Federal Grants, Corporations and International Tax Planning


This post is in: Blog, Business
No Comments

Federal Grants, Corporations and International Tax Planning

At USTaxAid and USTaxAid Services, we provide business, tax and asset protection information and a complete list of tax consulting, services and representation for our business owner and real estate investor clients.  Tax planning is a game, but it’s a game that has rules and you need to understand what those in order to win.

We get a lot of different type of tax questions from both new and seasoned entrepreneurs and investors.

In this month’s round-up of questions received at USTaxAid, we’ve got questions regarding taxation of federal grants, how many businesses you can or should have in a C Corporation and another question on international tax.

Is a Federal Grant Taxable?

Federal Grants, Corporations and International Tax Planning

Question:

I received a 2.7m dollar grant/loan from the Federal Government in La. to build and rehab affordable homes for low income tenants, however it appears that in 5 years there will be a tax hit on my company. Can you give me some thoughts and direction on what I need to be doing to lesson the burden down to zero or as small as we can?

Answer:

Congratulations on the grant. I think the first thing to determine is exactly what is the character of the money you received. Is it a grant that could be received by a charitable organization or foundation so that there is no tax required?

If so, is it too late to undo the current transaction and move this to a charity?

Or, if it is a loan that will later be forgiven? If that’s the case, then you probably have taxable income.

If it is a loan, can you have it forgiven over time so you don’t end up with a big hit all at once?

So, step #1: Find out exactly what the details of the loan/grant are. What is the intention of the money?

Once you know that information, you can put together a tax plan. Some of the things to consider would be the entity type you use, employing pension plans to defer income, using income splitting and, of course, looking for all of the deductions you can.

You may also receive some low income housing credits that can be used against tax you might owe and, of course, you have the ability to use depreciation strategies to maximize depreciation when you need it most.

My suggestion is that you get a little bit more information together regarding the money and options with that, put together your projections for the project (if you don’t have them already) and then schedule a tax consultation. There are some real tax saving opportunities available here, and a big tax day if you do it wrong.

Do C Corporation Taxes Allow More Than One Business?

Federal Grants, Corporations and International Tax Planning

Question:

I have a c corp to operate my franchise business. I am planning to purchase a second location.

  1. Can I operate both in a single c corp, having a single tax return?
  2. Do you recommend two sets of books?
  3. Regarding the city business license, can I file two dba in two cities, using the same corporate EIN?

Answer:

Can you operate more than one business in one C Corporation? Yes, you can.

Should you? That’s a different question. The purpose of having multiple entities is often to divide up risk. If you have Business A and Business B in the same corporation, you put them at risk from each other. If something happens and Business A gets a judgment, the assets in Business B are at risk.

However, as far as taxes go, it wouldn’t matter if you had one or two C Corporations if the ownership was similar. That’s because C Corporation with the same controlling interests end up being called controlled group and have to file with a consolidated tax return.

One other structure to consider would be to use multiple S Corporations and then have the IP or other assets held inside of a C Corporation.

And, of course, depending on the state you’re in, we usually recommend an LLC electing either S Corporation or C Corporation status because it will provide better asset protection.

Where is the Best IBC Tax Haven?

Federal Grants, Corporations and International Tax Planning

Question:

I have a Belize IBC. I understand that if open an internet business in Puerto Rico that I can reduce the corporate tax to 4% on retained earnings by meeting certain residency time requirements. Is the same true if I were to open a virtual business in Panama as an example –

Answer:

An IBC is an international business corporation. First of all, you need to determine whether you really have a corporation in the eyes of the IRS.  Recently, I’ve had to clean up a lot of tax structures because people used foreign law without taking into account how it would be treated back in the US because you had a US owner.

The next questions are: Where do you live? Are you a US citizen? Do you have other citizenship?

Puerto Rico (PR) does have some great tax laws right now for corporations that operate within PR.  If you take a salary out of the company and otherwise quality, you’ll have to US tax due on the salary.

On the other hand, if you go with Panamanian law, you will have tax if you have any other ties to the US – clients from the US, fulfillment in the US or the money goes back to the US.

If you want to pay less US taxes, the best deal going is to either move to PR for 180+ days per year or qualify for foreign earned income tax credit by living and working outside the US.

If you have a tax question, there are a lot of ways to get it answered.

You could post it to random site and have a random person answer it.

You could ask your neighbor.

You could ask your fortune teller.

Or you could ask a trained professional who specializes in exactly what you want to do.

We work with business owners and real estate investors. Give Richard a call at 888-592-4769 to set up your consultation now.



Leave a Comment