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.

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.

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.

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.

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.

Asset protection, simply put, involves legally protecting your assets from the threats that prevail in today’s society. There are two main threats to your wealth; litigation and government interference.

In 2008, there were nearly 1.2 million lawsuits filed in the US. If you consider there are approximately 300 million people, half of them in the workforce, this leaves about 1.2 million lawsuits for every 150 million people. But from 150 million people, less than 20% of them are really at risk to lose something in a lawsuit. That leaves 30 million people at risk. In this simplified example, 1 in every 25 at risk people were sued in 2008. 1 in 25. Not very good odds…

Are you a real estate investor? You can count on that number going much, much higher. You just never know when your next tenant opens a meth lab in the basement and blows the house up and kills someone. Are your remaining assets at risk in this case? Are you willing to risk your entire future on an event of which you have no control?

Asset protection involves anything from simple domestic LLC, up to a complex strategy involving offshore trusts and IBC’s. The strategy varies widely and is very specific to each situation. This is where proper counsel is crucial. You don’t want to find yourself on the wrong side of the law with the government. But a properly developed asset protection strategy will protect your wealth for future generations and give you that much needed ’sleep at night’ insurance.

I will discuss government interference at another date as that is too deep of a topic for one reading. Until next time, live well.

Anyone truly interested in asset protection and diversifying your wealth should seriously take precautions and educate themselves on what is going on around them.  Whether you agree with this article or not, you should seriously consider the possibility that the author is correct in his assessment.  Our role in assisting clients with asset protection strategies involves the avoidance of risks that may befall you.  One of those risks is government interference.

Obama and ‘Redistributive Change’

Today I want you to be aware of Self-Directed IRA’s, or SDIRA’s.  Most people are unaware that you can not only manage your own IRA investments, but you can invest in whatevever asset class you chose.  Traditional IRA custodians are generally investment brokers and of course they want to sell you investment where they derive fees.  It is highly unlikely you will find an investment broker offering you commercial real estate, gold, oil field rights, vacation properties, or cattle as investment options.

But what if your very familiar with farming and you have a very good understanding of the cattle market?  This may be a very good investment for you, but your investment broker won’t sell you these types of investments and won’t allow them in your IRA.  But there is an option.

With a SDIRA (there is also a Self-Directed RothIRA but I will just group them together and call them both a SDIRA), you can invest in any asset class you wish.  You have full control of your assets and how they are managed.  Essentially, the way it works is the custodian assists you in forming an LLC which is owned by your IRA.  You become the manager of the IRA, giving you full control of the investment of funds.  You can then chose to invest this money as you see fit.  There are restrictions however, but they are minimal and certainly not a deterrent.

If you chose to buy rental properties, vacation properties, gold bullion or coins, tax lien certificates, private placement loans, or cattle – no problem.  Its your IRA and you are the manager.  There are a few custodians that are out there who can set this up for you.  One of them is a friend of mine, Steve.  He runs a company that helps his clients set up SDIRA’s (and Roth’s) in order for them to take control of their retirement savings.  Who do you think is more interested in your success – a mutual fund manager or you?  Steve can also convert your existing IRA or Roth into a SDIRA.

As I stated in yesterday’s article, 2010 is a great year to convert your  IRA into a Roth IRA.  You can take advantage of an  opportunity that  may not come again in your lifetime.  This can save you a huge amount of money over your lifetime in taxes.  And if you really want to supercharge your retirement savings, convert your IRA into a Self-Directed Roth IRA.  If you are interested in contacting Steve, please send me an email and I will provide the connection.  Live well.

The  federal government’s extreme misuse of taxpayer dollars may very well work out to be a huge opportunity for many.  Because of the astronomical deficits, the IRS has given one year opportunity for anyone to convert their IRA to a ROTH IRA.  I won’t go into details about the differences between them as you are either aware of it, or have access to a computer and can google it yourself.

Up until 2010, if you earned more than $100,000 per year, you were not allowed to convert to a ROTH.  This restriction is lifted for 2010 only.  Why would the government do this you may ask?  Short term tax revenues in a midterm election year, of course.  They are sacrificing long term tax revenue for short term gain.  If you have $100,000 in your IRA and convert to a ROTH, you will pay income taxes on the tax basis, for arguments sake, lets say you will pay $30,000.  Then your $70,000 can grow tax free forever and you can take distributions tax free.

As an added benefit, you don’t even have to pay the $30,000 in taxes in 2010.  You can make payments in 2011 and 2012.  Essentially the IRS is hoping many people convert in order to raise tax revenue over the next 3 years in lieu of the higher taxes they would collect when you reach retirement age.  I would highly suggest you seriously consider this option and talk it over with your CPA.

The Internal Revenue Service (IRS) intends to purchase sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns for the Criminal Investigation Division. The Remington parkerized shotguns, with fourteen inch barrel, modified choke, Wilson Combat Ghost Ring rear sight and XS4 Contour Bead front sight, Knoxx Reduced Recoil Adjustable Stock, and Speedfeed ribbed black forend, are designated as the only shotguns authorized for IRS duty based on compatibility with IRS existing shotgun inventory, certified armorer and combat training and protocol, maintenance, and parts.

You really have to wonder why they are buying more guns for their officers.  Or I guess I should say, why WE are buying more guns for IRS enforcement officers.  Are they concerned with their ability to collect all their proposed tax increases?  Do they really intend to show up in your office with an armed officer at your next audit?

With Obama’s $1.9T tax increase for the wealthy, maybe they plan on doing raids of your office before you flee the country with a suitcase of cash.  Who knows what they are thinking, but I seriously question my governments decision to force me to pay tax at the end of a gun.

If asset protection is important to you, now is the time to diversify.  Whether you pursue a domestic or an offshore asset protection structure, now is the time to act.  When your government is arming itself to collect your money, you should really take steps to protect your assets.  Live well.