Exemption For Substantial Holdings
Subsidiary companies distribute their profits to their parent companies in the form of dividend. The participation exemption exempts the parent company from paying tax on dividends received from its subsidiaries. This prevents it being taxed twice within the same group of companies. The participation exemption is available only to shareholders who hold at least a 5% stake in a company.
The exemption applies to substantial holdings in resident and non-resident companies. It is a key feature of the Dutch tax regime. Since profits are not taxed twice, subsidiaries located outside the Netherlands can compete with local companies on an equal tax base. The substantial holding exemption does not apply to holdings in an investment vehicle.
Is A C Corporation Eligible For The Qualified Business Income Deduction
No. According to the Internal Revenue Service , income earned through a C corporation or by providing services as an employee is not eligible for the deduction. A C corporation files a Form 1120: U.S. Corporation Income Tax Return, and it is not eligible for the deduction. You also cannot deduct any portion of wages paid to you by an employer and reported on a Form W-2: Wage and Tax Statement. Independent contractors and pass-through businesses are eligible for the deduction. They report their percentage of business income on a Schedule C: Profit or Loss from Business that accompanies the Form 1040: U.S. Individual Tax Return.
An Iphone As A Medical Expense
After suffering severe brain injuries stemming from a car accident, one taxpayer was actually prescribed an iPhone by her doctor. The phone allowed her to be more independent it reminded her of things she needed to do and answered questions for her via Siri so it was able to qualify as a medical expense, CNN Money reported.
As of 2020, the IRS allows taxpayers who itemize their deductions to deduct their total qualified unreimbursed medical expenses that exceed 10% of their adjusted gross income.
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Health Insurance Premiums Deduction
If you are self-employed, pay for your health insurance premiums, and are not eligible to participate in a plan through your spouses employer, then you can deduct all of your health, dental, and qualified long-term care insurance premiums.
You can also deduct premiums that you paid to provide coverage for your spouse, your dependents, and your children who were younger than 27 at years end, even if they arent dependents on your taxes. Calculate the deduction using the Self-Employed Health Insurance Deduction Worksheet in IRS Publication 535.
Path : Use Credits To Eliminate Your Tax Liability
Many tax credits exist. Credits are not deductions that you subtract from your income. Instead you subtract them directly from the tax you would otherwise owe. For example, if the tax table says you owe $750, but you qualify for a $500 credityou subtract that credit directly from the tax: $750 $500 = $250.
One credit is for your education expenses. Another is for any income tax youve paid to a foreign government. Another is for your child care or dependent care expenses. You also get a per-child Child Tax Credit, and can also take a credit for any adult dependents you have.
My favorite credit is the retirement savings contributions credit. Remember how, when you put money into tax-deferred retirement account, you were able to deduct it from your income before you calculated your tax? Now it gets better. You can take a percentage of the amount you put into retirement accounts as a credit as well. If your adjusted gross income is low enough, that percentage is 50%, and your credit is as high as $1,000, which can cut your income tax to zero.
The Earned Income Tax Credit is a special creature. Most credits allow you, at best, to lower your tax to zero. The Earned Income Tax Credit allows you to lower your tax below zero so that the government actually owes you money. This sort of credit is called a refundable credit.
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Qualify For Tax Credits
Many people dont realize that a tax credit is the equivalent of free money. Tax deductions reduce the amount of taxable income you can claim, and tax credits reduce the tax you owe and, in many cases, result in a nice refund.
The IRS offers a large number of tax credits that encompass everything from buying energy-efficient products for your home to health insurance premium payments to being in a low- to moderate-income household. The key to benefiting from these credits is examining all of the purchases youve made throughout the year to see if you are owed money.
There are 17 tax credits for individuals you can take advantage of in five categories:
Homeownership and real estate credits
Income and savings credits
Check out the IRS credits and deductions page for a breakdown of all the credits you may be eligible for.
Professional Gambler Makes A Winning Bet Against The Irs
In 2001, professional gambler Robert Mayo wagered over $131,000 and won $120,000. On his tax return, he listed his gambling losses, as well as his expenses for travel and research, as tax deductions. Mayo argued that the $10,000 he was in the hole should be considered operating losses rather than wagering losses because gambling was his profession. The tax court ruled in his favor, and his case set the precedent for a new law that allowed full-time professional gamblers to claim gambling losses and expenses as business expenses, according to Casino Players Report.
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How To Avoid Taxes Legally
If you want to stop paying personal taxes, its not as simple as moving to a new country and start traveling the world. You need to do it right.
If you simply embrace a nomadic life, your home country can still consider you a de-facto tax resident there, even if you dont spend a single day within its frontiers.
Obviously, if you have a business, you need to make sure to have your company in a modern country that offers you location independence and freedom to live anywhere in the world.
These are the steps you should be following if you want to confidently say goodbye to taxes while sleeping well at night. However, I am no accountant or lawyer, so if in doubt, ask for professional advice.
Minimizing Taxes Requires Skillful Tax Planning
Tax avoidance requires advance planning. Nearly all tax strategies use one of these strategies to structure transactions to obtain the lowest possible marginal tax rate:
- minimizing taxable income
- maximizing tax deductions and tax credits
- controlling the timing of income and deductions
Forecasting income and expenses is critically important. Effective tax planning requires solid estimates your personal and business income for the next few years. Several years of income/expense projections are necessary because many tax planning strategies that lower taxes at one income level can result in an increase if income raises in the coming years.
You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. You should already be projecting your sales revenues, income, and cash flow for general business planning purposes, so you should have much of this information available for tax planning While estimates by their nature are inexact, the more accurate you can be, the better your planning will be.
Deductions and credits reduce your taxes
Your tax planning goal is to pay the least amount of tax that is legally possible. You can reduce your ultimate tax bill by attacking on two fronts.
- First, take full advantage of every available deductionboth business and personalto reduce your taxable income.
- Then, once determine the tentative tax due, claim every tax credit that is available to you.
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Moving To A Cryptocurrency Tax Haven
Warning: The visa application process for most countries is an extensive process that may take at least a year to complete and cost hundreds, if not thousands, of dollars.
Social Security And Other Benefits
If you live in a civilized country -with the exception of the US-, you are used to some social benefits, like free social security and health insurance.
Unfortunately, most of those social benefits are residence-based. Thus, if you are no longer a tax resident on any country, it can be difficult for you to access free health services or social security.
The European website for the Social Security Cover Abroad fails to address the situation of digital nomads without residence doing freelancing job or owning a company themselves.
Interestingly enough, if you own a company in Estonia as an e-Resident, you could adhere to this situation:
If you are employed but have no substantial activity in your country of residence, you are covered where your employers head office or business is located.
I have talked previously about how e-Residents owning a company in Estonia assigned themselves a salary. In the salary calculations, your employee salary was not taxed if you lived outside of Estonia. Conversely, under this scenario, you might wonder if paying taxes for your full salary gives you then Estonian social security benefits in Europa.
I will discuss this in depth in a future post.
Nevertheless, generally speaking, you will lose your social security benefits. If you are European, you may opt-in for the European social security card, but it will cover you for just two years. After that, you will need to sign a private medical insurance contract.
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Travel The World For Fun And Profit
Once you have spent a year in your second country, and have made your tax residency effective, you are ready to go. Stop being a tax resident in this country too, and move to any other country.
From that moment on, you wont need to pay personal taxes as long as you spend less than six months a year on a concrete country. Enjoy!
Have Little Or No Income
One easy way to pay no income tax is to have little or no taxable income. About half of the Americans who pay no income tax do so because their incomes are too low. As a result of the Tax Cuts and Jobs Act, which took effect in 2018, single taxpayers receive a standard deduction of $12,550 and married taxpayers filing jointly receive a $25,100 standard deduction , subject to annual adjustments. Personal and dependent exemptions were eliminated. If your income is below these levels, you won’t have to pay any income tax.
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With The Government Cracking Down On Benami Properties Find Out How You Can Invest For Family Members And Stay On The Right Side Of The Law
real estateinvestments1) Invest the gifted money in a tax-free instrument2) Deduction available in case of minor child3) There is no tax on long-term gainsmutual fundsgold4) The clubbing is only at the first level5) Adult children are big tax savers6) Clubbing not applicable in case of parentsinsurance7) Show the monetary transaction as a loan
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All you need to know about ITR filing for FY 2020-21.)
Stop Being A Tax Resident At Your Home Country
First, you need to spend some time in a second country and, optionally, become a tax resident there. In order to do that, you need to inform your home country that you are going to move to another country.
So the first step is going to a country where you can stay for some months.
When you get to your second country, go to the embassy of your home country and inform that you are going to be a long-term resident there .
Then, you also need to inform the Tax Office of your home country that you no longer are going to be a tax resident there. This varies from country to country. In some countries, you can do it as soon as you get to this second country. Others require you to wait for some months. Also, the method varies between jurisdictions. In my case, as a Spaniard, I had to fill the 030 form and send it to the tax office. Expect to have to explain your reasons and requiring some extra information or even a call or two. They need those delicious taxpayers.
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Learn About Claiming Education Credits
An education credit helps you pay education expenses by reducing the amount you owe on your tax return. There are two types of education credits:
The American Opportunity Tax Credit helps with expenses during the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit lowers your tax to zero, you may get a refund.
The Lifetime Learning Credit can be used toward tuition payments and related expenses. To use the credit, you must attend a qualifying educational institution. Use the LLC for undergraduate, graduate, and professional degree course expenses. Or, use the credit to help pay for classes that improve job skills. You can claim up to $2,000 per tax return, and there is no limit on the number of years you can claim the credit.
You must meet income limits to be eligible for these credits. And you cant claim both credits for the same student and the same expenses.
Consider Flexible Spending Plans
Some employers offer flexible spending plans that allow money to be socked away pretax for expenses such as medical expenses.
A flexible spending account provides a way to reduce taxable income by setting aside a portion of earnings in a managed by an employer. An employee can contribute up to $2,750 during the 2021 plan year .
Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year or forfeit unspent amounts. Under a special rule, employers may offer participating employees more time through either a carryover option or a grace period .
Under the carryover option, an employee can carry over up to $550 of unused funds to the following plan year. Under the grace period option, an employee has until 2.5 months after the end of the plan year to incur eligible expenses. Employers can offer either option, but not both, or none at all.
The IRS released guidance that allowed employers more flexibility for benefit plans for 2020 and 2021 as part of the Consolidated Appropriations Act. Employers can allow employees to carry over all unused funds from 2020 to 2021 and from 2021 to 2022or they can extend the grace period from 2.5 months to 12 monthseither way, all unused funds can be carried over and used throughout the entire year.
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Glossary Of Tax Terms
Disclaimer: Explanations on the terms are very condensed and may not be complete. They are not considered to necessarily reflect official position of the OECD in interpreting international tax terms, for example, in the tax treaty context.
1. The extent of a person’s beneficial ownership of a particular asset. This is equivalent with the value of the asset minus the liability to which the asset is subject. 2. Paid-in capital plus retained earnings in a corporation
JEOPARDY ASSESSMENT — Tax assessment made where there is some danger of tax being lost.JOINT RETURN — A single return made jointly by husband and wife.JOINT-STOCK COMPANY — Company with legal personality and whose capital is divided into shares. The shareholders are generally liable only to the extent of the nominal value of their shares.JOINT VENTURE — Term which is loosely used to describe a relationship between parties carrying on an undertaking in common for their individual or common gain. This can be either an incorporated venture or an unincorporated venture. — Bonds and debentures issued by companies that have a low credit evaluation from a rating agency such as Standard & Poor’s or Moody’sJURIDICAL DOUBLE TAXATION — See: Double taxation, economic and juridicalJURISDICTION — The power, right, or authority to interpret and apply tax laws or decisions.
Know Where You Can Save Money And Grow Your Profits
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Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
Over the years, legislators have written numerous lines into the tax code to soften the blow of the extra costs that self-employed taxpayers must shoulder as they do business. The Tax Cuts and Jobs Act , effective as of the 2018 tax year, made several changes to self-employed tax deductions. Many of these changes are temporary and set to expire in 2025, but others are permanent.
The law affects small businesses in many ways, particularly via a qualified business income deduction for pass-through businessesthose that pay taxes as an individual taxpayer rather than through a corporation. For owners of sole proprietorships, partnerships, S corporations, and certain trusts, estates, and limited liability companies , this deduction provides a great benefit. Eligible taxpayers can deduct up to 20% of their QBI. A pass-throughs QBI is the net amount of qualified items of income, gain, deduction, and loss from a qualified trade or business.
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