In a recent article from Bloomberg on June12th, Senator Snowe, a Republican from Maine, called the new jobs bill a ‘poison pill’ for small business growth and investment. 

Snowe is talking about HR 4213, so aptly named the “American Jobs and Closing Tax Loopholes Act of 2010″.  Ironically, the loophole that looks to get closed is going to destroy inflows of investment capital into small businesses.

Basically this new act has a provision that requires S-corporations to pay as much as 15.3% payroll tax on all  reinvested earnings.  This is the same tax that is paid to workers (although the worker pays half – 7.65%), but now will be applyed to any net income regardless of whether it is paid out or not. 

This is in addition to the regular income tax that small businesses must pay.  Keep in mind the top tax rate in 2010 is 35% federal and going to 39.6% in 2011.  In addition, for earners over $200,000 single or $250,000 married, there is an additional 3.9% medicare tax.  And we haven’t even talked about state taxes yet. 

For a high earning small business owner in the US, their tax rate could be as high as 65-70%!!!!  Talk about incentive for productivity…

While this may all sound like negative news, the time to plant multiple offshore flags is now.  I know this legislation is only proposed at this moment and subject to change, but the fact remains that US political leaders (and I use this term lightly) are increasingly looking to boost federal and state revenues by taxation as opposed to promoting increases in productivity.

This leads to confusion and uncertainty in the business world.  We need consistency in order to be productive.  Who wants to invest heavily in their business when they don’t know when the next law will get passed that taxes them into oblivion?  Or when the next sovereign debt default is going to happen and the US is the one confiscating retirement funds, ala Argentina 2001.

Now is the time to take action.  Plant multiple flags.  Diversify your assets.  Establish your business offshore and take advantage of low or no-tax jurisdictions.  Establish residency and/or citizenship in another country.  Remember, buying healthinsurance after a heart attack is too late.  Don’t make that  mistake with your wealth.

Last week I discussed an investment conference in Zurich that I attended a few weeks back.  I came back armed with lots of new ideas and connections for those of us interested in the capital markets.  I don’t normally pontificate on money management, but after that conference in Zurich, my mind was full and I had no choice but to write about it.

Most of the presentations at Fonds were in German, but I attended two that were in English.  One was presented by Jim Rogers, former partner to George Soros at the Quantum fund and the other was presented by Robin Batchelor from Blackrock.  I was especially interested in attending these presentations because they focused on the future of commodity investing.  Considering the world we currently live in, commodities may be something you should personally look at from an investment perspective.  I know I am.

Rogers focused on foodstuffs and metals while Batchelor focused on energy.  They both had essentially the same message; we have a growing population and a shrinking base of investment into production of necessary commodities.  From a long term perspective, we have nowhere to go but up with commodity prices.  Think about it, how many people do you know tell their kids, go to school, get a good education, and work on the farm?  People need to eat and we need famers to produce.  Right now we have a shrinking base of farming activity, but the population of the world is projected to triple in the next 30 years.  We have to feed them somehow and the law of supply and demand says commodity prices must rise. 

The same holds true for oil.  Oil is primarily a transportation fuel.  Most of your developed nations are near a peak or even in a decline with oil consumption.  But China and India alone have nearly half of the world’s population with a hugely growing middle class.  Right now they are consuming the same amount of oil per capita as the US was in the ‘20s.  Do you think China and India’s consumption will go down, or up?  My suggestion here is to look into portfolio diversification and take a long, hard look at commodities.  There are many ETF’s now that track various commodities so it is no more difficult than buying Wal-Mart stock.

I also had a great meeting with a guy named Raoul.  Raoul runs a family office for wealthy individuals and families.  This is not a common practice in the US, but it is quite intriguing.  His firm does not actually manage your money, but they provide you with the tools to assist with asset allocation and risk management.  He also selects and works with your money managers, banks, financial planners, tax planners and anyone else involved with your finances to make sure you are getting what you are paying for.  He can help you find the best money managers, place your money in Swiss banks (or anywhere else), and make sure you aren’t taking unnecessary risks.  His firm can provide you with online access to your portfolio whether it is in real estate, cash, securities, gold, or cattle.  He can even tell you if you have too much money tied up in cattle at any given moment.  It is quite a revolutionary service he offers and for a very reasonable fee.  He charges a small fee based on your asset holdings.  He gets no commission for advising you to buy X stock, or Y commodity.  The more your assets grow, the more he earns.  And most importantly, he is connected.  Very well connected.  He can still provide American citizens with Swiss private banking services and connect you with money managers you would never be able to have access to otherwise.  If anyone is interested in contacting Raoul, please let me know.  I will make the introduction.

I would really like to hear from my readers.  If you have some specific topic of interest, please let me know.  I would be happy to discuss it with you personally, or I can write about it on our blog or in the newsletter.  Feel free to contact me today for your free 30 minute consultation.  Until next week, live well.

As I mentioned previously in my blog, I have discovered a way for some of you to defer taxation on your business income.  This, of course, requires an offshore asset protection strategy.  There are many details involved and lots of restrictions, but I am going to use a theoretical example to illustrate.

Joe runs a custom t-shirt company from California and sells his products all over the world through his website.  Joe has a very successful business and sells $2m per year in t-shirts with a 30% net profit margin earning $600k per year after his $100k per year salary.  After Joe takes advantage of his tax benefits, he pays 30% in tax or $180k.  That is a rather large check to write each year.

Today, Joe runs his business from Nevis.  He formed a Nevis LLC, rented a small office in Nevis to hire an administrative staff there to handle bookkeeping and customer service.  He sold his computer servers and has outsourced his server space to a firm in India.  He does all of his banking through Denmark and uses Paypal for website payments.  He has essentially severed all physical business ties in the US.  Granted, Joe still lives in California and still earns his $100k per year salary, for which he still pays his personal income tax. 

However, Joe no longer pays income tax on his $600k in net profit, saving his company $180k per year in taxes.  Joe now has reinvested his earnings into his business and expanded into a web based golf shop.  The golf shop operates on the same premise as the t-shirt shop and allows him to grow his business and his profits.

When Joe decides to repatriate some of his income from his offshore business he will certainly pay income tax on that amount.  But until that time, Joe can defer the taxation and invest his money as he sees fit in order to continue to grow his wealth. 

I understand this program doesn’t work for all of you.  In reality, it can only work for a few.  But for those few, it is a tremendous advantage.  For those of you that cannot take advantage of this, maybe it can’t be an option for your next business venture.  Certainly there are many variables to this situation and each must be individually evaluated. 

If you think this may work for you or if you have any other questions regarding your asset protection plan, contact me via email or at the number listed on our contact page.   Until next week, live well.

A few weeks ago I went to the local mall here in Tartu to buy some dress clothes.  I am not what you would call a ‘suit kinda guy’.  But I was going to an investment conference in Zurich and thought the usual jeans and a t-shirt may be a bit too casual. 

Whenever I am at the malls in different countries, I enjoy looking around at what the locals spend money one.  In this mall of about 50 stores, there are 5 electronic stores and another 6 that sell mobile phones and accessories.  There are also shoe stores, clothing stores, luggage, jewelry, several food establishments, and a really nice bookstore.  Anytime I am at a mall, my thoughts go to consumption and taxation.

Lately I have been contemplating a major flaw in the US tax system.  We provide incentives for consumption and restrict production through our tax system.  Right now in the US if you put your money in a savings account you will earn less than 1% annually, not exactly a motivator to save.  And you can get a 30 year fixed mortgage on your house for 5% interest.  With money that cheap, that is a pretty good motivator to borrow.  We also have the highest corporate tax rate in the world and one of the highest personal progressive tax rates.  Companies are even taxed on dividends paid, and the investor is taxed again when he receives dividends!!!  We are taxing production and incentivizing consumption.

Contrast this with Estonia.  (Don’t get me wrong, they have their problems too, but the methodology of taxation is vastly different).  Estonian companies pay no corporate income tax!  If they retain earnings for reinvestment, there is zero tax.  Personal income is taxed at a flat 21% for all people regardless of level.  If a company pays shareholders dividends, they deduct the 21% from the dividend payment but the investor pays nothing additionally.  There is a 20% VAT (national sales tax) on all consumption.  You can borrow money at about 7% to buy a house, 20% to buy a car.  And you can earn 8% in your savings account.  The Estonian policymakers penalize you for consumption and reward you for savings.  Interesting concept…  Who do you think has a higher savings rate?

The point is the US tax system is backwards.  Just like the taxation of alcohol and cigarettes, the more you tax it, the less you get.  Do we want to keep taxing our productive activities like investing and saving money, and provide incentives for consumption?  Isn’t that what got us into this mess to begin with?

But more importantly, how do we profit from these situations and what is the implication for our asset protection planning?  Really, the options are virtually endless.  You can start by moving money into an offshore bank account and save and invest in another currency.  You can structure your business either domestically or offshore to provide you with the maximum tax advantages.  You can even move overseas to a low cost country where your money goes further.  In the near future I will discuss a couple of these strategies.

In the meantime, you should be considering how to implement your own asset protection planning strategy in order to minimize your risk and maximize your gain from this perverse tax system.  As stated before, there are several tools available to you depending on your level of wealth.  Call today for your free 30 minute consultation.

Today I want to share with you my philosophical beliefs on capitalism and a free market in order to help you understand why asset protection planning is so important. 

Historically, capitalism has proven itself to be the only system that works efficiently, but it now seems the governments of the world are increasingly trying to regulate and tax us to the point where we give up and move to our own little Galt’s Gulch (for those of you that don’t know this term, this is from the book ‘Atlas Shrugged’ by Ayn Rand, and one of my personal favorites). 

I truly believe in the free market and it really irks me to read news headlines like “The Free Market Failure…”.  I believe this to be a myth.  We have not had a truly free market in a very long time.  The governments of the world tend to want to expand their power base and tax and regulate every sector of the market.

Fortunately, there are still opportunities to protect our assets from not only unscrupulous creditors, but also government influence.  I do not advocate tax evasion or avoidance of your financial responsibilities of any sort, but at some point, you need to realize where other parties have crossed the line and become a burden on your personal freedoms. 

In the US, we will likely reach a point soon where there will be currency controls and you won’t be allowed to move your money outside of the country and invest in world markets.  In 1933 President Roosevelt confiscated all publicly held gold and within a few short months, devalued the dollar effectively stealing the citizens’ wealth. 

We are still in the midst of the largest economic crisis in modern history and most likely there will be drastic protectionist policies put in place which will not be positive for those of you with wealth.

Entrepreneurs and investors are the growth drivers of our economy.  The creation and preservation of your wealth is what will continue to improve the prosperity of the world.  The governments’ social programs are not what the world needs for progress.  This is why asset protection planning is so crucial for economic progress in today’s world.

As a society, we need you to prosper in order to improve the living standards of all.  As the cliché goes, “a rising tide lifts all ships”.  This holds true in economics as well.  As the entrepreneurs and investors of the world increase their wealth, it improves the living standards of the whole society.

 Our firm’s mission is to provide asset protection planning that allow you to create and preserve your wealth and protect it from the two main threats of the modern world; taxes and litigation.  While not very altruistic by nature, I do want the world to prosper.  This is only achievable by allowing productive members of society to maintain and increase their wealth. 

Contact us today for your free 30 minute consultation.