Tax Problems - Help me Keep More Of My Money

Calamari

Calamari

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BuSo, I have a first world problem.

My taxes are done for the year and the news was not good. It wasn't awful, but I'm no longer able to write off all of my business income and I have to pay for the first time. Before this gets out of control I'd like your help because I know many of you have been down the same road.

I've maximized the pre-tax payroll deductions at my regular job for 2015 so I can't squeeze any more out of that. Other than quit my job I'm looking for ideas on how to reduce income. And by that I really mean reduce business income

I know I can start deducting meals and turning vacations into "working vacations" so that they become deductible or at least partially deductible.

But what else can I do to shave some off the top and write off business income?

For starters I'll be outsourcing more so that I have more time to play with my dick.
 
If you can create a C-Corp (U.S.) and maintain the paperwork it is the safest and best form of limiting liability and distribution of assets. I'm sure there are other opinions on this, depending on your needs, but have been running all types of companies since 1980's and this has been the way for me.

Use a Tax Attorney. No CPAs, Accountants, Tax advisors- they are all sketchy and are rewarded for sharing your private information. Tax Lawyers are more diligent about their attorney-client privilege and you can hire them to direct your activities without fear of disclosure to competitors, local or federal tax agencies. Not that you're doing anything to hide, but questions you ask, policies you inquire about, if they are illegal the attorney will guide you away and never tell anyone you asked. Problem is if you have a big mouth CPA and they talk to others about "how great" you're doing, well, been there, and suddenly I had direct competitors as a result.

There are some states like Wyoming(best) and Nevada that you can incorporate and still operate elsewhere. These do not require disclosure of share holders. You pay state tax based on assets in the state of Incorporation, and if assets are outside of there no tax, legally. Fed is different of course.

Also setting up trusts and other Corporations allow you to spread your income around and allow the companies to pay your way as a consultant, etc. As a shareholder you can work for the Corp and grow the business, get your expenses covered and have a "personally" low income even as the company grows in value. Drive company vehicles. Use company computers, phones, equipment. Work/Live in company buildings. Make loans. Think about it.

Never use your own name when you can use the company's. You hold the stock and can pass it on to family, partners simply by transferring physical paper. No death taxes if you use trusts and paper securities.

"The secret to success is to own nothing, but control everything." - Nelson Rockefeller
 
I'm glad you brought that up. I'm sure it was glaringly obvious that this is a sole proprietorship even though I didn't mention it.

Moving away from the sole proprietorship model is a can I have been kicking down the road for when the time is right. Sounds like the time may be right or at least it's time to seriously consider it.
 
As you grow being able to disassociate from the entity is the power position. It makes selling easier, accepting & providing investment, liability is reduced, peace of mind is enhanced. Knowing your treating businesses like Jay Leno's car collection has many perks.
The car analogy- maintenance, improved components, specific purpose, enjoyment. Like Jay's cars there will always be someone willing to pay more than you did including improvements, even after you maximized your use of and enjoyment ($$$).
Your mind and efforts are separate from the entity, you are always you, your skills are yours, unique.
A business is a thing. Like money, replaceable, transferable, disposable.
 
I've got a piece of advice that's a bit outside of the conventional wisdom.

Don't be afraid of paying taxes.

The only way a US citizen is going to start building up a liquid assets bankroll is going to end up in paying some taxes. I've seen many people spend there money on BS things they didn't really need or want simply to make it a business expense to avoid paying taxes.

I'm not saying don't invest into your business more or anything like that. Just don't let avoiding paying taxes become an excuse to increase expenses and upgrade your lifestyle.

Beyond that getting a tax attorney over a CPA/accountant is spot on. So many CPAs will be happy to help you pay less taxes with less than legal methods - it's your ass when the IRS comes for the money though.
 
Thanks guys. I really do appreciate your input.
 
I'm writing from my phone so I apologize if I'm repeating anything here.

The very best thing I did for my tax situation was invest in a solid bookkeeping service and a local accountant that takes the time to understand my unique situation and explain everything to me.

I use bench.co for bookkeeping. At $125 a month, it's a steal. I pay my accountant about $500 a year.

Keep in mind, if you owe money, it means you made money. That's a good thing. Your only concern from there is how to keep as much money in your pocket without pissing off the dickbags at the IRS.

As a business owner, taxes are important, but focusing on growing your business and bringing in more profit is even more important.

So, my advice is to work with professionals that you trust and feel comfortable explaining the intricacies of your business and any tax concerns you have. If you find that this transparent conversation yields positive results, then they're worth their weight in gold.
 
I've asked this before but any advice on those of us outside the US? EU based specifically with multiple passports? :wink:

I'm currently looking into the Isle of Mann
 
Depends entirely on which passports and where you reside. Not a one size fits all approach. Yes, the Isle of Man looks attractive with 0% corporation tax and ability to charge VAT, but consider:

1. You are likely creating a taxable presence elsewhere (central command and control.)
2. VAT is chargeable at the UK rate of 20%.
3. It's extremely expensive to run a business from there (administration costs etc.)

If you're based in a north or western European country then number 1 will be tricky to get around legally. If you are flexible with residency then look to Eastern Europe or Malta. There are a lot more options available to us than US citizens, thankfully, but it's definitely worth seeking professional advice.
 
j_b said:
Depends entirely on which passports and where you reside. Not a one size fits all approach. Yes, the Isle of Man looks attractive with 0% corporation tax and ability to charge VAT, but consider:

1. You are likely creating a taxable presence elsewhere (central command and control.)
2. VAT is chargeable at the UK rate of 20%.
3. It's extremely expensive to run a business from there (administration costs etc.)

If you're based in a north or western European country then number 1 will be tricky to get around legally. If you are flexible with residency then look to Eastern Europe or Malta. There are a lot more options available to us than US citizens, thankfully, but it's definitely worth seeking professional advice.
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Hungarian passport, UK residency - easy enough to get Hungarian residency and I own property there as well. I also have a friend who currently lives on the Isle of Mann which is why I was considering it. I don't need to bring too much into the UK which is why I thought offshore might work well and then I could just pay taxes on monies I actually bring into the country.

I'd love to speak with a professional about this - just don't know who to ask. My accountant is literally no help she knows nothing about offshore.
 
In which of Hungary do you own property?

RiverStyx said:
Hungarian passport, UK residency - easy enough to get Hungarian residency and I own property there as well. I also have a friend who currently lives on the Isle of Mann which is why I was considering it. I don't need to bring too much into the UK which is why I thought offshore might work well and then I could just pay taxes on monies I actually bring into the country.

I'd love to speak with a professional about this - just don't know who to ask. My accountant is literally no help she knows nothing about offshore.
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I havent done this, but I heard you can take a loan out from your business ( so you personally get a loan from your business ). Then you never pay it back.

The loan is not income to you personally, and the loss of the default on the loan is business loss and deducted from taxes.

Again, I havent personally done this.
 
eliquid said:
I havent done this, but I heard you can take a loan out from your business ( so you personally get a loan from your business ). Then you never pay it back.

The loan is not income to you personally, and the loss of the default on the loan is business loss and deducted from taxes.

Again, I haven't personally done this.
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Unfortunately you certainly cannot - that's not even close to a loop hole. When a business does what you are talking about it's referred to as "writing off bad debt". In order to get the tax benefit they have to send a letter to the debtor - then whatever is declared as unrecoverable becomes income for the debtor. The loan is only "not income" until the business writes it off and declares it as a bad debt, then it is.

There are all sorts of interesting cases that come out of this law though. Because what if the debtor claims, "Hey you cannot write this off, I'm going to pay you back eventually! This isn't income for me."? Then stuff starts a little crazy.

Additionally this created an interesting situation after the housing crisis as well. People that had walked away from there homes in no recourse states did not expect the IRS would be coming after them for tax debt on the difference between what they owed and what the bank was able to sell the house for ie the amount the bank "wrote off".

This is exactly why I suggest talking to a tax attorney about this stuff. There are so many of these "tricks" floating around which do not work what so ever and plenty of people will charge you to "set it up for you" even though it doesn't work. The biggest one I see is US guys that "go offshore" they are pretty much always just paying someone to set them up with something the IRS does not consider OK. It's an easy scam to peddle because the guys are long gone with your money by the time the IRS comes around a few years later.
 
Alex VanDavid said:
There are some states like Wyoming(best) and Nevada that you can incorporate and still operate elsewhere. These do not require disclosure of share holders. You pay state tax based on assets in the state of Incorporation, and if assets are outside of there no tax, legally. Fed is different of course.
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Is this solid advice for a newbie? I need to set up an LLC soon and im wondering if this is the way to go?
 
There are some initial cost getting set up, so it is somewhat income dependent.
If you are in business for yourself and earning maybe twice what you NEED for living & business expenses- go for it.
 
make sure you know what to expect of corporate and director responsibilities, including laws, filing dates, official companies house site and your accounting and bookkeeping responsibilities. If you don't, talk someone who does. If you outsource your company administration, which is recommended for busy people and for those who dont want to bother with it, be sure that at least you keep a tab on deadlines and not forget about them.

In the UK, so many company directors have no idea what needs to be done and what is expected of them. Then they are suprised when gov officials are looking for them.

animalstyle said:
Is this solid advice for a newbie? I need to set up an LLC soon and im wondering if this is the way to go?
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For me, I am just going to keep it simple and create the LLC in my home state. I can revisit later when the business grows. Thanks for all the comments
 
Hey, popping this old thread back up with a question:
Now having formed an LLC, is there a difference getting paid directly to a personal account vs setting up a banking account for that LLC and sending payments there?
 
animalstyle said:
Hey, popping this old thread back up with a question:
Now having formed an LLC, is there a difference getting paid directly to a personal account vs setting up a banking account for that LLC and sending payments there?
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Certainly. You should get a Federal Tax ID and use that to get yourself a bank account for the LLC. Use the account for all incoming business revenue and also all business expenses you plan on deducting. Do not spend any money from the account on anything personal or that isn't a business expense. Instead write a check from the company account to your personal account and spend on personal stuff there.

Good call on just doing your own state. Incorporating in WY or NV to try to save on state taxes doesn't work usually. Most states that have taxes require you too register within the state if that's where you do business. And if you live there and are the only employee you cannot really argue you do business at an out of state PO Box to your own state.
 
@miketpowell Thank you very much for the information. I have a Tax ID and will get an account set up for my business ASAP. The information on the personal spending is gold as well.

Appreciate you taking the time.
 
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