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How many of you guys pay virtually nothing in taxes due to write offs?

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Envision

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I still don't understand. When you go purchase a home, it's not a business expense. So how does your income go from $500k down to $100k by buying $400k in real estate?

You might be missing out on depreciation. You should look up The Tax Cuts and Jobs Act 2017, rules on bonus depreciation.

This, maxing out bonus depreciation on equipment and cost seg studies on real estate is the only way ive found to lower taxable income significantly..

Its a catch 22 though because to buy the depreciable real estate or equipment you need to have the cash to foot it and in an inventory based business that can be difficult. Merging commercial real estate with high income from a business is probably your best bet to legally lower your tax burden.
 
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biophase

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I would think it should be fine in this case, since they said they are a real estate professional and the main activity of the business is real estate. I'm guessing the scorp owns all the properties so this would be a business expense and reduce the distribution to the owners (hence their tax bracket)? It's effectively just deferring the tax to the rental income and eventual sale/transfer.
The only way I can sort of wrap my head around this if he were counting real estate as inventory and using cash method of accounting? But I still don't see it. I would love to talk to his accountant to understand how this is done legally.

This is one of those scenarios where a husband and wife team could be a business owner and real estate agent and never pay taxes IF you could do it this way. I've never heard of it and it sounds too easy. Everyone could effectively lower their taxes to $0 every single year while accumulating a huge real estate portfolio

If this were true why would there be a bonus depreciation law and why would anyone care that Trump changed in it 2017. The law is worse for taxes than what CJ is saying.
 

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Once you experience tax free living like in the state of Washington like I've had the last 5 years its hard to go back. Just the fact you dont have to file personal state taxes is beyond amazing.

So you don't have a business? It was my understanding that WA has a gross receipts tax exclusive to business owners.
 
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ljean

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I was looking into renting an RV for a summer vacation but the cost is silly high. Then I was thinking what if I bought one and rented it out when not in use. They have those sharing platforms now sort of like Uber, etc. Could i run it like a business and depreciate it and write off some expenses if I offer it up for rent and claim some income from it? It would probably be like a $75-100k unit. Plus maintenance, storage, etc. I could pay the biz for personal use when I want to take it out?
 

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So you don't have a business? It was my understanding that WA has a gross receipts tax exclusive to business owners.


1615399492370.png
 

biophase

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View attachment 37136
Thanks for posting this. I was not aware of this tax. Luckily it is relatively low in comparison to another state's state tax rate even at gross receipts.
 
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Zaratustra

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It seems pretty fair to pay 18% for the privilege of running a business in the most prosperous country, period.

Afghanistan has lower taxes. Send us photos of your prosperous business when you there.
 

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So you don't have a business? It was my understanding that WA has a gross receipts tax exclusive to business owners.

I do, but lost my revenue to covid as an event company and had zero sales in 2020 so just file my business with the state as 0 revenue, take the legit federal losses as still doing business, and enjoy the zero personal state income taxes on my other income.
 

redshift

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View attachment 37136

To be fair, the b&o rate for most common business types (digital, retail, manufacturing) is around 0.48%. The 3.3% mentioned above is only for waste disposal (Business & occupation tax classifications | Washington Department of Revenue). Still, the fact that its on gross is not great. Also, they keep trying to pass a seattle / tech tax of 1-2% every year. Only a matter of time before its a thing.

TX has a franchise tax as well at 0.75% but it only kicks in after around $1m in revenue.

IIRC, The only states with truly 0% income tax for entrepreneurs are SD and WY. FL and AK would work as well for S-Corps.
 
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Heal Piece

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Good luck getting a loan from the bank when you show zero income because you chose to write off every dollar your business makes. Some business owners may have cash to buy outright (which is a bad investment in my opinion anyway unless you have a huge excess in cash) but for the majority you'll be looking for non-traditional forms of lending which can be a headache and sometimes real sketchy.

I've worked in Business and Retail banking for a decade, and I can't tell you how many times I've seen loans turned away from huge businesses because they show "0" on their tax returns.
 

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I found this incredibly helpful in determining potential moves for myself.

 

Tom.V

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After the "new" tax news, I'm looking forward to seeing more of you guys down in the Caribbean ;)
 
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Sethamus

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Okay okay cool I see a lot of “make less money” but let’s talk about this

can a foreign company avoid paying taxes on income it gets online?

can that company pay for things in America with a foreign bank account?

can that company offer “consulting” services to the tune of about 150,000 or more per year to a lawn care company in Washington state?

can I just so happen to own that foreign company?

or

can I hire someone who lives in the Cayman Islands to be the “owner” of that business, and I have access to all banking information, so the money is charged to the Cayman Islands business which makes hundreds of thousands and pays no taxes, my business breaks even, and the Cayman Islands business bank account pays for everything.
When you get to the franchise phase, you could do the “move to PR” as the business would be providing services outside of PR and qualify for the super low tax rate. Not tax free, but super low and you only have to spend so many days there, half a year or something @Kak ?
 

Tom.V

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When you get to the franchise phase, you could do the “move to PR” as the business would be providing services outside of PR and qualify for the super low tax rate. Not tax free, but super low and you only have to spend so many days there, half a year or something @Kak ?
You could do it before if you structure things properly. The Export Services Tax Incentive Puerto Rico Guide For Businesses | Relocate to Puerto Rico
 
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Kak

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When you get to the franchise phase, you could do the “move to PR” as the business would be providing services outside of PR and qualify for the super low tax rate. Not tax free, but super low and you only have to spend so many days there, half a year or something @Kak ?
Whatever it was, it amounted to about 6 months per year, to which I say, make it 7 or 8. I don’t care.
 
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MaxKhalus

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Yeah, he will be complaining like a MF later. High taxes definitely helped me make my decision to close some of my lower profitability businesses.
How does income tax work with a business?

Is the following possible? (one-dollar salary)
- You pay yourself a one-dollar salary
- You keep all the profit inside as an investment in your own company
- You keep the investment for long enough to withdraw without capital tax
 

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If anyone interested, there's a webinar tomorrow to discuss proposed changes to tax policy in the new admin for US citizens.

 
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biophase

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There is so much wrong in this paragraph, I don't know where to start... But, I'll mention the big things...

I don't mean to be obnoxious here, but seriously, if this is the advice you're getting from your tax professional, you really, really need to find a tax professional who is more familiar with how real estate taxation works.
Yes, I think so many of us were baffled by his responses. His past tax returns are definitely all screwed up.
 

Jcrisp

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I was looking into renting an RV for a summer vacation but the cost is silly high. Then I was thinking what if I bought one and rented it out when not in use. They have those sharing platforms now sort of like Uber, etc. Could i run it like a business and depreciate it and write off some expenses if I offer it up for rent and claim some income from it? It would probably be like a $75-100k unit. Plus maintenance, storage, etc. I could pay the biz for personal use when I want to take it out?
I am looking into this exact thing. We figured out for the price we would rent one, we could put a down payment on buying one instead and EASILY make at least the monthly payments by renting it out occassionally. Seems like a great way to pay for my adventures :) I'm gonna try it out anyways. Looking into financing for it right now.
 

ljean

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I am looking into this exact thing. We figured out for the price we would rent one, we could put a down payment on buying one instead and EASILY make at least the monthly payments by renting it out occassionally. Seems like a great way to pay for my adventures :) I'm gonna try it out anyways. Looking into financing for it right now.
I decided against it after reading about some experiences in some RV forums, I dont really want to be in the hospitality industry. You can pay for a lot of hotel / airbnb nights for what a decent rig costs.
 
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GlobalWealth

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No.

I mean, maybe you can get away with this for a bit, but foreign control rules have gotten a lot more strict over the last couple years. If you have control over a foreign corp, then all that income gets pulled back into the US. You even put "owner" in quotes, do you think the IRS won't see right through it?

Further, if you don't report it and the government finds out, penalties start at $10k per missed filing (plus the penalties and interest you'll face on the tax itself).

Are there ways around it? Maybe, but you'd probably have to have a pretty high income for the compliance costs to make sense.

Chris is correct, you cannot do this the way you have outlined it @Johnny boy .

That doesn't mean there aren't legal options for you to minimize your taxes and tax rate by using an offshore structure.

For example, you can run your business operations thru a zero-tax offshore structure that is a 100% owned subsidiary of a US c-corp.

Under the CFC and GILTI tax rules, 100% of the foreign subs profits would pass thru to the US c-corp owner, but you'd only pay 10.5% corporate tax. If your c-corp was formed in a zero tax state, like WY, then you'd owe no state tax (this is assuming you have no nexus in a taxed state, if so you'd owe state corporate tax in that state).

Of course, you'd personally pay taxes on the qualified dividends you'd receive, however you can retain earnings tax deferred indefinitely inside the c-corp.

There are other strategies as well that could blend with this, for example you can establish a DBP (defined benefit plan) and contribute 6 figures (based on your personal salary) that would reduce your taxable income (like an ira).

If your business met some specific criteria, it could also be possible to defer income in the offshore company, but these are quite narrow.
 

Kak

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@CareCPA

I was looking into renting an RV for a summer vacation but the cost is silly high. Then I was thinking what if I bought one and rented it out when not in use. They have those sharing platforms now sort of like Uber, etc. Could i run it like a business and depreciate it and write off some expenses if I offer it up for rent and claim some income from it? It would probably be like a $75-100k unit. Plus maintenance, storage, etc. I could pay the biz for personal use when I want to take it out?
Late to the party on this comment, but I did the same thing. It works.
 

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Kak

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You have an RV? Or had one?
I have one and it rents like crazy. His assumptions are correct. Someone is renting it more than it is in storage.

I have used it personally, twice, ever. :rofl:
 
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thechosen1

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I have one and it rents like crazy. His assumptions are correct. Someone is renting it more than it is in storage.

I have used it personally, twice, ever. :rofl:
This sounds like the start of a great Rental System business.

But then I remember our convo about some of the stuff you’ve run into with those renting your RV lol
 

Kak

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This sounds like the start of a great Rental System business.

But then I remember our convo about some of the stuff you’ve run into with those renting your RV lol
Yeah. There are some hiccups, but it makes money and actually is scalable.
 
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GlobalWealth

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Exactly.

Write offs, deductions, expensing (whatever you call them) are there to make sure that you only count the actual income from a business, not more.

If you sell 10 million worth of shrimp in a given year, and spend...
-2.5 million on boat fuel
-1 million on insurance
-1.5 million on employees and benefits
-650k on boat slips
-1 million on maintaining
-500k on depreciation of the boats
-850k worth of random credit card business expenses

You made- $2,000,000 in net income. Depending on your tax election, you pay taxes on that $2,000,000 in some form or fashion. Whether it remains corporate or flows through.

End of story. That’s why you keep track of what you spent money on to run the business and try to stay organized.

After that, there are personal deductions if you exceed the standard deduction.

So basically the people who “write everything off” and “don’t pay taxes” because of it, are probably running up that random expense category full of personal shit and are actually filing fraudulent tax returns.

Now, if you want to LEGALLY pay less taxes. Your only two options are make less money or move. From a high tax state to a low tax state. From the mainland states to Puerto Rico or the US Virgin Islands. Or immigrate to a country with lower taxes and renounce.

There are more than 2 options, although those are 2 great ones.

There are several options, but much of it depends on your level of income and personal situation.

For example, real estate investors can dramatically minimize or even eliminate their tax burden with some very careful planning.

You can move to another country without renouncing and easily eliminate your US tax bill on your first $150k (ish), and there are ways to defer offshore as well, but that would depend on your personal preferences and income level.

If you are not from the US (basically any country other than the US can do this), you can move from your home country and give up your tax residency, then arbitrage your residency and company structure and be completely tax free in most cases (sorry @Kak, only for non-US persons).

If you have a growing company and you plan to sell it in the near term (2-5 years), you can "sell" the company to an offshore PPLI (private placement life insurance) policy and pay immediate capital gains on a much lower valuation, then the PPLI sells the company at a later date and pays no tax on the company sale, and you can draw tax free loans from your policy until you die (assuming of course the amount was high enough).

You could setup a personal LLC, create a DBP and fund it with up to $250k per year (depending on your income level), and that money would be invested like a 401k or ira tax deferred.

Your PR and USVI options are also great for Americans as long as you meet the criteria. I've had many clients do this in the past couple of years to realize huge crypto gains.
 

Kak

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There are more than 2 options, although those are 2 great ones.

There are several options, but much of it depends on your level of income and personal situation.

For example, real estate investors can dramatically minimize or even eliminate their tax burden with some very careful planning.

You can move to another country without renouncing and easily eliminate your US tax bill on your first $150k (ish), and there are ways to defer offshore as well, but that would depend on your personal preferences and income level.

If you are not from the US (basically any country other than the US can do this), you can move from your home country and give up your tax residency, then arbitrage your residency and company structure and be completely tax free in most cases (sorry @Kak, only for non-US persons).

If you have a growing company and you plan to sell it in the near term (2-5 years), you can "sell" the company to an offshore PPLI (private placement life insurance) policy and pay immediate capital gains on a much lower valuation, then the PPLI sells the company at a later date and pays no tax on the company sale, and you can draw tax free loans from your policy until you die (assuming of course the amount was high enough).

You could setup a personal LLC, create a DBP and fund it with up to $250k per year (depending on your income level), and that money would be invested like a 401k or ira tax deferred.

Your PR and USVI options are also great for Americans as long as you meet the criteria. I've had many clients do this in the past couple of years to realize huge crypto gains.
The life insurance thing is pretty sweet! I like that! Good stuff man.

Generally I don't consider IRAs and 401ks as a big deal. I don't want to jail my money for years in a country I might not even live in by the time I'm what? 59 and 1/2?

I also totally forget the 150k thing as well, because my 150,001st dollar and beyond is still part of the bullshit.

Surprisingly timely and pertinent to the discussion...


Canadians and Europeans still don't know how lucky they are to not have a country that follows them around the world. Moving is easy, immigrating, on the other hand is a total pain in the a$$. I'd literally turn in my guns for a Canadian passport.
 
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