Conducting business under corporate, LLC or limited partnership IRS tax codes offers the Owners and Principals tax deductions not available to individuals. The tax advantages derive from the Owners and Principals ability to deduct expense items before taxation rather than after taxation. Example, as an individual your medical and dental expenses are borne by you after taxable earnings and other income. AS A PRINCIPAL IN A COMPANY ALL THESE EXPENSES MAY BE BORNE BY THE COMPANY AND IRS TAX EXPENSED, with no taxable income to the Principals.

One might think combining the above deductions with the further advantages of a Sub Chapter”S” entity to be a tax euphoria.

However, beware of the pit falls of the Sub “S” corporation and LLC tax filing classification. Sub-”S” has the advantage of eliminating the so called DOUBLE TAXATION for corporations and LLC’s, instead you lose many of the tax benefits and deductions allowed under the current “C” corporation’s IRS tax codes. The IRS tax codes governing Sub “S” require all principals participating in company activities become BECOME A COMPANY EMPLOYEE. This means with holdings for SOCIAL SECURITY, and where applicable, with holdings for unemployment, workman’s compensation and any other deductions as may be applicable. Employee salaries must be commensurate with comparable open market positions.

Recognize, as the Sub-”S”, one half (1/2) of the SOCIAL SECURITY with holding is from the employee’s personal funds and not an IRS corporate or Individual tax deduction. Further, company expenses for employee medical, dental, vehicle, insurance, retirement, travel, entertainment, etc etc. may be IRS declared as employee taxable income, in whole or in part.

NEVADA REGISTRATIONS strongly recommends all “start up companies” consult a competent tax accountant in establishing generally accepted bookkeeping and accounting procedures.

Save income tax money by starting your own business.  You have control over your expenses, tax deductions, medical, dental, cars, truck. eqipment,entertainment, etc.

HISTORY AND BACKGROUND

Self-Employment Tax (SE) is in addition to the self-employed individual’s income tax. Currently the SE tax consists of the combination two (2) taxes: 1. Social Security of approx. 12.6% and 2. Medicare of approx. 2.9%, totaling 15.3%.

For the year 2007, the SE tax applies to net earnings of up to $106,800.00, thus $16,340.00. This is already a significant burden on the self-employed, however the worst may be yet to strike. 

Congress, faced with a significant shortfall of revenue, should the split social security retirement plan be adopted for younger workers, is considering raising the taxable SE income level to $200,000.00, thus a SE tax of $30,600.00.

In contemplation of a SE tax of $30,600.00, and the uncertainty of the future of Social Security itself, it is most understandable that most self-employed are eager to minimize or eliminate their entire SE tax obligation.

This can be legally done, and be morally correct, under the old supreme court ruling advising, “No one is obligated to pay more than the tax codes require”.

The elimination of SE tax can only be accomplished via a business entity.

LET US EXAMINE THE PRINCIPAL BUSINESS ENTITIES AND THEIR TAX RELATIONSHIPS TO THE PRINCIPALS.

BUSINESS ENTITIES

1. THE SELF EMPLOYED INDIVIDUAL; THE PROPRIETOR OR ENTREPRENEUR.

All taxable income from the schedule C, up to $ 108,000.00, goes directly to the SE form of the taxpayer’s 1040.

The individual has no opportunity to mitigate the SE tax; is significantly limited in business deductions and has no NEVADA “CORPORATE VEIL” insulating the individual from business liability and subsequent litigation.

2. THE GENERAL PARTNERSHIP AND PARTNERS

Arguably the worst form OF OWNERSHIP.

PARTNERSHIPS HAVE NO SE TAX SHELTER AND NO “CORPORATE VEIL” AND PARTNERS CAN BE PERSONALLY TOTALLY LIABLE FOR THE MISTAKES OR MISCONDUCT OF OTHER PARTNERS.

3. THE NEVADA LIMITED LIABILITY COMPANY (LLC) AND MEMBERS

All LLC’s are tax classified as a PARTNERSHIP. They can not “employ” their members, nor pay them wages. All taxable income is passed directly thru to the member’s personal 1040 and is generally subject to SE up to $14,750.00 (2007), plus regular income tax predicated upon each member’s individual tax bracket.

The salient salvation of the Nevada LLC is the very strong NEVADA “CORPORATE VEIL”, BUT NO SE PROTECTION, EXCEPT AS “S” STATUS BELOW

4. THE NEVADA “S” CORPORATION AND STOCKHOLDERS

All the Nevada corporations begin as a “C” Corp, the “S” Status is granted by IRS via form 2553, if the corporation so elects. Nevada LLC’s are now eligible for “S” status.

The election form 2553 must be filed with IRS no later than the 16th day of the third (3rd) month of the tax year the election is to take effect.

Upon acceptance by IRS the “S” status, the corporation will thereafter annually file an 1120S FORM to IRS.

PRINCIPAL CRITERIA OF THE ELECTION

1. The corporation or LLC must be a Domestic Corporation or LLC ; All Nevada corporations and LLC’s are domestic.

2. No more than 100 stockholders or members.

3. Stockholders or members must be individuals (some exception).

4. No non-resident or alien stockholders or members.

5. Only one (1) class of stock or ownership.

6. Each stockholder or member must sign and consent to form 2553 to include each stockholder’s: (1) Full Name, (2) Address, (3) Social Security Number, (4) Date, (5) Number of Shares Owned or units of ownership, (6) Date Acquired, and (7) Date of filing of stockholder’s or members year end 1040 tax return.

NOTE: THERE ARE SOME RESTRICTIONS ON THE TYPES OF CORPORATIONS ELIGIBLE TO MAKE THE ELECTION. SEE IRS INSTRUCTIONS FOR FORM 2553.

The stockholder(s) maybe an employee of an “S” corporation.

The stockholder(s) with the dual role may receive both wages and a share of the corporate income.

THE WAGES AND STOCKHOLDERS’S SHARE OF CORPORATE INCOME ARE BOTH SUBJECT TO INCOME TAXES, HOWEVER ONLY THE WAGES ARE SUBJECT TO PAYROLL TAXES, I.E. SOCIAL SECURITY AND MEDICARE TAXES. MEMBERS OF AN LLC CAN NOT BE EMPLOYEES.

THE INCOME PORTION IS NOT SUBJECT TO EITHER PAYROLL OR SELF-EMPLOYMENT TAX.

THE INCOME PORTION PASSES DIRECTLY, VIA K-1, TO SCHEDULE “E” OF THE STOCKHOLDER(S)’S OR LLC MEMBER’S 1040 RETURN; THUS TO ELIMINATE SELF EMPLOYMENT TAXES.

PROCEED WITH CARE

Since income that passes thru an “S” corporation is not subject to payroll taxes, stockholder(s) may be inclined NOT TO RECEIVE ANY WAGES.

IRS is privy to this strategy, and under a close audit of a stockholder(s)’s 1040, may reclassify the “pass thru income” as wages, thus to assess the stockholder(s) with payroll taxes, plus penalties and interest. Consequently “S” corporation stockholder(s) must refrain from evading payroll taxes by a weighted distribution favoring “PASS THRU INCOME” OVER WAGES.

THE SOLUTION

Study the average wages in whatever job classification that reflects the stockholder(s)’s corporate job; use this as a statistical guide.

This statistical approach should satisfy IRS and. for a successful corporation, legally shift the preponderance of income from wages to a “PASS THRU” status.

Please call upon me at any time to examine the above strategy.

WYOMING CORPORATIONS, IN ADDITION TO A STRONG LAYER OF ANONYMITY AND INSULATION, THE “CORPORATE VEIL” OFFER STRONG IRS TAX MITIGATION. TAX MITIGATION IS NOT TAX EVASION; RATHER IT IS TAKING ADVANTAGE OF ALL APPLICABLE TAX CODES AND THEIR RELATED DEDUCTIONS AND EXPENSES. AN OLD ACCOUNTING SAYING, “TAX CODES ARE FOR THE INFORMED, THE UNINFORMED SIMPLY PAY”.

OVER NINETY (90%) PERCENT OF ALL WHO FILE PAY TOO MUCH TAX AS THEY DO NOT KNOW THE TAX CODES. ALTHOUGH THE CODES MAY VARY, YEAR TO YEAR, IT IS NOT TOO DIFFICULT TO MASTER A BASIC UNDERSTANDING. ALL CODES ARE ON THE INTERNET UNDER IRS.COM.

A WYOMING CORPORATION CAN HOLD CORPORATE IRS TAXABLE INCOME AT 15% AND IN MOST CASES ELIMINATES ALL STATE TAXES. WYOMING CORPORATIONS CAN SUBSTANTIALLY REDUCE IRS TAXES VIA ITS ABILITY TO EXPENSE MANY DEDUCTIONS THAT DIRECTLY BENEFIT ITS OFFICERS, AND STOCKHOLDERS, TO INCLUDE, BUT NOT LIMITED TO OFFICER AND EMPLOYEE DEDUCTIONS OF: (a) MEDICAL AND DENTAL PLANS, (b) RETIREMENT PLANS, (c) INSURANCE PROGRAMS, (d) COMPANY VEHICLES, (e) ENJOYABLE “GET A WAYS” IN CONJUNCTION WITH BUSINESS TRIPS (f) AND MANY, MANY MORE AS THEY MAY BE APPLICABLE TO YOUR PARTICULAR BUSINESS AND COMPANY.

SAVE THAT “CLUNKER”

YOU CAN TOTALLY EXPENSE YOU BUSINESS CAR IF YOU HAVE A SECOND CAR, REGARDLESS OF ITS AGE AND CONDITION, AS LONG AS IT IS REGISTERED AND STATE LICENSED.

IF YOU DRIVE, SAY OVER A 1,500 MILES A MONTH, MILEAGE IS USUALLY THE BEST IRS TAX DEDUCTION, IRS ALLOWS FIFTY FIVE ($.55) CENTS PER MILE THIS YEAR. FOR SHORTER MILEAGE, DEPRECIATION AND ALL EXPENSES ARE USUALLY BEST, UNLESS YOUR BUSINESS CAR IS QUITE EXPENSIVE, SAY OVER $50,000.00 NEW. ALWAYS BEST TO CHECK BOTH METHODS TO GET MAXIMUM DEDUCTION.

MANY WHO BUSINESS TRAVEL OUT OF THEIR AREA ARE ENCUMBERED WITH THE HASTLE OF RECORD KEEPING OF ALL TRAVEL EXPENSES. I.E. FOOD, LODGING, TRANSPORTATION ETC. ETC.

PER IRS PUBLICATION, 1542, AVAILABLE ON THE INTERNET AT, www.irs.gov, YOU CAN PULL-UP THE ENTIRE PUBLICATION, WHICH REFLECTS THE PER DIEM ALLOWABLE FOR MAJOR AREAS.

THE PER DIEM WILL VARY FROM SEASON TO SEASON DEPENDING UPON THE ECONOMICS OF EACH AREA.

SAY, THE DENVER SKI AREA IS CONSIDERABLY MORE EXPENSIVE IN
SKI SEASON INSTEAD OF THE SUMMER.

FOR INSTANCE THE LAS VEGAS AREA PER DIEM FOR 2008 VARIED FROM $157.00 TO $188.00 PER DAY.

YOU CAN STILL DEDUCT YOUR TRANSPORTATION COSTS TOO AND FROM YOUR AREA TO THE VISITED AREA.

IF YOU USE THE PER DIEM METHOD YOU DO NOT HAVE TO KEEP RECEIPTS BUT YOU MUST SUBSTANTIATE THE BUSINESS NATURE OF THE TRIP.

TAKE ADVANTAGE OF IRS TAX SAVINGS RELATED FROM THE PRIVATE USAGE OF YOUR VEHICLES. THESE SAVINGS CAN BE DEDUCTIBLE, FOR 2009, AS SCHEDULED ON EITHER SCHEDULE “A” OR SCHEDULE “C”. WHICH EVER IS YOUR APPROPRIATE FORM.

GET YOURSELF A LOG BOOK NOW AND GO BACK TO 1 JAN 2009 AND LOG IN ALL MILEAGES. THIS LOG WILL BE HELPFUL IN CASE OF IRS AUDIT. FOR 2010 START YOUR LOG ON 1 JAN 2010, PLEASE CALL WITH ANY QUESTIONS.

TODD J. MC MILLAN 1-800-454-96745

WHAT IS INTELLECTUAL PROPERTY? Historically INTELLECTUAL PROPERTY is broadly defined as any INVENTION, CREATION, INNOVATION, DISCOVERY or IMPROVEMENT.

INTELLECTUAL PROPERTY reflects such creations as TRADEMARKS, COPYWRIGHTS, TRADE SECRETS or generally any creation eligible for a PATENT. Traditionally, the INTELLECTUAL PROPERTY must be relatively original and unique in order for it to be protected.

INTELLECTUAL PROPERTY is divided into two categories:

INDUSTRIAL PROPERTY, i.e. inventions (patents) trademarks, industrial designs, trade secrets, and formulas, and

COPYRIGHT, i.e. “works of authorship” – literary and artistic works (novels, plays, poems), newspaper and magazine articles, films, musical works, opera, drawings, paintings, photographs, sculpture and architectural designs. Rights associated with COPYWRITE further include performing artists in their performances, producers of phonograms in their recordings, and those of radio and television broadcasters in their programs.

CURRENT CONCEPTS now embrace rights of PRIVACY and PUBLICITY.

The concept of COPYRIGHT is in constant flux in today’s rapidly changing world of DIGITAL INFORMATION, both to the benefit and determent to the AUTHOR and USER. Care and caution must be exerted by both, the AUTHOR to vigorously protect his rights and the USER not to inadvertently compromise these rights.

Nevada corporations can become of immense value to the AUTHOR of intellectual property in two ways:

BUSINESS TRAVEL CAN BE TOTALLY EXPENSED AS LONG AS YOU KEEP GOOD SUPPORT RECORDS. IF YOU TRAVEL WITHIN THE UNITED STATES, AS LONG AS YOU DO BUSINESS ON THE FIRST AND LAST DAY OF YOUR TRIP, ALL LEGITIMATE EXPENSES CAN INCLUDE AIRFARE, CAR MILAGE IF YOU DRIVE, GAS, TAXI, TRAVEL INSURANCE, LODGING, FOOD & BEVERAGE AND TIPS ALONG WITH MANY OTHER DEDUCTIBLES; KEEP A GOOD AND SEPARATE LOG OF EACH TRIP.

IF YOU DO NOT WANT TO KEEP A LOG OF EXPENSES YOU MAY TAKE A PER DEIM SINGLE DAILY DEDUCTION, PLEASE REFER TO MY TAX TIPS OF OCTOBER 2009.

PLAY THE TAX GAME INTELLEGENTLY.

KEEP A LOG OF ALL BUSINESS CALLS, PHYSICALLY VISIT YOUR DESTINATIONS PICKING UP LITERATURE OR ANY MATERIALS AVAILABLE, IDENTIFY THOSE IN YOUR INTERVIEW AND THE NATURE OF THE CONVERSATIONS, PHOTOS ALSO ARE VERY STRONG EVIDENCE IN CASE OF FUTURE IRS AUDIT.

REMEMBER TODD’S BASIC TAX STRATEGY FOR BUSINES EXPENSES,
REASONABLE AND NECESSARY

IRS IS AUDITING MANY “S” CHAPTER TAX FILINGS. PLEASE CONSULT WITH ME, OR YOUR ACCOUNTANT, BEFORE FILING THE IRS 2553 APPLICATION. OFFICER EMPLOYMENT IS MANDATORY.

Nevada is the only state that has absolutely no personal or corporate tax. The state constitution specifically forbids same.

There is no franchise tax, no capital gain or corporate transfer tax, no inheritance tax or inventory tax, and no tax or restriction in the sale or transfer of corporate shares.

A NEVADA CORPORATION can reduce, or completely eliminate, all corporate and/or local income taxes in your home state.

This can easily, and legally, be accomplished via one corporation, I.E. 1 doing business with another corporation I.E.2. Assume your NEVADA CORPORATION(2) to be, say, your management, consulting, accounting, engineering, advisory, etc. etc. service arm and your local state corporation 1 nets, say, $100,000.00 before taxes. Thus your NEVADA CORPORATION 2 bills your local corporation1 for, say, $90,000.00, thus to reduce your local corporation 1 tax incident to $10,000.00. Note: A $100,000.00 billing negates local corporation 1 profit totally, thus no IRS tax.

This process must be done with care and caution, thus to have letterhead billing, a Nevada bank account and business license and true transfer of funds; you need not have actual Nevada offices or personnel. A corporate executive suite can suffice, i.e. as a legitimate business location and address.

Now the best part; once funds transferred to Nevada, how do you recapture these Nevada funds? Simple, make your self a loan. Craft a written note, supported with a Nevada corporate resolution, with an interest rate, say with a 30 year amortization, and make religious payments. You can augment (see below) the protection of your local assets by collateralizing them as further security for the note.

For further asset shelter, in addition to the above strategy, is to judgment proof your local assets, corporate and/or personal. Have your NEVADA CORPORATION make a loan to yourself and/or your current business, a simple DEMAND PROMISSORY NOTE will suffice, and collateralize the note with what ever local assets you select. Since Nevada has no usury laws you can charge whatever interest rate you elect. Inflated interest rates will reduce local profits, i.e. company taxes, yet you never lose control of the actual funds as they become assets of the NEVADA CORPORATION.

Support this strategy by recording your UCC-I in your respective local county.

Other asset shelter strategy can involve having your NEVADA CORPORATION actually own all, or some portion of your local assets, reinforcing this veil with a Promissory DEMAND Note(s).

The above is but an ice berg tip of the capability your NEVADA CORPORATION’s tax and shelter strategies.

I will be pleased to discuss these concepts more fully with you at your convenience.