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

[throttleforward]

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.

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?

 

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[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]

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.

Company X earns $1m/y in profit globally. $250x attributed to US.

Company X starts Subsidiary Y in US to handle US source income leaving $750k attributed to non-US sources.

Subsidiary Y pays all taxes due in US.

Company X remains tax free in proper US jurisdiction.

If CEO Ralph choose to take salary from Company X of $100k, he pays income tax on his salary.

Company X now retains $650k in tax free income.

 

[limitup]

Company X retaining 650k in "tax free" income doesn't help CEO Ralph unless he's willing to break the law to get access to and spend that money.

 

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[GlobalWealth]

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?

In 2013 there were a record number of Americans renouncing their citizenship. None of which were low income/wealth people. It is just not making mainstream media except as a way to villainize them like Eduardo Saverin.

 

[GlobalWealth]

Company X retaining 650k in "tax free" income doesn't help CEO Ralph unless he's willing to break the law to get and spend that money.

Of course it does. He pays his annual salary from Subsidiary Y and Company X to pay whatever he needs for US consumption. The remainder can be reinvested tax free/deferred offshore.

I wrote a recent article about the impact of taxation on compounding wealth. You may like to read it:

http://www.globalwealthprotection.com/know-double-penny-day-analogy/

 

[limitup]

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

 

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[limitup]

Of course it does. He pays his annual salary from Subsidiary Y and Company X to pay whatever he needs for US consumption. The remainder can be reinvested tax free/deferred offshore.

I wrote a recent article about the impact of taxation on compounding wealth. You may like to read it:

http://www.globalwealthprotection.com/know-double-penny-day-analogy/

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.

 

[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]

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.

 

[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.

 

[limitup]

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

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.

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.

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.

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

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.

 

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[GlobalWealth]

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...

Here is the original post for your reference.

No where in here did he ask how he can earn all of his profits offshore but spend them in the US.

He only asked how he can alleviate his high tax burden.

 

[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.

 

[GlobalWealth]

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.

I too know a lot of millionaires unwilling to live on 100k per year. However I used that as a numerical example. Feel free to move numbers around at your leisure.

I do find it amusing though you are so adamant to win a debate and prove your high IQ you are now making counter arguments based on numbers used as an example.

Oh well....back to high school debate class.

 

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[GlobalWealth]

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.

As stated above, the 100k was a numerical assumption. Feel free to add zeros at your leisure.

 

[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.

 

[youngtrep]

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.

I have really enjoyed all of your responses here thus far. I was reading somewhere the other day how wealthy business owners will essentially live off of low interest loans and roll their profits back into the company, essentially living tax free. Have you heard of that strategy? I am unfortunately nowhere near profitable enough (yet!) to need these strategies, but it is fascinating to read about.

 

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[Kak]

I have really enjoyed all of your responses here thus far. I was reading somewhere the other day how wealthy business owners will essentially live off of low interest loans and roll their profits back into the company, essentially living tax free. Have you heard of that strategy? I am unfortunately nowhere near profitable enough (yet!) to need these strategies, but it is fascinating to read about.

As interesting as this sounds, you will have to pay taxes on the money you essentially salary yourself to pay maintain this loan. You will also have to pay corporate income tax since you are electing for C corp taxation.

 

[limitup]

As stated above, the 100k was a numerical assumption. Feel free to add zeros at your leisure.

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?

 

[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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[limitup]

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.

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 ...

 

[Kak]

Here is the original post for your reference.

No where in here did he ask how he can earn all of his profits offshore but spend them in the US.

He only asked how he can alleviate his high tax burden.

Lol he's probably never coming back nor will he take any of this advice. This was probably just an epic argument for no reason.

 

[splok]

... and still be able to spend the money here ...

Spending money in other places can be pretty great too, you know!

 

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[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.

 

[biophase]

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 ...

How much is spent on housing?

 

[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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[GlobalWealth]

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 ...

Now that is a different question, but you would never have acquired 8 figures in assets if you spend every penny. If you want a real solution you must ask real questions.

Try to be a bit open minded and not a know it all. There are solutions, but for you I don't see any because as Biophase noted, you are limiting your own thoughts.

 

[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