Thursday, April 10, 2014

Bitcoin and the Dragon

Recently the Internal Revenue Service (IRS) ruled that digital currencies, Bitcoin in particular, are classified as property not currency.  Suddenly, the value dropped as people became fearful of the tax consequences.  Understandable.  The goverment acts in self-interest and that does not include yourself.  Basically, the banksters are afraid of a currency that will be limited in quantity as that will reveal the fraudulent nature of the fractional (read 'fiat') banking system that very effectively taxes the poor disproportionately higher by stealing their purchasing power over time. What to do.  Well, I have an idea.  'Property' covers a number of areas. Automobiles are 'property', right?  Yep, 'personal' property.  Wait, so GM sells 'personal' property?  No, GM sells a type of property called, 'inventory'.  Hmmmm.  So, maybe we, who use Bitcoin, should consider ourselves to be in business, buying and selling inventory (or creating it as in the case of the Bitcoin miners).  That would mean you have expenses to support that business of generating revenues from the buying and selling of Bitcoin.  An example would be you work for a couple of days for a friend in his business.  He is purchasing your labor with Bitcoin but you are purchasing Bitcoin with your labor, which is billable.  In order to keep track of the cost in dollars of Bitcoin, you have to 'purchase' it into inventory.  Then, you 'sell' your services (inventory) for whatever you think it's worth.  If the sales price is greater than the purchase price, you have a profit and if the sales price is less than the purchase price, you have a loss.  If you sell for the same as the purchase price, you are at breakeven  EXCEPT, remember, you are in business now.  You have other expenses.  One idea is secure storage costs for your inventory.  This is always an issue because inventory that just vanishes is a cost.  Because business involves relationships of trust at various levels, it would be a good idea to personally interview the people who will secure your inventory.  Of course, personal interviews involve travel to one degree or another.  Business travel is expensible, meaning it reduces taxable income.  Let's say you have to decide between Bitcoin exchanges and there are three that you think are reasonable candidates to guard your inventory.  Well is in Germany; is in the British Virgin Islands; is in China.  That involves extensive, expensive travel.  All written off against revenues of trading Bitcoin inventory.  And if your executive assistant happens to be your spouse, travel costs double.  Not to mention the office you have to maintain in your home for business.  Use your imagination.  It gets even better if you do this with an 'S' corporation because active losses pass through to you  and you can pay yourself a relatively small wage and the pass-through earnings are not considered 'earned' income and, hence, no self-employment tax is due.  Thanks to the IRS ruling, we're all in business now.

Friday, March 7, 2014

Repeal FATCA

FATCA is on the ropes!

There is a heap of resistance to FATCA in Canada.  As seen in the reference article, Canada's resistance may be enough to doom FATCA when added to domestic resistance.

Read this:

Enforce Canadian law, not FATCA - Toronto Star Mon, 03 Mar 2014 22:53:21 GMT

CalculatorEnforce Canadian law, not FATCAToronto StarA “no” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Repu ...

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This is after the Republicans voted in committee to back the repeal.  The reason given is the number of Americans renouncing citizenship.

Who know for sure?  Have a look:

FATCA Repeal Call Backed By Republicans - Pars Herald Thu, 06 Feb 2014 06:43:56 GMT

FATCA Repeal Call Backed By RepublicansPars Heraldfatca-note-flag Foreign Account Tax Compliance Act (FATCA) watchers will have found the Republican National Committee vote to repeal the controversial tax law no surprise after all the ballyhoo leadin ...

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If you want to be able to do business in Chile, this would be a good time to let Congress know you want FATCA repealed.  Then the banks here won't be hassling US Citizens and may actually learn about client service.

Please, send an email or make the call.

Thursday, February 13, 2014

Why let them have all the fun?

Corporations get all the breaks!  For those of  you who think Republicans are too 'pro' corporate tax breaks, get a load of this:

Cuomo Wants To Give Banks & Corporations $400 Million In Tax Breaks - Gothamist Mon, 10 Feb 2014 18:10:33 GMT

Cuomo Wants To Give Banks & Corporations $400 Million In Tax BreaksGothamistA committee of experts ordered by the governor to review the state's tax code and make recommendations issued a report this fall [PDF] that stated 'New York's taxes are too h ...

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We have a major Democrat singing the supposed Republican tune!  The real lesson here is ALL politicians are pro-corporation!  So the little guy gets crushed even more under the tax burden foisted on them by politicians giving more and more breaks to corporations.  What to do?  I'll tell you what to do, get in on the action with your own corporation, that's what!  I know you think it's really complicated and a lot of times it is; but you can keep it simple.

Consider this, you are an employee earning $ 50,000 per year.  Obamacare has your employer sweating.  You incorporate and only you are employed by your corporation (called YOU Corporation).  Now you can go to your boss and offer to be a leased employee to your boss and his company now doesn't have to handle payroll, health care and other employee 'benefits'. And, you are not an employee for Obamacare purposes. Normally, corporations have to match employee SS payments of 7.65 percent PLUS pay unemployment tax.  Now you can offer to take that off their hands for, say, 5% more to your own corporation and they don't even have to issue you a 1099 because corporations are not required to issue 1099 forms to other corporations and they now have less administrative costs because they only have to pay your invoice.  So now, your new little corporation has revenue of $ 52,500 which is still less cost to your now former employer than you were as an employee. As the owner of a corporation that has not made the 'S' election (and, please, don't do that!), you have control over the type of compensation you get that you did not have as an employee.  One of the standard reasons for setting up a regular corporation (called a 'C' corporation) is for income splitting.  Watch carefully.  YOU Corporation pays you rent for the office you WILL have in your home.  You have to have a place to do administrative work. Let's say $ 18,000 per year (no Social Security or Medicare is payable on this income, a savings of $ 2,754.00).  Now you have to pay wages and let's say $18,000 per year for that, too. You are now in a lower income bracket.  Now YOU Corporation can own property and owning a car is a prime requirement (say, $ 30,000).  The corporation can depreciate the car at $ 6,000 per year, NON-CASH expense. That means you get the expense but keep the cash.  It really does.  Now your Board of Directors has to have regular meetings at locations determined by the Board, which sometimes look an awful lot like vacation spots.  Let's say quarterly.  Your corporation needs Internet and Telephone service as well.  YOU Corporation does have some expenses you wouldn't have otherwise like Franchise Tax,  State agent and such.  Usually, it comes in at about $ 500 per year.  Plus, you'll have equipment expenses such as replacement computers easily at or near $ 1,000 per year.  Does anything sound strange?  That's because nothing is.  To sum it up, If you earn $ 50,000 as an employee, after taxes, telephone, Internet, equipment and travel (vacation) you'll have about $32,500 disposable income.  If you have a corporation, you'll have over $ 37,000 in disposable income.  Yes, you do have to file forms with Uncle Sam but the savings in taxes means you'll get about $ 135.00 from Uncle Sam for each form you file.

Does this interest you?  Let me know if it does.  Don't worry about the double taxation of corporate income.  That only happens when a corporation issues dividends.  YOU don't have to pay dividends.  No corporation is required to do so.

I don't want you to believe this is a cinch because  you have to do some work and take responsibility for your situation.  If you are not willing to do so, don't start. If you are the type who wants more control over your situation, drop me a line and we'll discuss it.

Remember, you CAN become your own corporate fat-cat.

Monday, January 27, 2014

Spaghetti Taxes

Let's say you were advised to set up an International Business Corporation (IBC) in, say, Nevis which owns an S.A. in Chile and a Limitada in Spain.  Add any number of other incestuous, interlocking companies to get a complicated picture. Kinda' like a bowl of spaghetti in appearance.  Lots of people do this to avoid taxes in the United States.  The problem is, it doesn't work, at least not legally.  Instead of me explaining all the ins and outs of what would be called a Controlled Foreign Corporation have a look at this web site which explains things really well.

Introduction to Controlled Foreign Corporations | Family Office ... Wed, 17 Oct 2012 22:12:48 GMT

Investors in what Congress calls Controlled Foreign Corporations are not permitted to indefinitely defer or avoid US taxation. Such corporations are treated as pass-through to US Shareholders.

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One more complication would be if the income from a CFC is passive (which has its own definitions in tax law) which leads to several complications not the least of which is taxation on undistributed income.

On top of that, there are special form that have to be filed like Forms 5471 and 8865 for CFCs and Limitadas that are treated as partnerships.  Failure to file EACH FORM can result in a $ 10,000 penalty...per occurrence.  

It isn't easy to avoid all this either.  If you set up family members as owners to divide responsiblity, you still are in control per the IRS using 'constructive ownership' rules.

Therefore, maybe you should make a different plan.  There are options and maybe I'll mention one or two in a future post.  If you're in hurry, send me an email and we'll talk.

Monday, January 20, 2014

Service with a Smile!

Who says the IRS isn't helpful?  Well, look at this.  The IRS will allow individuals to file for themselves BEFORE the January 31 official opening of the tax year with Free File!  um..YAY?!

IRS releases Free File to help taxpayers get jump on filing returns - Sun, 19 Jan 2014 14:34:46 GMT

New York Daily NewsIRS releases Free File to help taxpayers get jump on filing returnsMLive.comGRAND RAPIDS, MI -- While the tax season doesn't officially begin until the end of the month, Internal Revenue Service says its Free File brand-name softwa ...

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This is to let you know so you can file sooner than usual if you don't need help.  Supposedly it started on the 17th of January.  Well, no time to lose!  

If, however, you are one of those who does need help, feel free to contact me at