Month: December 2023

Here’s a short overview to assist you, as a non-U.S. citizen, in understanding the essential tax and related issues you should consider while pursuing your business ventures in the United States.

U.S. citizenship. You can start a business in the U.S. without being a U.S. citizen. If you will be managing your business from within the U.S., you may need a valid work visa or green card.

Work visas. The E-2 visa is popular among entrepreneurs. It requires citizenship from a treaty country, significant capital investment, and a controlling interest in your business. Alternatives include F-1 OPT, H-1B, O-1, and L-1 visas, depending on your situation.

Green card option. The EB-5 visa provides a path to a green card for those ready to invest $800,000 to $1.05 million and create 10 full-time jobs in the U.S.

Business planning. Before starting, conduct thorough market research and choose the right business structure and location. Register your business at the federal and state levels, and obtain an Employer Identification Number (EIN).

U.S. taxation. Familiarize yourself with the U.S. tax system, including federal, state, and local taxes. Tax implications vary based on your entity type.

Sales taxes. Learn the rules for sales tax on goods and services, which vary by state and locality.

Employment taxes. Comply with federal and state employment tax requirements for employees and independent contractors.

International tax considerations. Be aware of international tax issues, including tax treaties and foreign tax credits.

Record keeping and compliance. To avoid penalties or business revocation, maintain accurate financial records and ensure compliance with U.S. tax laws.

Professional advice. We highly recommend seeking advice from a tax professional with expertise in international taxation and an attorney specializing in immigration and business visas.

We are here to assist you every step of the way. Please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• December 27, 2023

Here is some important information regarding the net investment income tax (NIIT), which may be relevant to your financial situation.

NIIT Overview

The NIIT is a 3.8 percent tax that could apply if your modified adjusted gross income (MAGI) exceeds $200,000 (single filers), $250,000 (married, filing jointly), or $125,000 (married, filing separately). It targets the lesser of your net investment income or the amount by which your MAGI exceeds the thresholds.

What Qualifies as Net Investment Income?

Net investment income includes income from investments (such as interest, dividends, and annuities), net rental income, and income from businesses in which you don’t materially participate. It does not include wages, self-employment income, tax-exempt income, and distributions from qualified retirement plans.

Reducing or Avoiding the NIIT

To mitigate the NIIT, it’s crucial to understand what’s triggering it—your net investment income or your MAGI. Here are some strategies:

1. Invest in municipal bonds. Pick bonds that are exempt from the NIIT and from federal and state taxes.
2. Donate appreciated assets. The correct asset donation avoids the NIIT and provides a tax deduction.
3. Avoid selling appreciated stock. Buy growth stocks that don’t pay dividends, and hold them.
4. Utilize Section 1031. It avoids MAGI and net investment income, and defers taxes.
5. Invest in life insurance and annuities. This typically defers tax until withdrawal.
6. Harvest investment losses. This can offset gains and reduce taxable income.
7. Invest in rental real estate. Structured correctly, this can minimize taxable income.

Other Strategies

• Active participation in business. It avoids classifying income as net investment income.
• Short-term rentals and real estate professional status. These also avoid classifying income as net investment income.
• Alternative marital status. Though this option may seem extreme, two single taxpayers have a higher MAGI threshold than a married couple.
• Retirement plan investments. These can reduce MAGI.
• IRA conversions. Converting traditional IRAs to Roth IRAs may trigger the NIIT but can have long-term tax benefits.
• Installment sales. They can level out MAGI over time.

The NIIT can be complex, but strategic planning can significantly reduce its impact. If you want to discuss the NIIT, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• December 19, 2023

For existing businesses, the Corporate Transparency Act (CTA) goes into effect on January 1, 2024, and imposes a brand-new federal filing requirement on most corporations,

limited liability companies, and limited partnerships and on certain other business entities.

No later than December 31, 2024, all non-exempt business entities must file a beneficial owner information report (BOI report) with the Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit.

These BOI reports must disclose the identities and provide contact information for all of the entity’s “beneficial owners”: the humans who either (1) control 25 percent of the ownership interests in the entity or (2) exercise substantial control over the entity.

Your BOI report must contain all the following information for each beneficial owner:[1]

• Full legal name
• Date of birth
• Complete current residential street address
• A unique identifying number from either a current U.S. passport, state or local ID document, or driver’s license or, if the individual has none of those, a foreign passport
• An image of the document from which the unique identifying number was obtained

FinCEN will create a new database called BOSS (Beneficial Ownership Secure System) for the BOI data and will deploy the BOSS to help law enforcement agencies prevent the use of anonymous shell companies for money laundering, tax evasion, terrorism, and other illegal purposes. It will not make the BOI reports publicly available.

The CTA applies only to business entities such as corporations and LLCs that are formed by filing a document with a state secretary of state or similar official. It also applies to foreign business entities that register to do business in the United States.

Some businesses are exempt from the CTA, including

• larger businesses with 20 or more employees and $5 million in receipts, and
• businesses already heavily regulated by the government, such as publicly traded corporations, banks, insurance companies, non-profits, and others.

The CTA does not apply to sole proprietors or general partnerships in most states. But it does apply to single-member LLCs, even though the tax code disregards such entities and taxes them on Schedule C, E, or F of Form 1040.

The initial BOI report filing does not expire, and you don’t need to renew it. But you have an ongoing duty to keep the BOI report up to date by reporting any changes to FinCEN within 30 days of occurrence.

Failure to comply can result in hefty monetary penalties and up to two years in prison.

If you want to discuss the CTA, please call me on my direct line at 408-778-9651.

[1] 31 CFR Section 1010.380(b)(1)(ii).

• By Leon Clinton
• December 15, 2023