Debunking American Tax Myths

The US Tax system is one of the most complicated and least understood in the world.  Yet it’s really very simple.  But like with everything American, capitalism has made a business out of tax preparation ‘the tax industry’.

First, let’s understand a key difference between TAX AVOIDANCE and TAX EVASION.

Tax Evasion is ILLEGAL, and is defined as failure to report income.  It has nothing to do with offshore trusts, loopholes, or any tax structures, it has to do with lying.  If you fail to report a dollar your neighbor gave you to help him carry in a sofa, you theoretically could be liable for tax evasion.  Further reading http://en.wikipedia.org/wiki/Tax_evasion

Tax Avoidance, on the other hand, is the legitimate reduction of your tax bill by use of deductions or tax efficient vehicles.  Tax Avoidance is legal, and encouraged by the IRS.  The IRS provides guides explaining the tax code in simple terms, and offers free seminars taxpayers can attend.  Also the IRS has helplines to answer tax specific questions, all free.  Most people simply don’t know how the tax system works or are lazy to read the rules which are 100% free and available at the IRS site.  Some deductions are common but did you know about the hobby deduction?  You can deduct expenses for your personal hobby if you earn an income from it.  For example if you are a gardener and spent $1,500 on plant seeds and paraphernalia, and sold some of them for a total of $300, you could deduct the $300 as an expense.  It’s a strange rule that not many people know about, of course for individuals who don’t itemize it probably won’t add up to much. Further Reading http://en.wikipedia.org/wiki/Tax_avoidance

Now let’s separate US tax code from jurisdiction.  US Citizens are liable to pay taxes on their worldwide income (minus a small <100k exemption if you physically work overseas).  The US tax code doesn’t care where you live or do business – if you are a US corporation or US entity you pay tax in USA.  This is where many people get lost – they think if it’s international, it’s dodgy.  The fact is that both tax evasion and tax avoidance happen both in US and offshore.  The IRS provides tax avoidance schemes which are 100% based in the US and 100% legal, such as the tax-free exemption for foundations, charities, and churches 501(c).  Similar types of exemptions exist for offshore entities, but here’s where it gets tricky.  Once you leave the US, you are then subject to the tax rules of that jurisdiction.  Many countries, in order to attract capital and thus more taxes, will offer foreigners reduced tax rates – the way they look at it getting 5% from a foreigner is more than 0%.  In many countries foreigners have tax breaks that don’t apply to locals.  Malta is a great example, they offer several tax programs for foreigners who can pay as little as zero tax on capital gains and income about $5 Million, but the tax rate for local Maltese is greater than 30%.  But just like a US Citizen gets a tax break in Malta, a Maltese corporation gets a break if it operates in the United States.  Foreign owned and controlled corporations that are domiciled in the US are treated differently than 100% American owned and addressed corporations.  The point is that it doesn’t matter what side of the pond you are on, the point is that with the tax system it pays to be a foreigner, in any country!

What many were doing in Switzerland, they were using Swiss banking privacy laws to hide assets, and thus hide income, which is Tax Evasion.  But the same thing would have been illegal in the US, and it happens all the time.

Now let’s separate one last item which is muddied too often; tax schemes and money laundering.  Countries that offer huge tax breaks seem to also turn a blind eye to the type of business you are engaged in, so these jurisdictions attract both those seeking to lower their tax bill (legally) and those who want to launder money.  Utilizing a legal tax efficient vehicle is not money laundering.  Lying is lying – if you fail to report income which is in your personal name it’s likely tax evasion (doesn’t mean you will get caught, but it’s still tax evasion).  With the move to electronic transactions, anyone who thinks they can get away with tax evasion in the long run is foolish.

Some tax facts:

  • The US has one of the highest corporate tax rates in the world at 35%, but US corporations’ effective tax rate (tax they actually paid) was 12%, one of the lowest in the world.   These corporations that are utilizing tax structures aren’t your local mob boss, they are the Fortune 500, Google, Amazon, Microsoft, HP, etc.
  • The IRS allows you to pay more tax than you owe, if you choose
  • In 1920 top tax rates for income above $1 Million were as high as 77%

It is possible to lower your tax bill significantly 100% legally, ethically, based on the current rules.  Contact Structured Consulting about tax efficient structures.

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We've been closely watching the Crypto Currency Market if you can call it that, with all the fake data, fraud, and related problems.  One thing stands out - it's not so different than FX, commodities, futures, or stocks.  Market dyn...

Bitcoin and other cryptocurrencies flash-crashed Saturday night, one day after the US Commodity Future Trading Commission (CFTC) sent subpoenas four cryptocurrency exchanges in an ongoing probe into bitcoin manipulation that began in late July - following the launch of bitcoin futures on the CME, according to the Wall Street Journal
CME’s bitcoin futures derive their final value from prices at four bitcoin exchangesBitstamp, Coinbase, itBit and KrakenManipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
In delay reaction, Bitcoin fell as much as $433 or 5.6% in Saturday night trading, with some noting that the flash crash happened shortly after a 90th ranked crypto exchange, Coinrail, had suffered a "cyber intrusion", and was likely the more relevant catalyst for the crypto price drop.
While major Cryptocurrencies were down from 4.5 - 5.5%, Bitcoin Cash dropped over 8.4%. 
The CTFC subpoenas were issued after several of the exchanges refused to voluntarily share trading data with the CME after being asked last December. Of note, the CFTC regulates the CTC. 
According to the WSJ, the CME, which launched bitcoin futures in December, asked the four exchanges to share reams of trading data after its first contract settled in January, people familiar with the matter said. But several of the exchanges declined to comply, arguing the request was intrusive. The exchanges ultimately provided some data, but only after CME limited its request to a few hours of activity, instead of a full day, and restricted to a few market participants, the people added.
What is curious, is that if there was indeed manipulation since the launch of bitcoin futures, it was to the downside, as the price of cryptos peaked around the time the crypto futures were launched, and are down well over 50% in the 6 months since.
Coinbase in particular has been under the watch government regulators. On February 23, Coinbase sent an official notice to around 13,000 customers to notify them they were legally required to turn over their information to the IRS
The IRS had initially asked Coinbase in July 2017 to hand over even more detailed information on every one of its then over 500,000 users in an attempt catch those cheating on their taxes. However, another court order in Nov. 2017 reduced this number to around 14,000 “high-transacting” users, which the platform now reports as 13,000, in what Coinbase calls a “partial, but still significant, victory for Coinbase and its customers.”
Coinbase told the around 13,000 affected customers that the company would be providing their taxpayer ID, name, birth date, address, and historical transaction records from 2013-2015 to the IRS within 21 days. Coinbase’s letter to these customers encourages them “to seek legal advice from an attorney promptly” if they have any questions. Their website also states that concerns may also be addressed on Coinbase’s Taxes FAQ. The ongoing legal battle between Coinbase and the US government dates back to November, 2016, when the IRS filed a “John Doe summons” in the United States District Court for the Northern District of California.
On Feb. 13, personal finance service Credit Karma released data showing that only 0.04 percent of their customers had reported cryptocurrencies on their federal tax returns. 
And in April, former New York Attorney General, Eric "we could rarely have sex without him beating me" Schneiderman, launched a probe of 13 major cryptocurrency exchanges according to the Wall Street Journal - claiming that investors dealing in the fast-growing markets often don’t have the basic facts needed to protect themselves.
Former AG Schneiderman’s office said the program, called Virtual Markets Integrity Initiative,  is part of its responsibility to protect consumers and ensure the integrity of financial markets, and its goal is to ensure that investors can have a better understanding of the risks and protections afforded them on these sites.
CFTC Commissioner: Crypto is a "modern miracle"
While the CFTC, IRS and New York Attorney General's office are all cracking down on cryptocurrency exchanges, it seems to all be part of the government's embrace of virtual currencies.  Last week CFTC Commissioner Rostin Benham called cryptocurrencies a "modern miracleat the Blockchain For Impact Summit held at the UN in New York last week. 
But virtual currencies may – will – become part of the economic practices of any country, anywhere.  Let me repeat that:  these currencies are not going away and they will proliferate to every economy and every part of the planet.  Some places, small economies, may become dependent on virtual assets for survival.  And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.
We are witnessing a technological revolution.  Perhaps we are witnessing a modern miracle. -Rostin Benham
Rostin hinted at the upcoming legal action against the exchanges during his speech:
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself.  The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

Meanwhile, the official Bitcoin website removed references to Coinbase, Blockchain.com and Bitpay, according to Crypto News - only one of which, Coinbase, was subpoenaed. 
http://Bitcoin.org  just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin options trading platform. Expect a burst of institutional trading activity to follow - especially since they approved institutional options trading in July
This post sponsored by Total Cryptos @ www.totalcryptos.com  

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