How do Internet Markerters beat taxes?

14 years ago

I actually run through an s-corp for the fact I run several off line and online businesses .

Write myself a check taxed and all.

Remember .. I am the village idiot ... not a tax authority .

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LNSTRM

14 years ago

Originally Posted by Troy_Phillips

I actually run through an s-corp for the fact I run several off line and online businesses .

Write myself a check taxed and all.

Remember .. I am the village idiot ... not a tax authority .

Same here.

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SageSound

14 years ago

This is a question for your CPA, not a bunch of marketers who don't understand a fraction of the tax laws. If you DID ask your CPA -- BEFORE you set up your business entity -- you'd probably be told that 100% of distributions from a single-member LLC are considered subject to SET, while only portions of 'S' Corp distributions are. But since most people are of the (unfounded) opinion that LLC's are better than sex for every conceivable need, mostly by listening to online marketers rather than asking a tax expert, they usually find out when it's too late.

The best way to "beat taxes" is to do your planning BEFOREHAND. Consult with a tax expert first.

EDIT:

Do most of you have LLCs and tax them like S-Corps

your choice is to be taxed as a (1) partnership, or (2) Corp.

An 'S' election is only available for Corporations. Not LLCs. An 'S' election lets a Corp be taxed more like a partnership with pass-thru earnings.

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Jesus Perez 14 years ago

Originally Posted by SageSound

An 'S' election is only available for Corporations. Not LLCs.

WRONG.

I am an LLC and I'm being taxed as an S-Corp. Just file form 2553.
All About LLC ( Limited Liability Company )

A BIG WARNING:

If you decide to go the S-Corp or Corp route, please keep in mind the cost to file taxes at the end of the year is greater than a sole proprietorship or single-member LLC. The cost for a simple Corp return is around ~$500-$1250+ (if you do all your own transaction entries).

So...if the self employment tax seems big now, make sure you factor in the actual cost of a CPA before you make the jump to incorporate. It may be cheaper to simply pay the SET instead of a CPA's ongoing support.

I recall reading somewhere that it doesn't financially make sense to incorporate until you've hit the $250k/yr mark.

I'm not a CPA!
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lisag 14 years ago

Originally Posted by SageSound

An 'S' election is only available for Corporations. Not LLCs. An 'S' election lets a Corp be taxed more like a partnership with pass-thru earnings.

Actually, an LLC does have the option to be treated as an S Corp for federal tax purposes. Great tips and information here: Can an LLC be Taxed as an S Corp? | Minnesota Attorney
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- ericwt 14 years ago
  
  I have not read all the responses yet.
  
  Hire an expert.
  
  My situation is I am an American expatiate living abroad.
  
  Under the current tax laws I can earn up to $82,400 tax exempt. You have to live outside of the USA for a certain number of days and provide proof of that as well as file the proper forms and documentation.
  
  I have a offshore company with a bank account in Florida.
  
  I have a tax attorney and my CPA do the paperwork.
  
  Also just to let you know. If I cheat on my taxes there is a United States Marshal in the country I live in that has the power to extradite me back to the states.
  
  There are US Marshals in almost every other country in the world that have the same powers.
  
  Do not cheat! They will arrest and imprison you.
  
  Thanks
  
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BeanCounter

14 years ago

Good Advice, get with a tax attorney. Me personally, I have an LLC set up, but it's what works best for me and my several online and offline revenue streams.

Originally Posted by SageSound

This is a question for your CPA, not a bunch of marketers who don't understand a fraction of the tax laws. If you DID ask your CPA -- BEFORE you set up your business entity -- you'd probably be told that 100% of distributions from a single-member LLC are considered subject to SET, while only portions of 'S' Corp distributions are. But since most people are of the (unfounded) opinion that LLC's are better than sex for every conceivable need, mostly by listening to online marketers rather than asking a tax expert, they usually find out when it's too late.

The best way to "beat taxes" is to do your planning BEFOREHAND. Consult with a tax expert first.

EDIT:

your choice is to be taxed as a (1) partnership, or (2) Corp.

An 'S' election is only available for Corporations. Not LLCs. An 'S' election lets a Corp be taxed more like a partnership with pass-thru earnings.

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LB

14 years ago

If you make enough money to worry about taxes, you make enough money to pay an accountant and attorney to get financial advice.

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JohnMcCabe 14 years ago

I don't "beat" taxes. I pay every penny I'm legally obligated to pay, and not a penny more. I also use whatever practical and legal means I can to make sure that number is as small as possible.

That's my story and I'm sticking to it...
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lisag

14 years ago

Before I incorporated and my tax siuation changed, I bought 2 copies of this book (it's updated every year). One copy for me and one for my accountant. He read it and said "Yep, we can do most of that for you."

I bought the update every year. Check it out. I have an affiliate link for the site, but this ain't it :-)

Learn How You Can Reduce Your Taxes to The Legal Minimum - The Book

Sign up for his free Tax Tips newsltter. It's priceless.

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WD Mino

14 years ago

Do you honestly think anyone woul didn't pay their proper amount would say so .

^@troy,
Your far from the village idiot.

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Troy_Phillips 14 years ago

Originally Posted by WD Mino

Do you honestly think anyone woul didn't pay their proper amount would say so .

^@troy,
Your far from the village idiot.

One thing is for sure ... I am smart enough to pay someone smarter than me to make those decisions .
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- WD Mino 14 years ago
  
  Originally Posted by Troy_Phillips
  
  One thing is for sure ... I am smart enough to pay someone smarter than me to make those decisions .
  
  Yup me too
  
  I have a nice tax lady she helps me and the wife and even is getting us extra money back because of our db's awesome. it pays to do the legal way not worth it for a few bucks to avoid it render unto caesar the things that are caesars
  
  Even if it does suck.
  -WD
  
  Thanks
  
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  "As a man thinks in his heart so is he-Proverbs 23:7"
  
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CDarklock

14 years ago

Originally Posted by Marc2008

how do you guys defeat that dreaded SELF-EMPLOYMENT TAX. That tax sucks for us. 15.3% on top of income taxes.

I, for one, don't. I just pay it. After all, I owe it.

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adslgeek

14 years ago

Get the best accountant you can afford, and they will look out for you.

In my experience a really good accountant more than pays for their fees, and if you are paying a crappy accountant, then they may not only mean that you are paying more taxes than you need to, they can even mean that you are claiming for the wrong things, thus being up for an audit / fines.

I am wholeheartedly in agreement with John - I am proud to pay my tax and I aim to provide employment, but not pay more tax than I need to.

My understanding is that the Government wants businesses to succeed, as this generates employment and profit for the country, so they encourage businesses with both tax breaks as well as even grants.

One interesting thing which I have been discussing with my accountant is that because SEO / web based businesses are not reliant on geographic location, what would be required to have a company based out of another country which has a better tax environment. But any decisions like this, I would only do after not only consulting my accountant but also discussing directly with IRD (NZ IRS) to make sure I am not missing anything.

Has anyone looked into this from a legal and Accounting perspective?

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SageSound

14 years ago

Originally Posted by adslgeek

what would be required to have a company based out of another country which has a better tax environment.

This may come as a surprise to many Americans, but I've heard that USA is one of the most favored "off-shore tax havens" for many OTHER countries, especially many Europeans, like Germans!

What you want to do is look into something called "International Business Companies", or IBCs. Most countries allow them, but you cannot establish one in your country of residence. They're for establishing yourself in a foreign country. You basically set up an IBC in a country, then that IBC can set up a domestic business entity, eg., a US Corporation, in that country.

International business stuff like this can be tricky. Find someone who advises in "Asset Protection". Curiously, most licensed service providers, like CPAs in the US, are legally prohibited from advising clients on things outside the legal jurisdiction of domestic tax authorities.

The official position of the IRS is that anything offshore is illegal. Well, in a sense, that's true -- because the IRS has no legal jurisdiction, and therefore does not fall within their ability to deal with it. Thus, it's "illegal" for them to discuss or advise!

You need to find someone who is not legally bound by IRS and DOJ regulations (if you're in the USA). It's probably similar for citizens of other countries.

-David

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Dustin_M

14 years ago

CPAs are worth their weight in gold....Of course, I am a CPA, so perhaps my opinion is biased.

My non-binding, non-legal, non-accounting advice....do your research and pay what you legally owe. Don't try and get around the laws...that only leads to trouble!

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JohnMcCabe

14 years ago

Originally Posted by Experimental

CPAs are worth their weight in gold....Of course, I am a CPA, so perhaps my opinion is biased.

My non-binding, non-legal, non-accounting advice....do your research and pay what you legally owe. Don't try and get around the laws...that only leads to trouble!

Check that - a GOOD CPA is worth their weight in gold. Just like JD, MD, PhD or any other alphabet designation, it only means that the individual has passed a test and some minimum requirements to bill themselves as members of a profession.

There's a difference between a CPA who specializes in working with small to medium businesses on taxes and a CPA who specializes in auditing annual reports for a major corporation.

One could apply the same logic to professionals in the legal, insurance, financial planning and other business areas as well.

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Marc2008 14 years ago

Thanks guys. This is a lot of good info here and I really appreciate it. This is a lot for me to think about this year.

Oh and I want to clarify that it is not that I don't want to pay taxes at all, don't think that by reading my title in this tread, it's just I want to save myself from paying more taxes then I should be. SE Tax on top of your regular income tax can take you to about 50% of your income earnings, and to me that's a problem.

Marcus
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LNSTRM 14 years ago

Originally Posted by adslgeek

My understanding is that the Government wants businesses to succeed

Yeah. Right.
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mgkimsal

14 years ago

Originally Posted by Marc2008

What write-offs do you guys use, and more importantly how do you guys defeat that dreaded SELF-EMPLOYMENT TAX. That tax sucks for us. 15.3% on top of income taxes.

Self-Employment Tax

Half of the SE tax is deductible, which makes it more like 7.x%, which is what you generally have deducted from standard W4 jobs anyway.

Currently I'm just a sole proprietor working with subcontractors. As I grow I will (again) look at some type of incorporation process, as an asset protection defense (just now starting to get assets worth protecting), but not for any sort of tax benefits. I'm sure many people here will have more insight as to 'special' tax treatments various types of entities enjoy, but I don't think I've ever heard of any type of deductions that aren't available to me that would have any real impact. I sell products, I take in money. I have regular expenses which I pay, and those are deducted from my gross income. I have some other irregular expenses which are deductible too - I pay those and deduct. I'm left with a profit, which I pay tax on. Perhaps I'm being overly naive, but I don't think there's that much to 'beat'.

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kindsvater

14 years ago

Have two entities: (1) yourself dba whatever, and (2) a corporation. Now, you have options about what revenue and expenses to flow through each (they can provide services to each other to move income out of one entity) - and, thus, two options for maximizing deductions.

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Lesboy

14 years ago

I was going to say that governments everywhere want businesses to thrive, that way they...the politicians...can help themselves to even more of the taxpayers money. They wouldn't do that though would they?

Take the best professional advice you can afford and use it to legally reduce your tax liability as much as possible.

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DogScout

14 years ago

My experience is 75% of accountants and CPAs don't know any more than a day or two of research will teach you. (I have had taxes done by two different people and the amount at the bottom was over 10,000 dollars different.) I am an LLC, but every LLC is taxed differently in each state, so that needs to be taken in to account. (S-corps, Inc.s, etc - same thing)

I almost went the blind trust route but couldn't bring myself to be quite that obvious. I've certainly paid enough taxes to pay for a war or two in my life. Paying as little as possible now does not make me feel bad in the least. I should be able to pay zero in taxes for 2-3 years. Longer, except any corporate entity not making money net longer than 2-3 years gets extra scrutiny from the IRS.

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Brian Tayler

14 years ago

Everyone should setup their online business under the protection of a company. Because quite frankly there are many other reasons to setup a business other than for taxing purposes.

I personally opted for an S-Corp.

Find out what makes sense for YOU.

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garbage66

14 years ago

No one can "beat the taxman". You can only claim more under a corporation.

In Canada, go for a corporation. You may pay a bit higher in accounting fees but the benefits are great as you can write off many of your home and other expenses (for those with a home office). Your income is also taxed at a lower rate.

You can set up your company and everything you need for approximately $200 online under the Govt corporations website.

You will need to purchase a NUANS report first to allow you a name. Then you use the report to set up the company.

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FredFarnes 14 years ago

We incorporated, to be able to deduct all manner of legitimate business expenses. Did you know your corporation can own a boat-office and deduct all of it's legitimate expenses and maintenance costs, as well as depreciation?
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kevinw1

14 years ago

Originally Posted by garbage66

In Canada, go for a corporation. You may pay a bit higher in accounting fees but the benefits are great as you can write off many of your home and other expenses (for those with a home office). Your income is also taxed at a lower rate.

Canadian here too. The last time l looked into this, I was told that it's only worth forming a corporation if your income is over about CN$100K/year (depending on circumstances, but as a general rule of thumb). Up to that, you are just as well off as a sole proprietor. You can write off business and home office expenses just as easily that way.

"Beating taxes" is not a smart attitude to bring to a business. Get accounting advice so you pay the lowest taxes you are legally required to pay, of course, but risking your business trying tricks to beat the taxman is a mug's game.

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Groovy99

14 years ago

Join your local chamber of commerce which is incidentally a great place to prospect for business and then become friends with a CPA at their networking functions. Start asking them the questions about tax mitigation strategies. There are always have a dozen tax accountants and tax attorneys there. You will get an earful and probably walk away with an appointment to discuss it more in length..And you will make some sales too!

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marciayudkin

14 years ago

What no one has mentioned here is that there is a cap on self-employment tax.

You "beat" the tax by earning more than $102,000 (the exact amount changes year to year). Beyond that, you have satisfied the IRS requirement to pay into the Social Security and Medicare system and you do not need to pay more.

For more information: Self-Employment Tax

And don't forget that unlike the rest of your income taxes, which go to support whatever Congress and the President happen to want to spend on this year, the self-employment tax comes back to you, your parents and your spouse later in the form of Social Security and Medicare.

Additionally, if you pay more in self-employment taxes now, you get higher Social Security payments later. If you live to be 100, this is a significant factor.

So stop complaining!

Marcia Yudkin

P.S. If you don't pay enough into the Social Security system for enough years, you do not necessarily receive Social Security when you get old. Someone I know habitually works "under the table" and he is now 60 years old and looking forward to old age with no Social Security.

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mgkimsal

14 years ago

Originally Posted by marciayudkin

What no one has mentioned here is that there is a cap on self-employment tax.

You "beat" the tax by earning more than $102,000 (the exact amount changes year to year). Beyond that, you have satisfied the IRS requirement to pay into the Social Security and Medicare system and you do not need to pay more.

And don't forget that unlike the rest of your income taxes, which go to support whatever Congress and the President happen to want to spend on this year, the self-employment tax comes back to you, your parents and your spouse later in the form of Social Security and Medicare.

Additionally, if you pay more in self-employment taxes now, you get higher Social Security payments later. If you live to be 100, this is a significant factor.

P.S. If you don't pay enough into the Social Security system for enough years, you do not necessarily receive Social Security when you get old. Someone I know habitually works "under the table" and he is now 60 years old and looking forward to old age with no Social Security.

Excellent points Marcia - well said!

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Arbitrager

14 years ago

Set up a company in tax haven and re sign up for all of your affiliates account. Then everything will be tax free. Well the payment process and clearance took a while sometimes (approx. 1 month). Good luck..

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lisag

14 years ago

Originally Posted by Arbitrager

Set up a company in tax haven and re sign up for all of your affiliates account. Then everything will be tax free. Well the payment process and clearance took a while sometimes (approx. 1 month). Good luck..

Ummm. This is a recipe for disaster. Although locations like the Cayman Islands provide tax benefits for U.S. citizens who establish corporations located there, those tax benefits exists only for as long as the money they earn remain offshore. Once a U.S. resident takes income out of those corporations, they are subject to U.S. income tax.

Please consult a U.S. tax attorney who specializes in offshore corporations before you do anything like this. The fines, penalties and criminal sentences far outweigh the imagined tax benefits.

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