds good until you try to bring the money back to the U.S.
In fact, so far all of the ideas here sound good until I actually try them with my accountant and there is always a problem.
I have joined a group of other 7 figure earning businesses and we all have the same problem. It seems like you either have to make nothing or billions in order not to get raped by taxes in the U.S.
I am at the point of just throwing in the towel and going back to being poor. I really can't stand working this hard to give 70% of away so the government can spend it to build things to spy on me more... it's a shame we've come to this. Small business owners work the hardest, do the most for the economy, yet get it the worst. Lame.

Simple, don't bring more back to the US than you need for day-to-day expenses in the US.

As for your accountant query, 99% of all accountants have zero competence in offshore tax planning. It is not that difficult but they chose to not educate themselves. You need a good one.

If anyone is running an online or virtual business in the US they are crazy. You can eliminate or massively reduce your tax burden going offshore. It really isn't that difficult.

 

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[GlobalWealth]

Hey,

Try not be so negative. there is a solution.

Dont bring money back to the U.S, open an account under your business, not personal in a foreign country with no taxes. Site HQed in the same country,

You can also give up your citizenship, many have done it.

I have many clients who have given up their US citizenship. I would just on the phone with one client who is renouncing later this year. All said it was the best decision they ever made.

You can still be in the US up to 120 days per year with most other nationalities with no tax implications. And if you properly structure your business and your life you pay no taxes or file a return anywhere in the world.

 

[bobby.kenyon.7]

Is there any hope for people who aren't interested in renouncing their US citizenship?

 

[JasonR]

Is there any hope for people who aren't interested in renouncing their US citizenship?

I have heard something about using a Tax Shelter in the Virgin Islands (legally)...using some sort of business subsidy the government has for promoting US Virgin Island businesses.

 

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[Chazmania]

It's really a racket. We get taxed at so many levels (income, federal and state, medicare, social security, sales tax, hidden tax, etc.), by the end of the day we are paying 50-70% of our earnings to taxes (to then watch the government go and mismanage that money but thats another discussion).

Amen to that! Imagine if someone in govt actually knew how to run a business and generate and manage cash flow?

Btw congrats on such a great problem to have regarding income. Purchase some rental property would be my 2 cents, All kinds of write offs and of course rental income is taxed differently than earned or self-employed. I'm sure you already know about all of it, but that's just my thought. Buy something huge!

 

[wilddog]

If you live in an income-tax free state like Texas. Could you deduct all your company's net profit as salary to yourself?

 

[limitup]

As someone who's been through all this, let me just lay it out for you and tell you the real deal so you can stop wasting time trying to figuring this out ...

If you're a US citizen and operate a highly-profitable online/digital business and make 7 figures a year in profit, there is NOTHING you can do to legally and *significantly* reduce your tax burden and still be able to actually spend the money here in the US, without giving up your US citizenship. Period. End of story.

Yes you can maximize your deductions, max out things like IRAs and SEPs, etc. but none of this is going to significantly reduce your tax burden. You probably have already realized this.

No you can't have your business pay for your car, your house, or other non-business assets. Not if you want to sleep at night anyway. They will catch you eventually, and when they do you'll be FUBARRED.

Not only will they get you for what you owe, but by the time they do get you the interest and penalties will likely be at least as much as you "cheated", if not more. This will most likely ruin you financially and is not recommended unless you just like living on the edge and have ice water running through your veins.

Same with the offshore stuff. There is NOTHING you can LEGALLY do to SIGNIFICANTLY reduce your tax burden and still be able to spend the money here without giving up your US citizenship. I promise you. If anyone thinks otherwise, have them post here and I'll explain exactly why they're wrong.

 

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[Trivium iz rC]

I know I posted earlier in this thread. But for some reason I forgot the biggest one. Dividends

 

[Kak]

The Most Patriotic Thing You Can Do « blog maverick

I do think it is good for your country to get rich, but beyond that, I totally disagree with Mark Cuban.

I feel absolutely no MORAL obligation to taxes. It is not a moral thing to me one way or another. I do it out of compliance so that I may continue to operate without interruption or disturbance. I also don't drink the cool aid and think that my taxes are actually doing anything positive, in fact it goes to running a government I largely disagree with lording over me in the first place. Comparing the government to a charity and taxes to a charitable donation is also something I don't agree with.

That said, I will do anything and everything I can possibly do to LEGALLY reduce my taxes. It is just a business decision. Really anything that a high level and tax firm can cook up that there is no law against I am fine with. That also means moving operations from country to country, potentially changing citizenship, etc. Like I said earlier, it is purely a business decision.

 

[Kak]

Also you could move overseas for 330 days a year (or establish a foreign tax residency) and not pay taxes on your first 97K (180+ if married) of ordinary income.

Lol isn't that nice of them... This is enslaving people to the United States.

 

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[Lathan]

Taxation is theft. Yea, I said it.

 

[Stephanos83]

I read an article recently about moving your business and residence to Puerto Rico as an alternative to renouncing citizenship. Apparently, Puerto Rico had some interesting tax benefits. Might be something to look into. Here's the article.

http://www.internationalman.com/articles/puerto-rico-as-an-alternative-to-renunciation

 

[limitup]

Puerto Rico does have some interesting possibilities on the surface, however, the entire thing is predicated on them not changing/raising taxes and closing the loopholes. And the odds of a completely broke government not raising taxes and closing those loopholes are pretty much slim to none. You might have it good for a few years but no way it's gonna last. Puerto Rico is so totally screwed, they are worse off then the US Federal gov.

 

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[Stephanos83]

Still might be a temporary solution if you're on the fence with regard to renunciation. I agree that potential future changes are always going to be a danger.

 

[Stephanos83]

@limitup you were absolutely right about PR. I did some more research and they're screwed. I had originally glossed over the article I provided. Didn't pay it much mind in due diligence since I wasn't personally interested in doing business there.

Sorry Op, bad suggestion on my part. I can admit when I'm wrong.

 

[Stephanos83]

@limitup you were absolutely right about PR. I did some more research and they're screwed. I had originally glossed over the article I provided. Didn't pay it much mind in due diligence since I wasn't personally interested in doing business there.

Sorry Op, bad suggestion on my part. I can admit when I'm wrong.

 

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[Stephanos83]

@limitup you were absolutely right about PR. I did some more research and they're screwed. I had originally glossed over the article I provided. Didn't pay it much mind in due diligence since I wasn't personally interested in doing business there.

Sorry Op, bad suggestion on my part. I can admit when I'm wrong.

 

[GlobalWealth]

Is there any hope for people who aren't interested in renouncing their US citizenship?

Sure, There are many ways to minimize your tax burden. It is just much more difficult as an American.

 

[GlobalWealth]

If anyone thinks otherwise, have them post here and I'll explain exactly why they're wrong.

I know differently. Post why I'm wrong.

 

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[limitup]

Doh. Explain how you think a US citizen making 7 figures a year in net profit from an Internet business can SIGNIFICANTLY reduce their tax burden while retaining access to, and the ability to spend, the money here in the US, and I'll explain why you're wrong just like I said.

 

[GlobalWealth]

Still might be a temporary solution if you're on the fence with regard to renunciation. I agree that potential future changes are always going to be a danger.

If you like PR, I would say this is a viable and simple alternative. Even if the loophole gets closed, so what? Loopholes get closed in the tax code every year. Take advantage of them while you can.