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Tax Strategy For Wealth Protection/Investments

Growth & Learn

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So 2015 was a solid growth year for my businesses. With growth unfortunately has come more $$ put into taxes.

It's at a point now where my tax bill is now greater than what many of my friends actually earn in year.

We switched to an S corp in late 2014 and I hired a CPA. I think this is helping but to be honest I don't know if she's doing everything she should be doing. I don't know if she's got the best strategies etc. I'm far from a tax expert.

We also have SEP IRA's that we're maxing out each year and personal Roth IRAs that we're using. Beyond business write offs, personal real estate/homeowner write-offs, and IRAs I'm clueless.

I know there are lots of you folks who are building big businesses and smartly avoiding the plague...um...I mean tax bills.

Does anybody have any advice or strategies they've used to shelter their income and significantly lower their tax bills?

Appreciate any thoughts or suggestion in advance.
 
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So 2015 was a solid growth year for my businesses. With growth unfortunately has come more $$ put into taxes.

It's at a point now where my tax bill is now greater than what many of my friends actually earn in year.

We switched to an S corp in late 2014 and I hired a CPA. I think this is helping but to be honest I don't know if she's doing everything she should be doing. I don't know if she's got the best strategies etc. I'm far from a tax expert.

We also have SEP IRA's that we're maxing out each year and personal Roth IRAs that we're using. Beyond business write offs, personal real estate/homeowner write-offs, and IRAs I'm clueless.

I know there are lots of you folks who are building big businesses and smartly avoiding the plague...um...I mean tax bills.

Does anybody have any advice or strategies they've used to shelter their income and significantly lower their tax bills?

Appreciate any thoughts or suggestion in advance.
I can answer some general questions fpr you but cannot offer personalized guidance on a forum.

Feel free to ask general questions. Otherwise pm me.

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Growth & Learn

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I can answer some general questions fpr you but cannot offer personalized guidance on a forum.

Feel free to ask general questions. Otherwise pm me.

Sent from my SM-G900FD using Tapatalk

Ok let's start with this...What would be the 1st thing you would do to lower your tax bill or shelter income?
 
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GlobalWealth

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Ok let's start with this...What would be the 1st thing you would do to lower your tax bill or shelter income?
Assuming your business is not location dependent and you are free to roam, move to a country where you do not have citizenship and establish residency.

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A good friend of mine turned me on to ProVision Wealth Strategists: http://provisionwealth.com/

They are who I use and so far I've liked what they've offered. You can call them for a free consultation (aka sales call), but their sales rep was able to answer questions for me about my real estate investments and Amazon business. I'm expecting a huge tax bill this year as well, and I'm finding my old CPAs just were unable to help lower things. One of my CPAs recommended deferring payment for my tax bill until next year.. and then do that again the following year?? I dropped him after he suggested that.

I'll be watching this thread as I'm always looking for a good tax adviser.
 

Growth & Learn

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A good friend of mine turned me on to ProVision Wealth Strategists: http://provisionwealth.com/

They are who I use and so far I've liked what they've offered. You can call them for a free consultation (aka sales call), but their sales rep was able to answer questions for me about my real estate investments and Amazon business. I'm expecting a huge tax bill this year as well, and I'm finding my old CPAs just were unable to help lower things. One of my CPAs recommended deferring payment for my tax bill until next year.. and then do that again the following year?? I dropped him after he suggested that.

I'll be watching this thread as I'm always looking for a good tax adviser.


Cool. I just saw his book on Amazon coincidentally.
 
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Growth & Learn

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Assuming your business is not location dependent and you are free to roam, move to a country where you do not have citizenship and establish residency.

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I would LOVE to do this. I talk about it often. My wife would not be happy though.
 

GlobalWealth

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I would LOVE to do this. I talk about it often. My wife would not be happy though.

I was talking purely from a tax perspective here. I will make the assumption you are American.

If so, you can earn about $100k tax free ($200k if you are married), plus about $50k in housing allowance. Additionally, you can eliminate the 15.3% (up to $118k) in self-employment tax.

Assuming you are at a 30% tax bracket, that would save you about $65-70k in taxes per year as a single person, or $95-100k as a couple.

Clearly this would only work for someone in a location independent business, but $65-100k buys a lot of plane tickets to visit family and friends back "home".
 

GlobalWealth

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Does anybody have any advice or strategies they've used to shelter their income and significantly lower their tax bills?

Depending on your business, there are ways to move some, or all of your business into a more tax friendly jurisdiction.

For example, follow the Google/Apple lead and sell your IP to a company in a tax friendly jurisdiction and "lease" it back to your operating business back home in a high tax jurisdiction. This increases your expenses in the high tax jurisdiction and recognizes income in low tax jurisdictions.

Do you have any patents? copyrights? A website? Custom software? All of these IP assets can be offshored.
 
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GlobalWealth

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Does anybody have any advice or strategies they've used to shelter their income and significantly lower their tax bills?

Depending on what state you live in, maybe you can move your tax home to a zero tax state. For example, if you live in CA, establish residency in NV. Of course this is not as easy as just "claiming" NV as your home.

You would need an actual residence there. Change your voter registration to NV. Get NV driver license. With all of your bank accounts, credit card accounts, etc, change it all to NV address. You need to be able to verify you have changed your residency to NV.
 

GlobalWealth

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We also have SEP IRA's that we're maxing out each year and personal Roth IRAs that we're using. Beyond business write offs, personal real estate/homeowner write-offs, and IRAs I'm clueless.

Instead of a SEP IRA, maybe consider creating a PSC (personal service company) to receive your income. Create a Solo401k where you can contribute about $50k/y pretax.
 

Growth & Learn

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A few ideas:

- The simplest thing to do is to ensure that you're taking deductions for everything you're legally allowed to be taking deductions for. While obvious, you'd be surprised the number of people who don't do this.

- Depending on the type of business, type of income and amount of income, you may be better off converting to a C-Corp, and taking advantage of the additional fringe benefits (health insurance, education assistance, vehicle/transportation provision, gym membership, etc) that can be provided to shareholders (you) from the company -- these aren't allowed for S-Corps. Talk to a tax professional about your specific situation.

- Set up a Self-Directed SEP IRA, which will allow you to contribute a larger amount of income tax-deferred, but also give you investment control over the funds. I'm not a fan of traditional retirement plans (too restrictive on investment options), but self directed plans are great.

- If you're an accredited investor, look into investing into Conservation Easements (as a passive investor). I've been able to shelter a large percentage of my taxable income this way the past couple years.


How did you guys learn how to do all this stuff @JScott @GlobalWealth? This list is amazing. Recommended books or anything?
 
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Trivium iz rC

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I'm not a Tax Attorney or CPA, This is not advice & you should always consult a professional.

From my understanding your making a full time living off your business & so are a lot of people here. Here are a couple things that I have done to structure & limit my tax burden.

1.) Move to a state with no Corporate Income Tax & Person Income Tax on earned income & dividends.
2.) Take advantage of every deduction that you will benefit you. (Don't just take a deduction for the sake of taking a deduction if it provides no benefits)
3.) Own nothing, Control Everything. All you businesses that are making profits should be owned (NOT BY YOU) but by a central Holding Company or Trust that you control.

ex: I have multiple e-commerce businesses.
(Ecom Company One)-----|
(Ecom Company Two)-----|---Owned By-----| (Trivium Holding Company)
(Ecom Company Three)---|

4.) Pay yourself a reasonable salary (according to the irs) & take the profits that you don't re-invest as Long Term Qualified Distribution. Since you are an S-Corp you will be eligible for Long Term Dividends rates taxed @ (0%,15%,20%).

ex: Company Makes 300k In Profits

100k Salary, 200k In dividends -15% tax = 170k.

5.) Learn to invest your money in cash-producing assetts.

If your accountant says that you should open up a 401k or an IRA punch them in the mouth and find a new accountant.
 

GlobalWealth

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Growth & Learn

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I'm not a tax professional in any way, shape or form, but I'm a big fan hiring people who are. In my experience, spending a few thousand dollars to have a good CPA or accountant help you create a plan for minimizing your tax burden (or if you're just starting out, spending a couple hundred dollars to have a good accountant prepare your taxes and do a basic consult) will more than pay for itself in the first year. I spend about $2-3K per year on my accountant, and he (legally) saves me many tens of thousands of dollars per year in taxes.

That said, it's definitely true that the more money you make (and depending on how you make it), the more options you have to shelter your income from taxes. For example, as a W2 employee several years ago, I was making a LOT of money from salary and stock options -- but I had essentially no good way to shelter that income (hard to get around AMT with stock options). I was literally paying 50%+ of my income to the government (between local, state and federal taxes).

But, as soon as I transitioned to self-employed, a whole world of tax shelter options opened up for me. And btw, even if you have a full-time job, having a side business that earns income can be just as valuable. As my self-employment income has increased over the years, my options for tax shelters have increased as well. Probably the biggest hurdle is getting to "accredited investor" status, which is where a lot of options open up that aren't available if you can't meet that definition (I save literally many tens of thousands of dollars per year because I meet this very arbitrary criteria that the government has defined).

Now for a little rant...

Our tax system is horribly unfair, and when people say that everyone in this country has equal opportunity if they work hard enough, this is a perfect example of how that's clearly not the case. When someone like Donald Trump can claim "accredited investor" status from the minute he turned 18 (by virtue of the family money he had), he suddenly wasn't on the same playing field as the rest of us who had/have to work years or decades to get there. By the very nature of getting a lump sum of money from his father, Trump had access to tax shelters from the day he started working that many of us don't get until our 30s, 40s, 50s or perhaps never. Just imagine if you had been able to cut your tax burden in half (or down to a tenth) from the day you started working -- can you imagine how much more money you'd have now by compounding that savings???

Unfortunately, tax shelters feel somewhat like an exclusive nightclub, where there are all these secret doors to more and more exclusive rooms. Every time you think you've achieved some level of success in getting into a more exclusive room, you start to suspect that there are other, more exclusive rooms that you don't yet know about. I've had a few situations where I felt like I was invited into an exclusive room, but each time, it only made it more clear how many rooms I didn't yet have access to. I'll probably never have access to most of the rooms (shelters) that the ultra-rich have access to, but I can at least see why it's so much easier for the ultra-rich to compound their net worth than it is for those who don't have access to the "exclusive rooms."

There is tremendous opportunity in this country (the U.S., that is), but unfortunately, the playing field isn't level, and climbing the lower rungs of the ladder are much harder than that higher rungs. Not just because you know so much less when you're at the bottom (that part is a given), but also because the system is stacked against those at the bottom.

With that rant out of the way, my best advice to anyone starting out is to never stop clawing your way up -- what you'll find is that the higher you go, the better it gets in terms of the system working in your favor, and eventually things start to snowball. It might take 5, 10 or 20 years to get to the point where you can look back and think, "Wow, this is easy now," but better to spend the 5, 10 or 20 years working towards it then not, and then looking back in 20 years and thinking, "Damn, I could have been there by now if I just would have kept going."

So, keep going!


Very well written. Fortunately, I'm the only shareholder in my S corp but I still feel like there are lots of 'secret doors' (as you called it) that I'm just missing.

Now on to another question. How do I know a CPA is good and knows all these strategies? I don't even know what questions to really ask.

The girl i'm using now obviously knows a lot more about taxes than I do but I know that she's not even mentioning or coming close to the type of 'secret doors' you're talking about or that @GlobalWealth was talking about.
 
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Kung Fu Steve

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Very well written. Fortunately, I'm the only shareholder in my S corp but I still feel like there are lots of 'secret doors' (as you called it) that I'm just missing.

Now on to another question. How do I know a CPA is good and knows all these strategies? I don't even know what questions to really ask.

The girl i'm using now obviously knows a lot more about taxes than I do but I know that she's not even mentioning or coming close to the type of 'secret doors' you're talking about or that @GlobalWealth was talking about.

GlobalWealth and I have been business (and heterosexual life-) partners forever and a half.

He is too modest and respectful (HA!) to promote his business on here but if you ask he'll give you a 30-minute consultation for free and give you all the information you need to get your ducks in a row.
 

illmasterj

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3.) Own nothing, Control Everything. All you businesses that are making profits should be owned (NOT BY YOU) but by a central Holding Company or Trust that you control.

ex: I have multiple e-commerce businesses.
(Ecom Company One)-----|
(Ecom Company Two)-----|---Owned By-----| (Trivium Holding Company)
(Ecom Company Three)---|

Thanks for writing this Trivium, this is something I've been thinking about lately. Does this work for asset protection? Say Ecom Company One sells a product, someone gets injured or there is a frivolous lawsuit, what is the most you can lose? All of the assets from Ecom Company One? Assets from Trivium Holding Company? Can you as shareholder of Trivium Holding Company be sued?

@GlobalWealth I am very interested in your thoughts on this as you appear to be the resident expert.
 

Trivium iz rC

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Thanks for writing this Trivium, this is something I've been thinking about lately. Does this work for asset protection? Say Ecom Company One sells a product, someone gets injured or there is a frivolous lawsuit, what is the most you can lose? All of the assets from Ecom Company One? Assets from Trivium Holding Company? Can you as shareholder of Trivium Holding Company be sued?

@GlobalWealth I am very interested in your thoughts on this as you appear to be the resident expert.

I'm not an asset protection attorney so your best chance would be to hire one & start your asset protections process. It's always better sooner then later.

Asset protection is all about limiting your risk & in easy terms. Your the king protect yourself with a castle, moats ect.

example:
Lines of protection: Business Insurance, Product Insurance, Limited Liability Corporate Structure (Inside & Outside the USA), Trusts.
 
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GlobalWealth

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Thanks for writing this Trivium, this is something I've been thinking about lately. Does this work for asset protection? Say Ecom Company One sells a product, someone gets injured or there is a frivolous lawsuit, what is the most you can lose? All of the assets from Ecom Company One? Assets from Trivium Holding Company? Can you as shareholder of Trivium Holding Company be sued?

@GlobalWealth I am very interested in your thoughts on this as you appear to be the resident expert.
There is a lot you can do here. First, you segregate the risk as noted before. Keep businesses separate so you don't spread the risk across all businesses.

That is done thru multiple llcs. I am not a fan of series llcs as they present some other complications and really have not been well tested.

There are other things you can do as well like separating assets from the operating company and doing a leaseback of the asset. That is commonly done with equipment, IP, etc.

That can offer many benefits from asset protection to taxes.

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GlobalWealth

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I'm not an asset protection attorney so your best chance would be to hire one & start your asset protections process. It's always better sooner then later.

Asset protection is all about limiting your risk & in easy terms. Your the king protect yourself with a castle, moats ect.

example:
Lines of protection: Business Insurance, Product Insurance, Limited Liability Corporate Structure (Inside & Outside the USA), Trusts.
As Truvium said insurance is always your first line of defense. But it should not be your only strategy.

Using proper corporate structures and possibly trusts should also be considered.

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GlobalWealth

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Any tips for Canadians?

Anyone? Lots of Canadians here
Canadians and Americans have similar issues. However it is much easier for Canadians, esp if you are willing to live abroad. What are your specific questions? I'll help if I can.

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As Truvium said insurance is always your first line of defense. But it should not be your only strategy.

Using proper corporate structures and possibly trusts should also be considered.

Thanks to the both of you.

Current plan is to operate my companies out of different countries (eg: holding company in Singapore, trading company in Hong Kong). Theory being that it's a hassle for someone to come after both companies if for instance the trading company is selling a product in the US.

Trusts kind of scare me. Next step in personal growth I guess, but I still don't fully understand them to legitimately trust someone with my assets.
 
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ddall

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Canadians and Americans have similar issues. However it is much easier for Canadians, esp if you are willing to live abroad. What are your specific questions? I'll help if I can.

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Thank you so much. I have an accountant but this is my first time using him, as my business has grown, so he is untested. Looking for any strategies to minimize taxes obviously. Canada has low corp tax rates, but high personal income tax rates. Are you familiar with the best strategies to take income out of the business but while minimizing taxes? Obviously paying family member etc but anything else? I would be interested in taking cash out and buying some Realestate, and also for personal use at some point. For the last year everything has been reinvested.
 

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Thank you so much. I have an accountant but this is my first time using him, as my business has grown, so he is untested. Looking for any strategies to minimize taxes obviously. Canada has low corp tax rates, but high personal income tax rates. Are you familiar with the best strategies to take income out of the business but while minimizing taxes? Obviously paying family member etc but anything else? I would be interested in taking cash out and buying some Realestate, and also for personal use at some point. For the last year everything has been reinvested.
I know a guy whose dad runs a practice of some sort and to avoid hitting higher tax brackets he has his son as a dependent/trustee of his business. He gives the guy I know 100k a year to put into the bank and then passes it back to his father. I'm not sure whether it's legal or not, just what I was told.
 

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Depending on your business, there are ways to move some, or all of your business into a more tax friendly jurisdiction.

For example, follow the Google/Apple lead and sell your IP to a company in a tax friendly jurisdiction and "lease" it back to your operating business back home in a high tax jurisdiction. This increases your expenses in the high tax jurisdiction and recognizes income in low tax jurisdictions.

Do you have any patents? copyrights? A website? Custom software? All of these IP assets can be offshored.


If you were to stay in the US and your business is solely in the US can you create a IBC or CSL in say Seychelles or Belize as a tax shelter but never live there?
 
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GlobalWealth

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If you were to stay in the US and your business is solely in the US can you create a IBC or CSL in say Seychelles or Belize as a tax shelter but never live there?
That would require a detailed analysis of your specific business. But it is easier if you are abroad.

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Our tax system is horribly unfair, and when people say that everyone in this country has equal opportunity if they work hard enough, this is a perfect example of how that's clearly not the case. When someone like Donald Trump can claim "accredited investor" status from the minute he turned 18 (by virtue of the family money he had), he suddenly wasn't on the same playing field as the rest of us who had/have to work years or decades to get there. By the very nature of getting a lump sum of money from his father, Trump had access to tax shelters from the day he started working that many of us don't get until our 30s, 40s, 50s or perhaps never. Just imagine if you had been able to cut your tax burden in half (or down to a tenth) from the day you started working -- can you imagine how much more money you'd have now by compounding that savings???

Unfortunately, tax shelters feel somewhat like an exclusive nightclub, where there are all these secret doors to more and more exclusive rooms. Every time you think you've achieved some level of success in getting into a more exclusive room, you start to suspect that there are other, more exclusive rooms that you don't yet know about. I've had a few situations where I felt like I was invited into an exclusive room, but each time, it only made it more clear how many rooms I didn't yet have access to. I'll probably never have access to most of the rooms (shelters) that the ultra-rich have access to, but I can at least see why it's so much easier for the ultra-rich to compound their net worth than it is for those who don't have access to the "exclusive rooms."

There is tremendous opportunity in this country (the U.S., that is), but unfortunately, the playing field isn't level, and climbing the lower rungs of the ladder are much harder than that higher rungs. Not just because you know so much less when you're at the bottom (that part is a given), but also because the system is stacked against those at the bottom.
I find this so fascinating. It's a strange mix of my fears about how 'stacked the deck' can be against me and yet how exciting it is to hopefully have it stacked in my favor...
 

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