I hear comments like this all the time, but when the rubber meets the road, most people can't actually name a single benefit that is large enough to make the hassle worth it. Remember, we are talking about friends and family accounts here, not an off-shore hedge fund. He will likely be exempt from any SEC requirements anyway, so that isn't really much of a consideration. But feel free to prove me wrong by simply naming a single benefit of the structure you refer to for tax purposes.
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Best state to form a LLC?
- Thread starter m4a1
- Start date
I hear comments like this all the time, but when the rubber meets the road, most people can't actually name a single benefit that is large enough to make the hassle worth it. Remember, we are talking about friends and family accounts here, not an off-shore hedge fund. He will likely be exempt from any SEC requirements anyway, so that isn't really much of a consideration. But feel free to prove me wrong by simply naming a single benefit of the structure you refer to for tax purposes.
Quote from Cotton:
LLC's can either be pass-thru entities or taxed on corp level, even if it is a sole-member LLC
http://www.irs.gov/businesses/small/article/0,,id=98277,00.html
Yes but I already pointed out the problem with that. IMO, a person would have to be crazy to elect for a trading company to be taxed as a c-corp.
One example is an REIT trading trust.
The primary asset is a 50 unit rental property located in Chicago.
Property depreciation rules are over 27.5 years per IRS.
A Line of credit is established secured by the property based on rent roll and valuation. All deposits, rental income stream and cash is leveraged for trading futures. All profits pass through the property.
An offshore LLC is established in say: Seychelles or Bermuda.
Individuals are members of the foreign LLC.
The foreign LLC owns the REIT and US trading LLC.
All costs can be expensed immediately offsetting all trading profits.
The US side always shows a loss and profits are moved to the foreign LLC.
The foreign LLC has no foreign income and has no foreign tax liability.
The individual ownership in the foreign LLC is under private contract agreement. There is no US Tax Identification or registration for this entity or any of the agreements.
There are many attorneys that specialize in structuring these types of deals. Trust and Trust Agreements are very powerful tools and Jurisdictional issues are always in play.
If you do well the property gets paid off and all members enjoy distributions at 15% rate if they choose to report the income.
If they blow up... they walk away without personal liability with the majority of the exposure secured by the overstated property value.
Keep all of the exposure in the form of a commercial mortgage secured solely by the property.
Legally they can suck out all of the equity and trading profits and walk away at any time. The creditors get the property and privilege of unwinding the mess over the next few years.
The primary asset is a 50 unit rental property located in Chicago.
Property depreciation rules are over 27.5 years per IRS.
A Line of credit is established secured by the property based on rent roll and valuation. All deposits, rental income stream and cash is leveraged for trading futures. All profits pass through the property.
An offshore LLC is established in say: Seychelles or Bermuda.
Individuals are members of the foreign LLC.
The foreign LLC owns the REIT and US trading LLC.
All costs can be expensed immediately offsetting all trading profits.
The US side always shows a loss and profits are moved to the foreign LLC.
The foreign LLC has no foreign income and has no foreign tax liability.
The individual ownership in the foreign LLC is under private contract agreement. There is no US Tax Identification or registration for this entity or any of the agreements.
There are many attorneys that specialize in structuring these types of deals. Trust and Trust Agreements are very powerful tools and Jurisdictional issues are always in play.
If you do well the property gets paid off and all members enjoy distributions at 15% rate if they choose to report the income.
If they blow up... they walk away without personal liability with the majority of the exposure secured by the overstated property value.
Keep all of the exposure in the form of a commercial mortgage secured solely by the property.
Legally they can suck out all of the equity and trading profits and walk away at any time. The creditors get the property and privilege of unwinding the mess over the next few years.
Quote from Cache Landing:
I hear comments like this all the time, but when the rubber meets the road, most people can't actually name a single benefit that is large enough to make the hassle worth it. Remember, we are talking about friends and family accounts here, not an off-shore hedge fund. He will likely be exempt from any SEC requirements anyway, so that isn't really much of a consideration. But feel free to prove me wrong by simply naming a single benefit of the structure you refer to for tax purposes.
Quote from PocketChange:
One example is an REIT trading trust.
The primary asset is a 50 unit rental property located in Chicago.
Property depreciation rules are over 27.5 years per IRS.
A Line of credit is established secured by the property based on rent roll and valuation. All deposits, rental income stream and cash is leveraged for trading futures. All profits pass through the property.
An offshore LLC is established in say: Seychelles or Bermuda.
Individuals are members of the foreign LLC.
The foreign LLC owns the REIT and US trading LLC.
All costs can be expensed immediately offsetting all trading profits.
The US side always shows a loss and profits are moved to the foreign LLC.
The foreign LLC has no foreign income and has no foreign tax liability.
The individual ownership in the foreign LLC is under private contract agreement. There is no US Tax Identification or registration for this entity or any of the agreements.
There are many attorneys that specialize in structuring these types of deals. Trust and Trust Agreements are very powerful tools and Jurisdictional issues are always in play.
If you do well the property gets paid off and all members enjoy distributions at 15% rate if they choose to report the income.
If they blow up... they walk away without personal liability with the majority of the exposure secured by the overstated property value.
Keep all of the exposure in the form of a commercial mortgage secured solely by the property.
Legally they can suck out all of the equity and trading profits and walk away at any time. The creditors get the property and privilege of unwinding the mess over the next few years.
Bro, that's called fraud. And the "if they choose to report it" part is called tax evasion. I was assuming that the OP was requesting legally legitimate tax shelters.
Not exactly:
Distributions are technically reportable and taxable when repatriated.
If the distributions are kept in the foreign LLC it would look the same as holding an open long position with the distributions reverting to a "founder's" loan on the LLC's books. There is no IRS requirement to disclose ownership information on your personal tax returns. A domestic corp or LLC is required to make an annual filing, Foreign LLC's are not.
The investment rules are not the same as in the US. Ponzi schemes are not illegal. Foreign hedge funds generally operate outside of CFTC/NFA jurisdiction.
What you assert as "Fraud" may simply be construed as a "clerical" error based on advice provided by a US licensed attorney and tax preparer.
Distributions are technically reportable and taxable when repatriated.
If the distributions are kept in the foreign LLC it would look the same as holding an open long position with the distributions reverting to a "founder's" loan on the LLC's books. There is no IRS requirement to disclose ownership information on your personal tax returns. A domestic corp or LLC is required to make an annual filing, Foreign LLC's are not.
The investment rules are not the same as in the US. Ponzi schemes are not illegal. Foreign hedge funds generally operate outside of CFTC/NFA jurisdiction.
What you assert as "Fraud" may simply be construed as a "clerical" error based on advice provided by a US licensed attorney and tax preparer.
Quote from Cache Landing:
Bro, that's called fraud. And the "if they choose to report it" part is called tax evasion. I was assuming that the OP was requesting legally legitimate tax shelters.
Quote from PocketChange:
Not exactly:
Distributions are technically reportable and taxable when repatriated.
If the distributions are kept in the foreign LLC it would look the same as holding an open long position with the distributions reverting to a "founder's" loan on the LLC's books. There is no IRS requirement to disclose ownership information on your personal tax returns. A domestic corp or LLC is required to make an annual filing, Foreign LLC's are not.
You are mixing up your technicalities. The IRS imposes a tax on the "world-wide" income of all citizens and permanent residents. This tax is assessed in the year the income was generated, and subject to 3% interest on late payment if you were to elect to pay the tax only on repatriation. The IRS and courts have held that this means the actual world-wide gross income when all sources of income and expense have been considered, from all global locations.
The IRS has already addressed many of the things you refer to. In short, there are stiff penalties if the profits are held in a foreign trust. So that isn't a good vehicle. But gains in an off-shore LLC are pass-thru as the offshore entity is a disregarded entity and all profits are reported on the 1040 tax return. You are confusing two issues. The offshore LLC is preferential as compared to a regular International Business Company, as the latter faces a US tax rate for the owners of a steep 35% on all income. Thus, if the entity is offshore, then the LLC is preferred because the pass-thru tax rate is much lower.
But it is still recognized by the IRS and failure to report the income is tax evasion.
The investment rules are not the same as in the US. Ponzi schemes are not illegal. Foreign hedge funds generally operate outside of CFTC/NFA jurisdiction.
What you assert as "Fraud" may simply be construed as a "clerical" error based on advice provided by a US licensed attorney and tax preparer.
A rose by any other name....
Fraud is fraud. In any case, the only benefit of the offshore LLC vs a domestic LLC is that it offers better asset protection for high liability companies who cannot get enough insurance.
I should point out one thing though that PocketChange is promoting that is legitimate.
He suggests buying a property, and securing a line of credit against the rents or equity in the property. Then using that credit to trade securities. This is perfectly legitimate and is known as gearing. How much the banks will loan you is certainly up to them and you are allowed to use that cash as you wish.
Also, the property can certainly be depreciated on the allowable time-line and the depreciation is a legitimate expense. This expense can be used as a deduction against trading gains. So for a time it might even be that the depreciation completely negates trading gains from a tax standpoint. The only caveat to this is that this depreciation lowers the cost basis of the property so that in the event of sale you will now have to pay tax on a greater amount, commonly called depreciation recapture.
This is all perfectly legitimate and can be done using either domestic or offshore entities. The tax consequence is the same either way. The benefit of the offshore entity would be in protecting personal assets from liability in the event that the trader blows up with the borrowed funds.
He suggests buying a property, and securing a line of credit against the rents or equity in the property. Then using that credit to trade securities. This is perfectly legitimate and is known as gearing. How much the banks will loan you is certainly up to them and you are allowed to use that cash as you wish.
Also, the property can certainly be depreciated on the allowable time-line and the depreciation is a legitimate expense. This expense can be used as a deduction against trading gains. So for a time it might even be that the depreciation completely negates trading gains from a tax standpoint. The only caveat to this is that this depreciation lowers the cost basis of the property so that in the event of sale you will now have to pay tax on a greater amount, commonly called depreciation recapture.
This is all perfectly legitimate and can be done using either domestic or offshore entities. The tax consequence is the same either way. The benefit of the offshore entity would be in protecting personal assets from liability in the event that the trader blows up with the borrowed funds.
Understand one thing: Foreign Trust or LLC's are outside the jurisdiction of the IRS and any reporting is completely on the honor system. One example of a grey area are bearer bonds/certificates... ownership is determined purely by possessor of the certificate.
A one member foreign LLC can creatively fabricate accountings to meet what ever financial objectives they desire. Put all of the IRS scare tactics to the side... They can only prove their case based on the accounting records and information you provide. They have no other source of information reported to them. If you are an idiot fraudster leaving a reportable paper trail then you deserve what ever wrath comes your way.
I'm not advocating fraud... just an argument that if in a foreign jurisdiction the normal business practice is to report income upon repatriated distributions and an attorney provides a memorandum to that effect. By all means rely on the legal opinion and work it.
If you later sell a fully depreciated property that has offset substantial trading gains... the transaction passes through to the Foreign LLC. If the foreign LLC elects to invest the gains in new properties and trading activities there is no repatriated cash distribution and consequently no reportable tax transaction on your personal 1040 return.
All of these tech companies are lobbying for a one time repatriation exemption so they can bring back all their foreign earned cash.
A one member foreign LLC can creatively fabricate accountings to meet what ever financial objectives they desire. Put all of the IRS scare tactics to the side... They can only prove their case based on the accounting records and information you provide. They have no other source of information reported to them. If you are an idiot fraudster leaving a reportable paper trail then you deserve what ever wrath comes your way.
I'm not advocating fraud... just an argument that if in a foreign jurisdiction the normal business practice is to report income upon repatriated distributions and an attorney provides a memorandum to that effect. By all means rely on the legal opinion and work it.
If you later sell a fully depreciated property that has offset substantial trading gains... the transaction passes through to the Foreign LLC. If the foreign LLC elects to invest the gains in new properties and trading activities there is no repatriated cash distribution and consequently no reportable tax transaction on your personal 1040 return.
All of these tech companies are lobbying for a one time repatriation exemption so they can bring back all their foreign earned cash.
Quote from Cache Landing:
I should point out one thing though that PocketChange is promoting that is legitimate.
He suggests buying a property, and securing a line of credit against the rents or equity in the property. Then using that credit to trade securities. This is perfectly legitimate and is known as gearing. How much the banks will loan you is certainly up to them and you are allowed to use that cash as you wish.
Also, the property can certainly be depreciated on the allowable time-line and the depreciation is a legitimate expense. This expense can be used as a deduction against trading gains. So for a time it might even be that the depreciation completely negates trading gains from a tax standpoint. The only caveat to this is that this depreciation lowers the cost basis of the property so that in the event of sale you will now have to pay tax on a greater amount, commonly called depreciation recapture.
This is all perfectly legitimate and can be done using either domestic or offshore entities. The tax consequence is the same either way. The benefit of the offshore entity would be in protecting personal assets from liability in the event that the trader blows up with the borrowed funds.
Quote from PocketChange:
Understand one thing: Foreign Trust or LLC's are outside the jurisdiction of the IRS and any reporting is completely on the honor system. One example of a grey area are bearer bonds/certificates... ownership is determined purely by possessor of the certificate.
A one member foreign LLC can creatively fabricate accountings to meet what ever financial objectives they desire. Put all of the IRS scare tactics to the side... They can only prove their case based on the accounting records and information you provide. They have no other source of information reported to them. If you are an idiot fraudster leaving a reportable paper trail then you deserve what ever wrath comes your way.
I'm not advocating fraud... just an argument that if in a foreign jurisdiction the normal business practice is to report income upon repatriated distributions and an attorney provides a memorandum to that effect. By all means rely on the legal opinion and work it.
If you later sell a fully depreciated property that has offset substantial trading gains... the transaction passes through to the Foreign LLC. If the foreign LLC elects to invest the gains in new properties and trading activities there is no repatriated cash distribution and consequently no reportable tax transaction on your personal 1040 return.
All of these tech companies are lobbying for a one time repatriation exemption so they can bring back all their foreign earned cash.
Sure, the entity is outside the jurisdiction of the IRS, but you aren't. You still live here. According to the IRS, if a trust makes any disbursement to any US citizen, then the income of that trust is taxable under US law. Again, you still live in the US and will need some money to live on. If the IRS decides that your lifestyle exceeds your income then they actually have the legal power to investigate why that might be the case. You can argue all day long that they cannot access assets in a foreign entity, but they can certainly access any and all domestic assets and any repatriated capital. My point stands, at some point you're going to need access to your cash within the US. These aren't IRS scare tactics. They really do have the power to incarcerate you based on bank statements and the like.
Play your games all day long, but if you reside within the US, you're gambling that you won't be audited.