How to Protect Your Income from Taxation?

I know big US companies form foreign subsidiaries all the time for tax postponement purposes... Isn't there any way an individual or small corporation can do the same and still control their trading?

Note that I'm not talking about avoiding any taxes here, just postponing them so the money can compound for some years before paying taxes on it.

Seems like there should be a way you could be a minority owner of a foreign corporation which managed your funds and hired you to trade for the corporation. Keeping your profits separate from others in the firm sounds like the main problem with this idea.. if your profits weren't comingled then the IRS would likely 'look through' the foreigh corporation.

Has anyone heard of traders doing something like this or has the IRS stamped this sort of thing out completely for those who aren't mega-corporations?
 
Quote from GoldStandard:

I know big US companies form foreign subsidiaries all the time for tax postponement purposes... Isn't there any way an individual or small corporation can do the same and still control their trading?
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A corporation, small or large, doing legitimate business (including both foreign income/expense) overseas... yes.

An individual or a shell corporation, no. I'm not a tax attorney, so I couldn't help you with the legal definition of the latter. But I've looked into this in the past, and the answer is very clear.
 
Quote from Ghost of Cutten:


Personally I find that exiling yourself to another country is, on balance, not worth it for money alone, at least not at current tax differentials.
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It is certainly a personal decision, everyone's mileage may vary. It sure depends on the country too.

People just need to be aware, it isn't just the tax today that you are giving up, it is the compound returns you are losing out on over the next 10, 20, 30 years. It is simple math really. That doesn't mean everyone should jump ship, but everyone needs to take a cold hard look at what this citizen-slave relationship is costing them. It could be 30 million over a 10 year period in tax and opportunity cost. Is your citizenship worth $30 million? Maybe, maybe not.

The simple solution here is for our government to either not tax capital gains, or tax them very lightly (particularly if they are being re-invested). I'm not sure how this country has determined that aggressively taxing the investor class is the road to prosperity but it is a ridiculous socialist notion that has lead us to our current state of affairs.
 
If a trader elected to live overseas and run his trading BUSINESS (business as opposed to passive investment) through a corporation with professional tax advice it is a straightforward matter todefer income virtually forever. In addition living overseas would allow him to exempt a decent chunk of salary from that entity.

There are other angles techniques if you want to live in a US territory or possession PR, US Virgins which I am less familiar with. For me renouncing my US citizenship is nearly unthinkable even though I resent how this country is being led down the road to destruction. For those willing to do a bit of online research and then get some first class tax advice deferring income is pretty simple to do without giving up citizenship.

My experience in this area was as an owner of two offshore brokerage firms -- London and Lugano, Switzrland -- and the mistake I saw others make was that they tried to bend the rules so they could appear to be minority holders on a non-controlled foreign corporation and use that to defer investment income. That is high risk tax fraud.

If you instead are willing to run your trading BUSINESS (again I stress business) from a foreign jurisdiction with low taxation you can use a controlled foreign corporation and shelter that income generated from what the IRS refers to as from a trade or business quite simply and straightforwardly. You can visit the US frequently (even for months at a time) and you get to stay a citizen.

Unless my information is dated (and I do not believe it is) what I am suggesting is fairly simple, completely straightforward and squarely within how the IRS will treat that income.

Don't get radical and renounce your birthright. Educate yourself online about BUSINESS income in a controlled foreign corporation first and then be prepared to spend a reasonable sum -- certainly under $5,000 -- to set it up properly. Thousands of American Expats have operated this way for decades. It works.

heech's contention that it is very clear is absolutely correct.

Quote from heech:

A corporation, small or large, doing legitimate business (including both foreign income/expense) overseas... yes.

An individual or a shell corporation, no. I'm not a tax attorney, so I couldn't help you with the legal definition of the latter. But I've looked into this in the past, and the answer is very clear.
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Quote from rallymode:

Given the direction tax rates are headed i'd gladly pay the taxes now rather than later.
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Actually, one proposal floating around Washington is to couple reduction/elimination of deductions with lower marginal tax rates. This maintains or increases tax revenue while providing greater reward for generating income.
 
Quote from Swan Noir:

If a trader elected to live overseas and run his trading BUSINESS (business as opposed to passive investment) through a corporation with professional tax advice it is a straightforward matter todefer income virtually forever. In addition living overseas would allow him to exempt a decent chunk of salary from that entity.
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This sounds like an awfully murky area you are discussing. I am familiar with both IBCs and CFCs and it is pretty clear that investment income is taxable. The only ways I have seen to legally shelter income in a CFC is via a variable annuity or variable life insurance policy from a foreign insurer.

Any subpart F income is taxable and cannot be deferred, and that is damn near everything: http://www.law.cornell.edu/uscode/26/usc_sec_26_00000952----000-.html

Note: The foreign based income subsection includes "Business" income, not just passive income...

I agree you can probably rig it such that you get your 80-90K of income up front tax free, but that seems to be about it without getting into dark areas which could end up costing dearly.

Those who shall remain unmentioned have done a decent job of closing the loopholes for those of us who are purely speculators/investors even if we start up a shell corporation, or even a legitimate foreign business that we try to hide investment income in. If things were that simple, you simply would not have the radical event of 1000's of people a year recently renouncing their citizenship for economic reasons.
 
If the foreign entities' trade is buying and selling financial instruments, just like a trader who elects to be taxed as a trader here in the US, the income by definition is not investment income but income derived from that legitimate trade.

If you can show that the company's income is primarily derived from the skill and effort of operating its business -- particularly short term trading -- it is very difficult to make the personal holding company contention and to call the income investment income.

Most of those who have "renounced" have a great deal of income which can only be classified as investment income. Here we are speaking of a business that derives virtually all its income from the business (the trade) of trading securities and is domiciled in a jurisdiction that you live and work in outside the US. Although it is my understanding that a Commonwealth of PR entity can qualify as CFC, I do not know that as a fact.

The key here is it really can not be investment income. You must be in the business (you = the corporate entity that you own, manage and work for) of trading. If you try to co-mingle significant amounts of investment income into the pot or use a shell corporation (as opposed to an active business entity) then it is murky and probably indefensible.

If you read my initial post you will see it is clear that I am not speaking of using a "shell" or trying to disguise investment income as income derived from a trade.

That said, no one should proceed without professional tax advice that they believe is reliable.

Quote from TD80:

Those who shall remain unmentioned have done a decent job of closing the loopholes for those of us who are purely speculators/investors even if we start up a shell corporation, or even a legitimate foreign business that we try to hide investment income in.

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Having spent the better part of the last hour researching TD80's contention I have concluded that under current regulation his facts are correct. There does not appear to be a way (at least as to futures or currency transactions) to defer that income in a CFC.

I hope what my partner and I did with respect to securities transactions in a CFC many years ago was as legitimate as we were advised ... lol. I'm sure someone would have knocked on our door years ago if that were not the case.
 
Quote from GoldStandard:

Note that I'm not talking about avoiding any taxes here, just postponing them so the money can compound for some years before paying taxes on it.
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Has anyone heard of traders doing something like this or has the IRS stamped this sort of thing out completely for those who aren't mega-corporations?
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IRS has stamped it out.
 
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