What does “Tax Planning” really mean?
We get it, no one wants to pay more in taxes than they absolutely must. If you spend any time on the internet, you might even believe that no one wants to pay any taxes, ever!
Taxes are always a polarizing topic and can make people make rash decisions. Not surprising when weekly headlines show that:
The richest 1% pay an effective federal income tax rate of 24.7%. This is just a little more than the 19.3% rate paid by someone making an average of $75,000.
1 out of 5 millionaires pays a lower rate than someone making $50,000 to $100,000.1
What can you do about it?
Last week, the Floyd Mayweather vs Logan Paul fight became the top pay-per-view event in recent history. The fight was not all that interesting, but the tax planning by the Paul brothers should have been front-page news.
They recently moved themselves and their business holdings to Puerto Rico. As a U.S. Commonwealth, the lines are a bit blurry regarding taxes. High-income families in NC will pay 37% in Federal Income Taxes and an additional 5.25% in State Income Taxes. In Puerto Rico, corporations can pay as low as 4% of their annual income in taxes.2
So how does the tax savings break down for Logan Paul who made an estimated $10,000,000 for going 8, 3-minute rounds with the champ? If he still lived in California, where the State Income Tax rate is 13.3%, he would have paid over $5mm in total taxes.
If he is eligible for Puerto Rico’s 4% tax rate, he will only pay $400,000. That means he could save $4,805,497, just from proper planning.
What can you do if moving to Puerto Rico is not an option?
We understand that this is not the norm and not an option for most people but that’s okay. There are plenty of other tax planning strategies that are available and used regularly with our clients:
Deductions
Legal Entity Structure
Retirement
Insurance
TCJA, CARES
Advanced Strategies
Niche-Specific
Asset & Gift Freeze
So, what should you do?
If you are a business owner, there is a chance you are overpaying taxes. One of our favorite tax experts, Steven Jarvis always reminds us, “Tip your servers and not the IRS.” We work with Enrolled Agents, CPAs, and Tax Attorneys to regularly review client tax returns to see if there is any money being left on the table.
(https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-taxing-wealthy-americans/)
https://ustax.bz/puerto-rico/