Month of May, 2008

I had an interesting conversation with a new client the other day about asset protection. We were discussing whether you really could make yourself personally untouchable by third-party creditors.

Ultimately, I think that the average person can make it very hard to be touched by creditors, but I’m not sure if untouchable is always possible. Here’s why:

I came across an interesting Tax Court case this evening … or perhaps more interesting to some than to others. In a nutshell the case revolved around whether a U.S. couple living in Canada were required to pay AMT (alternative minimum tax) on their income earned in Canada. Under the standard tax calculation method, the U.S. taxes owing were offset by the Canadian taxes paid. But under the AMT calculation, the Canadian tax credit was not allowed. I thought that the bilateral tax treaty would rule and the tax credit would be allowed, but much to my surprise, the Tax Court agreed with the IRS!

I wrote “Loopholes of the Rich” 7 years ago. It’s been a wild ride, hitting the best seller lists month after month. I’ve updated it a couple of times since I first wrote it, but there are two things that are constant no matter what.

There are TWO parts to the Loopholes of the Rich. It’s how the rich legally (1) Make More Money and (2) Pay Less Tax.

I recently had my car in for service. I went to a local auto place that specializes in German vehicles. On the face of it, the place looks like most any other dealership - a combination of vehicles for sale up front, with the garages and mechanic areas around the back. But when I took a closer look around, I began to realize that the vehicles in the showroom and out front weren’t exactly commonplace. I was surrounded by Maseratis, Lamborghinis, Ferraris, Bentleys, Austin Healeys … and lots of Porsches. Basically, if it was exotic and expensive, it was on display and for sale.

A recent Supreme Court ruling just increased state’s rights to tax income made in other states.

In the old days, the home state corporation/Nevada corporation strategy was sold as something easy to do. In fact, corporation formation mills in Nevada became big business. You set up a Nevada corporation with a business presence (paying somewhere between $100 to $1,000 per year) and sent money to a Nevada bank account. Your home state couldn’t touch it and you just skipped out on a bunch of home state income tax. Well, it was never quite that simple, but the guys who sold you corporations would have liked for you to believe it was! With the expansion of the “Unitary Doctrine”, it’s becoming much more tricky to use a NV corporation properly.

As your business grows, sometimes the character of the income you earn changes. This is especially true if you are looking to make the move from actively working in your business to having it passively run by itself, without your daily involvement. But if you don’t keep an eye on your business tax status you could find yourself paying far more in taxes than you need to!

Okay … next up on the 300+ Deduction list is Accounts Receivable … i.e., those accounts that you know you don’t have a hope of receiving.

I get this question a lot from people looking to form LLCs, especially when there’s just a single owner, or only 1-2 owners. There are some neat things you can do with a manager-managed LLC … if you know the tricks!

When it comes to sales tax, it’s all about location. If you’ve got a brick-and-mortar store, things are easy. Everyone pays, unless the customer can produce a valid wholesaler certificate that says they are exempt from paying sales tax, and you don’t have to collect it on their purchase. But things get trickier online. If your business sells things online, where is your sales tax nexus now?

Typically the same logic still applies. Where does the sale happen? If you’re shipping from your basement in Ann Arbor, then any sales to Michigan-based consumers will be subject to sales tax and you’ll be responsible for collecting it, and paying it to the State of Michigan. If you sell through your website but the merchandise is direct-shipped from elsewhere, only sales in the same state the shipper is located in are taxable. So if your goods are shipped from Ohio, you’re only responsible for collecting sales from Ohio-based purchasers and sending that money to the Ohio Tax Department.

The State of New York is trying to change that, by going toe to toe with Amazon.com.

Have you ever sat in a diner or other restaurant and overheard someone eat an entire meal while talking on the phone? That happened to me and my husband this morning. He was on the phone when we arrived, he was one the phone when his meal arrived, he was on the phone throughout the meal, and he was on the phone when he went into the men’s room afterwards.

We didn’t really want to eavesdrop, but he was pretty loud, and we couldn’t really avoid overhearing him. What was interesting was the topic of conversation, which revolved around bank-owned homes, and foreclosure investing in general. Living in Nevada, which is a real hot spot in the foreclosure market, we have a lot to choose from. Reno’s nowhere near as bad as the Vegas area, but even here in our much smaller town we’ve got something like 2600 homes to choose from.