Category: tax shelter

Tax Planning Must Happen NOW !!!

Congratulations to incoming President Trump. Yet many have questioned what happens to income tax planning?

First, 2016 tax rates are at 39.6% for individuals and 39% for Federal Corporate rates. State taxation has not changed and has a top rate of 13.3% in California. The additional Medicare taxes are still the law, but will hopefully be eliminated in coming years.

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Puerto Rico Bids To Become New Age Tax Haven

As the U.S. Treasury Department continues to tighten its noose around offshore accounts, a new tax haven has sprung up under its nose in the Caribbean. Welcome to Puerto Rico–island of tropical breezes, and (for new arrivals only) a 0% tax rate on certain dividends, interest and capital gains.

Puerto Rico is about the same size as Connecticut but with more palm trees, twice the unemployment rate, a third the median household income and a tiny fraction of the hedge funds–a deficiency the financially teetering territory aims to correct by turning itself into a refuge for tax-oppressed millionaires and billionaires.

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Billionaire to Put His Money in Puerto Rico

Despite Puerto Rico’s massive debt crisis, Paulson sees big profits ahead. He has plowed “quite a bit” ­an estimated $1.5 billion ­­ of his personal wealth into buying hotels, a resort and office buildings on the island. Paulson compares Puerto Rico today to Miami in the 1980s.

“It’s similar to that period in Miami’s history,” Paulson said Thursday at the Puerto Rico Investment Summit. “There was a lot of real estate on the beach, lots of abandoned buildings and vacant lots. That was definitely the best time to buy [in Miami].”

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STATE TAXATION ON MAIL ORDER

Quill Corp. vs. North Dakota

On May 26th, 1992, United States Supreme Court held that a mail order house, may have the minimum contacts necessary in accordance with the due process clause of the constitution with the taxing state relative to imposition of tax, yet lack the substantial nexus, as required by the Commerce Clause, with the state to have such tax imposed. Therefore, mere lack of physical presence in a taxing state does not in and of itself bar the taxing state from asserting a tax against such company.

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TAX TIPS

On August 5th, 1997, President Clinton signed the Tax Relief Act of 1997.  The majority of the changes apply for years beginning after December 31st, 1997.  Exceptions to this include the Capital Gains Tax relief and the new exclusion for sellers of their principal residence.

HIGHLIGHTS OF NEW TAX ACT

TAX CREDIT FOR EACH QUALIFYING DEPENDENT CHILD UNDER AGE 18.

Beginning in 1998 parents get a tax credit equal to $400.00, $500.00 after 1998, for each qualifying dependent child under age 18.  A phase out of the tax credit applies for joint taxpayers whose adjusted gross income exceeds $110,000.00.

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IRS Debt

What the IRS Giveth the IRS Taketh Away

In a prior column I wrote extensively on the usage of private annuities to sell one’s business, real estate or any large assets with the current incurrence of income tax.  IRC §72 and Rev. Rul. 69-24, 1969-1 C.B. 43.  Case law supported this view point and there had not been much if any current litigation on this issue.  Bell v. Comr., 60 T.C. 469 (1973), 212 Corp. v. Comr., 70 T.C. 788 (1978).

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Corporate Taxes

Debt vs. Equity?

How is your practice set up?

Is it a C corporation, or a flow through entity, S corporation, Limited Liability, or Partnership?  Or are you a sole proprietor?

If a C corporation, the reason this simple question is important, is that payments of dividends are not deductible by a corporation, but the payments of interest are deductible.  Therefore, the payment of interest reduces corporate taxable income, and corporate income tax, whereas the payment of a dividend, being non deductible does not decrease corporate taxable income and does not reduce corporate income tax.

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off shore trust

What is an Off Shore Trust? – PART 1

An offshore trust is a primary legal tool involved in offshore planning.  The offshore trust is generally a “self-settled trust.” This is a trust where the settlor and the beneficiary are both one and the same.  The trustee is a person who is nominated by the settlor and is either an individual who is not a U.S. citizen or a business having no U.S. offices or affiliation.  An offshore trust has additional people who serve as trust advisors or trust protectors.  These individuals are not under the settlor’s control, but they have certain powers in the administration and protection of the trust and its assets. Offshore trusts provide a method of transferring assets between generations, probate free.  The trust will usually provide that assets will automatically pass to named successor beneficiaries upon the settlor’s death.

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Tax Free Charity

A Charitable Tax Break

The problem with most tax planning is that you have to give up something to get something. To get an income tax deduction you must spend a dollar to save taxation on a dollar. To get a deduction for a business expense, you must incur a business expense. To get a personal deduction you must pay a deductible expense.

Income taxes are not at a 100% rate thankfully, so one normally thinks wisely before spending a dollar to save tax on a dollar, usually about 40% (35% federal plus state tax). Then if you save the dollar long enough your estate may become so large that it has to pay an estate tax of almost 50% (currently 47%). Let’s not forget FICA and Medicare, both sides being around 15%. Phew, it’s no wonder why most people loathe the IRS and tax time.

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