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

[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.

 

[GlobalWealth]

kwes,
I would be happy to chat with you offline, but this is not a viable conversation online. There are WAY too many variables to attempt to discuss online.

There are many issues here:
types of assets
source of income
location of business
nexus
employees
IP

There are ways to segregate assets to minimize tax burden, but we would need to discuss details.

 

[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.

 

[GlobalWealth]

Let me clarify for those rational thinkers still following this thread.

Income - expenses = profit
Profit - tax = savings
Savings x interest on investments = wealth

How to increase wealth:

Increase income
Decrease expenses
Decrease taxes
Increase interest on investments

This topic was originally about how to minimize taxes and morphed into an offshore discussion

If you have an online business (there are other options) you "may" have the ability to move that business offshore

If you can move the business offshore, you can pay little/no tax on the business' earnings (decrease tax = increase wealth)

If you can eliminate/defer taxes offshore, you can compound wealth exponentially

If you are hard headed and have a decided you know more than anyone else you are F*cked

 

[TropicalGuy]

All disclaimers apply, these are highly personal decisions and I'm just spitballing here...

One strategy (among tons of completely legit and fun stuff, but many require a lot of effort) would be to found sub-suppliers in foreign countries.

Let's say you buy a lot of SEO and marketing services from other companies. Why not found a company in the Philippines (or similar) that provides these services? Why buy from others when you can buy from yourself? This is the same strategy as a successful marketing company moving their profits to China to set up a factory.

As long as that company does not require substantial assistance from you (ie, isn't just a proxy for you), but is a legit company with employees, a charter etc, you can move a lot of cash to that new entity to fund it's start-up.

If that new entity starts generating profits from new business operations that come up in the future, you can keep those profits in the foreign corp until you decide to earn them either as real income or as dividend (much lower rate). Foreign corps give you flexibility similar to C-Corps in the USA in that regard.

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.

...

 

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[kwes]

My Business is now profiting 7 figures, but I'm getting raped on the taxes. My business is an S-Corp and all the income flows down to my personal which puts me in the highest bracket. I don't mind paying some taxes, I just don't like paying 40% of my income (15% would be much more reasonable).

Any advice or what I can do to alleviate some of my tax burden?

What is the best entity for high profit businesses?
What do other 7 figure+ business do to offset some of their taxes?
Should I have the business purchase investments and things of value to lower the income (replacing the cash with investments)?

P.S. Before you tell me that I should be asking a professional (not a forum), I have spent a lot of money on "professional" accountants, attorneys, and even a tax strategist. I have yet to find one that really knows how to effectively reduce taxes at this level...so here I am...and hopefully someone here can help...

 

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[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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[Lathan]

Taxation is theft. Yea, I said it.

 

[CommonCents]

The Most Patriotic Thing You Can Do « blog maverick

It was a general point by Cuban to make money and employ people, I'm sure he meant that if you have a big tax bill means you have made it. However I don't see paying taxes as patriotic. Growing the economy and providing jobs for your fellow Americans is patriotic. Govt has proven to become a terrible ROI for people. I think minimizing your taxes legally is patriotic and putting that money to use in growing the economy, giving to charity etc... Why do the rich, super rich do everything they can to avoid paying taxes? Govt is a terrible investment for society. Minimalist smaller govt is essential but we've overshot that by leaps and bounds. Private foundations and charities have much better records in helping more people efficiently than our bloated govt ever will.

 

[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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[GlobalWealth]

Even if Ralph is the CEO of his Internet business, his company still can't pay for all of his personal living expenses like his house purchase or mortgage, car purchase or payments, gas, groceries, or anything else. Try it and see what happens when they catch you.

Show me again where I said this was possible? You seem to want to make an argument for amusement.

As stated previously, CEO Ralph can pay the salary he chooses for his personal needs while living in the US and move a significant portion of his company income into a no-tax jurisdiction offshore where it can compound tax free/deferred.

You make silly assumptions that if CEO Ralph earns $1m he somehow needs to spend $1m.

By a show of hands here Fastlaners - how many of you that earn $1m feel and obligation to spend every penny?

 

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[Kak]

It's like a liquid IRA that you can spend in other countries tax free. If you move to the caymans etc.... You can also buy yourself a home and enjoy your wealth.

I don't understand the argument for repatriating all of the money... The US is only one country.

 

[biophase]

OK how about I add 1 little zero. I make 1 mil in net profits and I need 1 mil to live the lifestyle I want, not 100k. How are you going to significantly reduce my tax burden?

As you said, if you want to spend it back the US, you pay taxes on it. But many wealthy people don't spend all their money in the USA. Many travel overseas for business and vacation.

Would you really spend $1m a year and have it all spent in the USA?

I feel like your way of spending money is limiting your beliefs. If you had $500,000 sitting in a foreign account, would you pay $150,000 taxes so that you could use $350,000 of it in the USA OR figure out a way to spend $500,000 outside the USA, which would you choose? $150,000 is alot of vacations, or business trips.

 

[GlobalWealth]

OK how about I add 1 little zero. I make 1 mil in net profits and I need 1 mil to live the lifestyle I want, not 100k. How are you going to significantly reduce my tax burden?

You don't need a tax planner. You need a shrink.

Your argument has no validity. If you earn $1m in profit and want to spend $1m in the US, why bother even asking these questions?

You clearly have no interest in creating wealth, only spending every last penny.

 

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[Kak]

Or maybe I have 8 figures in assets/investments and the 1 mil in net profits a year is made for the sole purpose of spending and having a great f'ing time.

Me thinks you make too many assumptions ...

Me thinks you are an IRS agent.

 

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[911Carrera]

Congrats on the success. You need to find good accountants who have your best interests in mind. Don't waste your time trying to figure this out yourself on asking for advice on on saving taxes on million dollar profit business on an internet forum. At this level of success you need to put together your A team which comprises of a great accountant, a great lawyer, a great asset protection specialist.

 

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[TropicalGuy]

For USA stuff doable, but if you are interested in going global, in my experience it's been very difficult to find professionals with this type of experience.. probably due to the fact that very few small businesses (under 10MIL) aggressively internationally diversified. Fellow entrepreneurs seem to have the best info. I'm actually exposing my (high-end) tax guy to a lot of international options and spend some time reading IRS docs with him. Anyway, that's purely anecdotal.... but just for the other guys on this board, just because a guy in the US get's paid 250 an hour to talk on the phone about taxes, the chances of him knowing about international diversification strategies are slim due to the liability involved and their complexity. Probably best to work off of referrals before pounding the pavement.

Congrats on the success. You need to find good accountants who have your best interests in mind. Don't waste your time trying to figure this out yourself on asking for advice on on saving taxes on million dollar profit business on an internet forum. At this level of success you need to put together your A team which comprises of a great accountant, a great lawyer, a great asset protection specialist.

 

[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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[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.

 

[limitup]

Because most wealthy people still have enough money to live the lifestyle they want even after paying taxes. Plus most have family and other ties here and don't want to just bail and start over somewhere else just to save some money. For most successful people it's easier to just make more money, if they feel they need to.

I'm fascinated by this from a psychological perspective. In thinking about this post over the weekend, I've really started asking myself a number of questions I hadn't really considered: what do I get for my US citizenship? If I could put aside the nationalism and pride, would a wealthier me in another country be better than a poorer me in the US? Why aren't more successful (wealthy) people renouncing their citizenship, especially since they can afford to travel whenever they want, and likely own property all over the world already?

 

[GlobalWealth]

Barely 3000 people renounced their citizenship last year. Not exactly something that people are rushing to do.

The average prior to 2010 was about 500. So while 3000 may sound like a small number, it is the value of the 3000 that are leaving.

These aren't exactly the $9/h Walmart associates. They are millionaire and billionaires. How many penniless immigrants does it take to equal the economic capacity of one billionaire like Saverin?

 

[GlobalWealth]

Kak,
This is my point exactly. Why on earth would you want to move company profits offshore only to bring them back to the US?

Personally I don't even want to invest in the US. The opportunity is no longer worth the risk.

But I certainly understand if someone has a great business making a lot of money in the US, but that doesn't prevent them from diversifying their investment portfolio globally.

 

[GlobalWealth]

The original poster, and the majority of this thread, is questioning if it's possible for a US citizen to significantly reduce his tax burden while still retaining control and access to spend the money here in the US. That is also the "challenge" I originally made to you. Nothing you've posted has shown that this is possible, and now you're agreeing that it's not. Thanks.



I know a lot of millionaires and most of them don't choose to live on 100k a year. Sure if you want to live like a "normal" person and keep all your money offshore that's a different story, but I don't believe that is what the original poster was asking about.



Sorry but I'd say you're the one who's not even reading what you're replying to, and you make the silly assumption that CEO Ralph wants to live on 100k a year and hide the rest of his money offshore.

Just to make sure I wasn't going crazy I went back and read the original poster and all comments. No where did anyone ask how a US citizen can reduce his tax bill while retaining control and access to spend in the US.

You seem to be the only one asking that question here.

But I will explain it again for the benefit of others willing to take a rational approach to this and leave the argumentative "I'll prove him wrong" tone aside.

Basically, if you have a business that can legitimately be run offshore, you simply move the company to an offshore, non-tax jurisdiction and retain as much of your earnings there as you would like.

As I used in my example, if CEO Ralph wants/needs to earn $100k/y (feel free to insert any number you wish in order to alleviate the need to argue over a number) but his company earns $1m globally, he can retain a large portion of it offshore.

You have no issues with CFC (controlled foreign corporation) or Subpart F income rules as the income does not come from the US (or at least the portion of it you attribute to the offshore company).

Within your company you can now invest tax-free/deferred with your retained earnings thus allowing it to grow without the destructive nature of taxation.

 

[DeletedUser394]

For this past tax year (technically still ongoing), I used every single deduction, offset, transfer, and special accounts legally allowed under the sun.

Used every business write off allowed, used deferred compensation, etc etc

While my income wasn't 7 figures, it's the largest amount I've made yet.

I paid ~3% in taxes, and now the government owes me more money than the sum of tax collected. Considering the minimum tax bracket here is 25%, I think I did okay LOL. Waiting on that check.

When I get to that 7 figure club I'm going offshore.

I don't live in the US.. thankfully.

@GlobalWealth is an inspiration.

 

[Shades]

OK how about I add 1 little zero. I make 1 mil in net profits and I need 1 mil to live the lifestyle I want, not 100k. How are you going to significantly reduce my tax burden?

You make 1 mil in net profits and then need a mil to live a year? Well, Im thinking you wouldn't have to worry about a tax burden in that case because you would be broke before long.

 

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[Kak]

Clearly his spending habits would argue he has a government job and plans on having a pension. Yup IRS.

 

[kwes]

Congrats on the success. You need to find good accountants who have your best interests in mind. Don't waste your time trying to figure this out yourself on asking for advice on on saving taxes on million dollar profit business on an internet forum. At this level of success you need to put together your A team which comprises of a great accountant, a great lawyer, a great asset protection specialist.

I agree, and I have read about putting together this "team" since I started my financial journey. However, 5 accountants, 2 attorneys, and one very expensive so called financial strategist later, I'm still looking. I am having trouble finding 'A' people to make up my 'A' team. Right now I would say I have a C team (or maybe even D).

 

[liquidglass]

I think GlobalWealth would be the way to go with this advice.

Personally though I think you should keep most of the income in the business to gain a lower tax bracket for yourself and if I'm correct the business taxes would be less than your current personal. Then use the business account to pay for a majority of your activities (you can get crazy with this, just keep good records) then most are completely tax deductible.

(don't necessarily take this part of advice) But let's say your business paid you a paycheck of $150 per week, well there's your personal taxable income. But the business also provides housing for the owner....see where we're going here?

 

[Vigilante]

The Most Patriotic Thing You Can Do « blog maverick

 

[thehawkman]

The Most Patriotic Thing You Can Do « blog maverick

i take it you're one of the politicians?

Cyprus deal is model for future bailouts says top European official as banks are told to open - Europe - World - The Independent

Paying taxes just subsidizes the thieves.

"Russia, however, responded furiously to the deal - condemning it as 'stealing'.

The arrangement with the EU has brought Cyprus back from the brink but will see investors with more than €100,000 in the nation’s largest banks forfeit a large chunk of their deposits.

"In my view, the stealing of what has already been stolen continues," Prime Minister Dmitry Medvedev was quoted by news agencies as telling a meeting of government officials.

Despite this Russia also signalled it would backstop the European Union's bailout of Cyprus despite anger that the weekend rescue deal would impose heavy losses on uninsured depositors, many of them Russian."

If this goes through and it will there's nothing to stop them using the "we're in a crisis" excuse to steal everyone's money once a week.

You know what they want? They want obedient workers. Obedient workers. People who are just smart enough to run the machines and do the paper work and just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the moment you go to collect it.

And now they’re coming for your social security money. They want your retirement money. They want it back so they can give it to their criminal friends on Wall Street. And you know something. They’ll get it. They’ll get it all from you sooner or later ‘cause they own this F*cking place. It’s a big club. And you ain’t in it. You and I are not in the big club. By the way, it’s the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy.

The table is tilted folks. The game is rigged. And nobody seems to notice. Nobody seems to care. Good honest, hard-working people. White-collar, blue-collar, it doesn’t matter what color shirt you have on. Good honest, hard-working people continue – these are people of modest means – continue to elect these rich cocksuckers who don’t give a F*ck about them. They don’t give a F*ck about you! They don’t give a F*ck about you! They don’t care about you – at all! At all! At all! You know. And nobody seems to notice. Nobody seems to care. That’s what the owners count on – is the fact that Americans will probably remain wilfully ignorant of the big red, white and blue dick that’s being jammed up their assholes every day. Because the owners of this country know the truth. It’s called “The American Dream” because you have to be asleep to believe it.

He could have very well been speaking about the EU nowadays. No wonder they are so upset about tax havens in the US and the EU alike. No wonder they're fighting so hard to kill tax havens. It's not to prevent money laundering, it's to take away any chance of keeping what's yours. Between restricting offshore access, automatic information about money transfers, and hiking taxes, and whatever is left can get seized any time right out of your own account claiming that the poor widdle banks need to be bailed out.
And the rabble is perfectly OK with it. The clerk from my bank said well, I'm not worried, I've got no money they can seize. JFC...

 

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