Intellectual Assets

 

  • Trade secrets
  • Trademarks
  • Copyrights
  • Patents
  • Web sites
  • Customer database
  • Social media accounts

Among the devices most overlooked by privately owned businesses for tax planning, estate planning & asset protection is the use of Intellectual Property.

This Act that made it all possible.

“Today, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, bringing trade secrets alongside trademarks, copyrights and patents as intellectual property rights protected under federal law.” May 23, 2016.

Intellectual property is a term for intangible creations of human intellect. In businesses that often takes the form of patents, copyrights, web sites, trade name, business name, URLs, copyrights, trade secrets, customer lists, etc. Privately owned businesses seldom recognize & value them. Every business has unrecognized intellectual property. Failing to recognize your intellectual assets puts it at risk, makes you more susceptible to audit and increases your income tax. Most businesses never recognize or value intellectual assets. As a rule of thumb, we often recognize & value intellectual assets for tax planning, estate tax planning and asset protection. Generally we move the specific assets, now documented, out of the operating company and place then in another company which is less at risk of lawsuit & seizure by a hostile actor. Your personal name and your operating company are both bad choices to hold intellectual assets.Done right, it is possible to suffer a debilitating lawsuit and open up the next day with little more than a hiccup.

  • We will use intellectual property for tax savings
  • We will use intellectual property to protect vital business assets
  • We will use intellectual property for greater maneuverability.
  • We will identify your intellectual property
  • We will formally recognize your intellectual property
  • We will move intellectual property from risky operating entities to safer property holding entities’
  • We will document intellectual property.
  • We will value intellectual property.
  • We will establish royalty rates.

The goal is, even if you lose a tremendous lawsuit, you will be able to open up the next day with all your vital assets in place without missing a beat. This is also a great estate planning tool & a great tax planning tool.

Wise Words From A Wise Man

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”

“Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

(Judge Learned Hand.)

From <https://elliscpa.us/

Business Structures

Few private businesses are structured effectively.

There are something like 33 different entities from which you can operate a business. The most commonly used are personal individual schedule C business, partnership, LLC or corporation. Each of these are taxed differently and can take deductions the others can’t. We use all of these except the schedule C business frequently. Plus we use the other 28 when circumstances dictate.

Private businesses are poorly structured. That makes them vulnerable to unnecessary tax, dangerous lawsuits & getting caught by competitive forces without the ability to maneuver. All of which can be disastrous. As businesses get larger, the more sophisticated they become and the more they will turn their attention to structures. At one time Caterpillar had 350 separate subsidiary companies in the Luxembourg alone. But private businesses generally go through their entire existence as a single structure.

We are expert at business structures. We will restructure your business to its best structure to achieve goals in tax, asset protection & maneuverability.

  • A great structure achieves myriad valuable goals easily and effortlessly.
  • A bad structure constantly interferes with business goals & exposes your vital assets to lawsuits & litigation.
  • A bad structure is a trap because it’s inflexible, cumbersome & poorly conceived. Plus it adds to tour tax burden & puts all assets at risk needlessly.
  • A bad structure is a lead weight around your shoulders.
  • A bad structure makes it more difficult to survive & thrive in a competitive environment

Tax Reform Failed

Federal Rax reform failed for every sector except America’s largest companies.

If you are a corporation with more than 100 shareholders, you hit the jackpot. Of course you aren’t a corporation. Nor do you own a corporation with more than 100 shareholders. If you own a corporation, it’s probably a flow-through. That means the corporation pays no tax because the profits ‘flow-through’ to the owner and he or she pays the tax personally. Regular corporations pay tax in their own name. They basically have the rights of a person except the can’t be drafted or vote.

Nobody owns Global companies like Ford or Microsoft or Facebook. The Ford family owns a big chunk of Ford, as does Bill Gates of Microsoft, and as  does Mark Zuckerberg of Facebook. But none of them own most or all of the stock. None of them put pressure on the company to pay dividends. Even if they did, it’s not their call to make. If any of them need money, they sell stock. Nobody is putting pressure on Global companies to pay dividends. They actually have no owners. They have investors. There are people who don’t think that’s wise.

It’s this small group of companies that got the lion’s share Tax Reform benefits. A tax cut from 38% to 21%.

  • The owners of privately owned businesses live off the profits.
  • The profits of Global drive stock prices.

That is the crucial difference between the winners and the also-rans in Tax Reform. Global businesses are unlikely to pay dividends. Privately owned businesses take out every available penny.

Federal max tax rates under tax reform:

  • Corporate tax rate: 21%
  • Dividend tax rate: 20%
  • Personal tax rate:  37%

These are your choices.

  • If you’re a corporate tax payer, the most you could pay is 21%.
  • If you’re the owner of a corporate entity the most Federal tax you could pay is 21% corporate tax rate plus the 20% dividend rate for a total of 41%.
  • If you’re the owner of a passthrough entity, the most you could pay is 37%.

Corporations and BIG Business have been synonamous since the corporate form of doing business originated in England in 1600. The corporate form allowed people to invest in large risky business ventures without having to worry about getting sued personally. That was the impetus. It proved quite successful. The first corporation was the Honorable East Indies Company. The company received a Royal Charter from Queen Elizabeth I on 31 December 1600. It ruled India for 258 years and had a standing army of 260,000. It was the richest company ever formed.

The Trump administration said they wanted to cut corporate tax rates to boost the economy. That’s what they did. The rest of us get what’s left over, and there is previous little left over.

However, here’s the solution to your disappointment. 

Where tax reform failed, our experts take over to deliver significant tax savings. Our tax strategies combine with our corporate & ownership structural strategies and our famous creativity to cut tax to the legal minimum & create profits out of thin air.

It costs more NOT TO BUY our tax solutions than it costs to buy them.
Easily measured, concrete results.
We save more than we cost.

Check us out – http://www.elliscpa.us

 

Tax Reform

So what’s the deal? I keep searching and can find no authorative information about how the tax reform bill is going to work & nothing about how the calculations & formulas will work.

I have read various articles about the pass-through deduction for pass-through entities. And they all differ and all leave out too much pertinent facts to tie it all together. Plus they don’t define or explain why cooperative divends & depreciationplay a role. Nor do the explain the role that ‘capital’ plays. In the meantime I have clients rattling my cage because they want to know how it’s going to affect them.

I read that the legislation had created Section 199A and 199A(a). So I read the bill itself. I found 13 references to the code section, but not the section itself. Google didn’t turn it up. Finally Thomson Reuters Checkpoint did. So I read it but that just left me with more questions.

Here’s my take. And it’s scary. It looks like this bill is so complicated with long equations that no publisher is willing to risk their reputation on the chopping block. They are dribbling out bits & pieces waiting for consensus to form.

My advice. If your tax guy tells you he understands this bill, slap him on the back, grab your files and run for your life.

Clarification on Pass-through Deduction.

Clarification regarding the pass-through deduction phase in.

“Adam Looney watches this closely for the Tax Policy Center, run by the Brookings Institution and Urban Institute.”

“… if you are a self-employed person or a small business owner, then your income has to qualify in order to receive the deduction. If you make less than $315,000 and you’re married, then you get the deduction. Above that level, it depends on whether you’re a doctor or a lawyer or in a different trade.”

https://www.pbs.org/newshour/show/under-the-gop-bill-heres-whos-going-to-get-a-big-pass-through-tax-break

Here

I assume this means that at lower levels everyone, including lawyers, doctors & accountants, get the passthrough deduction. But …

Hillary Payback or Tax Reform?

It looks like everyone got what they voted for in tax reform.

It’s pretty clear who the big winners and losers are. Each individual will probably have to do some calculating to be absolutely certain, but the broad groups of winners & losers are pretty clear right now.

Tax Reform isn’t Valhalla. We did not just die and go to heaven. For every tax cut, there is a tax increase somewhere to make up for the lost revenue. That’s how the process works. If you are a large global corporation with more than 100 shareholders and no individual owner to answer to, you won the lottery. You are the big winner. That much is certain. That is where the bulk of the tax savings go. OK. That’s what they said they were trying to do, and they did it. For everyone else, broad groups will win and broad groups will lose. And those are pretty clear right now.

But here’s a pattern that has escaped notice.

Losers:
High income earners with expensive homes and dependent children living in high tax states will be losers under tax reform. As will professionals such as equity bankers & physicians at all income levels wherever they live. Both groups will pay more tax under tax reform. But here’s where the pattern begins to show up. According to the demographics, those are the Hillary voters. When they voted for Hillary; they voted for tax increases; and they got tax increases.

Winners:
The winners on tax reform will be low income families in low tax states. In fact, I believe, low income people even in high tax states will be winners. Hmmm. Does that describe Trump voters? I think it does. Those people voted for tax cuts when they voted for Trump. And they got tax cuts. That formula works even for people who live right next door to each other; one voted for tax hikes and one voted for tax cuts; they both got what they voted for.

The big losers on tax reform are Hillary voters who are really winners because they voted for tax increases and got what they voted for. Everyone got what they voted for. Probably coincidence.

But balancing the budget in the same week?

Now here’s the real kicker. In the same week tax reform was passed, Trump manipulated our friends in the UN into voting in favor of ending their own US foreign aid, which will go a long way toward balancing the Federal budget. Thank you UN.

Trump gave people what they voted for and balanced the budget in a single week. Is that even possible? No other President from Washington to Lincoln to FDR ever had a week like that.

There is one hurdle left.

Who has the gonads to cut off 90% of foreign aid? Probably not Trump. The press would rake him over the coals. But Nikki Haley definitely does. Did you see her glaring at UN voters as they voted on the Jerusalem issue?  In addition, she followed up the vote by inviting all the nay voters to a party. She is looking for a fight and she is getting in their faces. Nikki Haley will cut them off in a minute, and she won’t give a diddle what the press thinks.

These people are serious. I’m going to keep my head down and stay the hell out of both their ways. But I am enjoying the show. As the Chinese proverb says, ‘May you live in interesting times.’

 

PS. I will be a loser. But after applying my own off-the-shelf tax strategy, I will be a winner. There is a solution to every problem.  Want to solve your tax problems? Give us a call.

 

 

 

 

 

 

Tax Bill Agreed.

This isn’t bad. A lot to work with here. Lots of new seams to explore. Corp rate 20%. (Not 21%.). 20% deduction for passthroughs. (Not 17%.) Mortgage interest grandfathered in. Limit goes to $750G. ( ot $500G). State tax deduct is limited to 10G total. No info on half million $ HOME exemption.

A major surprise, this the only tax bill in memory that got better during Reconciliation. There is something about this White House. Seems likes it’s in shambles but it produces results. Major tax cut.

The first & last grouping are most important. The middle one may have some errors. Is just there to provide info on unchanged provisions? I think? Just take it with a lot grain of salt. The first & last grouping are most important.

Some solid reporting should emerge over the weekend. Scheduled for vote Tuesday.

First list.

  • Individual tax brackets of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
  • The standard deduction is roughly doubled from $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
  • Twenty percent deduction for pass-through businesses. (Limited?)
  • Corporate tax rate of 20 percent.
  • Bill eliminates individual mandate–but not until 2019.
  • The corporate repatriation rate is set at 15.5 percent on cash and 8 percent on illiquid assets, significantly higher than earlier reports indicated.
  • Bill requires the opening of the Arctic Wildlife Refuse to oil drilling.
  • Child tax credit set at $2,000, refundable up to $1,400, phase out starts at $400,000 of income (lower than expected).

Original List … if it disagrees with 1st or last list, disregard.

  • Republicans agreed to increase the refundable portion of the child tax credit, which makes it more valuable to lower-income taxpayers. As under the earlier Senate bill, the credit will be set at $2000. But the refundable portion, which is the amount of money taxpayers can get back as a refund even if they owe no income tax, was raised from $1,100 to $1,400. That change was made as a concession to Senator Marco Rubio, who had said he would vote against the bill if the child tax credit were not strengthened.
  • The controversial cuts to the deduction for state and local taxes have been pared back. Under the GOP proposal, taxpayers would be able to deduct up to $10,000 of state property taxes, income taxes, or sales taxes. The earlier House and Senate bill only allowed it to be used for property taxes.
  • The attempt to give churches a wider lattitude when it comes to political speech without jeopardizing their tax exempt status was killed after Democrats convinced the Senate parliamentarian that the Senate’s rules require a 60 vote super-majority to pass the measure.
  • The corporate tax rate will be set at 21 percent, up from the 20 percent in the earlier bills. The tax cut will not be delayed by a year, something lawmakers were considering as a way of reducing the budgetary cost of the bill. Under current law, the corporate tax rate is 35 percent.
  • The deduction for pass-through business income will be set at 20 percent. That is lower than the 23 percent under the Senate bill, which translates into a higher tax rate for owners of these businesses.
  • The estate tax will not be repealed. Instead, the threshold for it to apply will be doubled to $11 million.
  • In a big reversal, medical expense deductions have become easier to take. Under current law, taxpayers can deduct medial expenses that go above 10 percent of their income. The House version called for repealing the deduction all together. The bill now keeps the deduction and lowers the threshold to 7.5 percent. That’s a big tax cut for the sick.
  • The repeal of the individual mandate has survived and will be included in the bill.
  • The top marginal tax rate for individuals will fall to 37 percent, lower than the Senate bill’s 38 percent. The current top rate is 39.6 percent.
  • Student loan interest deductions and deductions for waived tuitions for graduate students will also survive, according to several reports. Those provisons had been meeting fierce resistance from higher education lobbyists and student activists.

Last list.
POLICY HIGHLIGHTS
Some errors in here as well.

The Tax Cuts and Jobs Act (H.R. 1) overhauls America’s tax code to deliver historic tax relief for workers, families and job creators, and revitalize our nation’s economy. By lowering taxes across the board, eliminating costly special-interest tax breaks, and modernizing our international tax system, the Tax Cuts and Jobs Act will help create more jobs, increase paychecks, and make the tax code simpler and fairer for Americans of all walks of life. With this bill, the typical family of four earning the median family income of $73,000 will receive a tax cut of $2,059.

(Whoopy doopy. Not much. This is genuinely a tax cut for businesses. Not even necessarily for businesses owners. The flow through thing will. It the taxes of 10 million privately owned businesses.

  • For individuals and families, the Tax Cuts and Jobs Act:
  • Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37% so people can keep more of their hard-earned money.
  • Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes – from $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
  • Continues to allow people to write off the cost of state and local taxes – just like current law – up to $10,000. Gives individuals and families the ability to choose among sales, income and property taxes to best for their unique circumstances.
  • Takes action to support more American families by:
  • Expanding the Child Tax Credit from $1,000 to $2,000 for single lers and married couples to help parents with the cost of raising children. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000. Parents must provide a child’s valid Social Security Number in order to receive this credit.
  • Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.
  • Preserving the Adoption Tax Credit so parents can continue to receive additional tax relief as they open their hearts and homes to an adopted child.
  • Preserves the mortgage interest deduction – providing tax relief to current and aspiring homeowners current mortgage interest deduction.
  • For homeowners with new mortgages on a rst or second home, the home mortgage interest deduction will be available up to $750,000.
  • Provides relief for Americans with expensive medical bills by expanding the medical expense deduction for 2018 and 2019 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2020.
  • Continues and expands the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization.
  • Eliminates Obamacare’s individual mandate penalty tax – providing families with much-needed relief and exibility to buy the health care that’s right for them if they choose.
  • Maintains the Earned Income Tax Credit to provide important tax relief for low-income Americans working to build better lives for themselves.
  • Improves savings vehicles for education by allowing families to use 529 accounts to save for elementary, secondary and higher education.
  • Provides support for graduate students by continuing to exempt the value of reduced tuition from taxes.
  • Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts (IRAs) so Americans can continue to save for their future.
  • Increases the exemption amount from the Alternative Minimum Tax (AMT) to reduce the complexity and tax burden for millions of Americans. AMT survives. 
  • Provides immediate relief from the Death Tax by doubling the amount of the current exemption to reduce uncertainty and costs for many family-owned farms and businesses when they pass down their life’s work to the next generation. Also nice. Solved estate issues for most of my clients. 
    For job creators of all sizes, the Tax Cuts and Jobs Act:
  • Lowers the corporate tax rate to 21%. Actually 20%.  (beginning Jan. 1, 2018) – down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.
  • Delivers significant tax relief to Main Street job creators by:
  • Offering a first-ever 20% tax deduction that applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs, and sole proprietorships. For Main Street job creators with income above this level, the bill generally provides a deduction for up to 20% on business profits – reducing their effective marginal tax rate to no more than 29.6%. xxx I assume correct? But differs from other sources. 
  • Establishing strong safeguards so that wage income does not receive the lower marginal effective tax rates on business income – helping to ensure that Main Street tax relief goes to the local job creators it was designed to help most.
  • Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing growth of jobs, productivity, and paychecks. No more section 179.  But doesn’t remove the temptation. If you own a hammer, everything looks like a nail. 
  • Protects the ability of small businesses to write off interest on loans, helping these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks. I keep sreessingnthey can’t prohibit you from deducting cost of doing business. 
  • No genuine reform in sight. Preserves important elements of the existing business tax system, including:
  • Retaining the low-income housing tax credit that encourages businesses to invest in affordable housing so families, individuals, and seniors can nd a safe and comfortable place to call home.
  • Preserving the Research & Development Tax Credit that encourages our businesses and workers to develop cutting-edge “Made in America” products and services.
  • Retaining the tax-preferred status of private-activity bonds that are used to finance valuable infrastructure projects.
  • Eliminates the Corporate Alternative Minimum Tax, thereby lowering taxes and eliminating confusion and uncertainty so American job creators can focus on growing their business and hiring more workers, rather than on burdensome paperwork.
  • Modernizes our international tax system so America’s global businesses will no longer be held back by an outdated “worldwide” tax system that results in double taxation for many of our nation’s job creators.  Just changes tax rate. Each country passes own laws. Tax havens will respond. That will also be interesting. They have built their entire economy around tax savings.
  • Makes it easier for American businesses to bring home foreign earnings to invest in growing jobs and paychecks in our local communities.
  • Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, pro ts, and manufacturing plants abroad.
    For greater American energy security and economic growth, the Tax Cuts and Jobs Act:
  • Establishes an environmentally responsible oil and gas program in the non-wilderness 1002 Area of the Arctic National Wildlife Refuge (ANWR). Congress speci cally set aside the 1.57-million acre 1002 Area for potential future development. Two lease sales will be held over the next decade and surface development will be limited to 2,000 federal acres – just one ten-thousandth of all of ANWR.
  • Signifcantly boosts American energy production. Responsible development in the 1002 Area will raise tens of billions of dollars for de cit reduction in the decades to come, while creating thousands of new jobs, reducing our dependence on foreign oil, and helping to keep energy affordable for American families and businesses.
  • Provides a temporary increase in offshore revenue sharing for the Gulf Coast in 2020 and 2021, allowing those states to invest in priorities such as coastal restoration and hurricane protection.

That’s it folks

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Tax Reform

Tax Reform is fraught with danger.

A large book is 600 pages long. Few people will read a 600 page book. But every proposed legislation is thousands of pages long. Every member of Congress & every Senator rushes to get their ideas into the bill. But do any of them read it? No. Do the people who put it together know what’s in it? No. How about the people who write it? No. They work in teams. Does anyone know? No.

The process starts with competing bills. So all that happens twice. If they both pass, a committee will negotiate the differences. Does the committee know whats in it? No. Are they even aware of all the differences? No. Finally it goes back to the full Senate & the full house where it’s voted on. Does anyone know what’s in it? No. If both chambers pass the same bill, it becomes law of the land. Is there a single person on the face of the earth who knows what’s in it? No. Will there ever be a person who knows what’s in it? No. Remember Obamacare. Remember the Iran deal.

After it becomes law, enforcement moves from Congress into the hand of bureaucrats like the IRS. Do they know what’s in it? No. But they don’t care. They are write regulations they think agents can understand and enforce the regulations.

More on Tax Havens

Another tax haven company.

Adobe.

http://www.taxjusticeblog.org/archive/2015/01/adobe_products_acrobatic_tax-d.php#.VMk34yvF_To

Just to be clear. This is perfectly legal. The U.S. has tax treaties covering all of this stuff with most, or probably all, of the tax havens nationwide. Holland is a tax haven. Great Britain is a tax haven. Luxembourg is a tax haven. It isn’t just your dodgy countries. This is an valid economic strategy to attract business to their country. For instance, one of the Big 4 accounting firms, the biggest of the big is headquartered in the Netherlands (Holland). Another is headquartered in Great Britain. We can whine all we want, but we signed the treaties.

You may have noticed, this wasn’t even an issue until the administration allowed the Bush tax cuts to expire, kicking in the largest tax increase in history. That’s when tax havens and tax immersions became big news.

Now they want to “REFORM TAXES”.  Guess what the final outcome of that will be. More Taxes.

When there’s tax reform, taxpayers lose.