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Tax Planning

Tax impacts of decisions must be carefully considered.

We have in-house team members who have practiced tax law and tax accounting.  Our managing director was research assistant updating the law school tax text Federal Income Taxation by Dean Griswold (Harvard) and professor Graetz (formerly of USC, then Yale and now Columbia).  He also was  a tax researcher for the largest tax consultancy firm in the world early in his career.

We also provide asset protection and wealth transfer reviews.  

For a quick summary of how a 831(b) captive impacts taxes consider this sample scenario:

MAIN ASSUMPTION - You have $1,000,000 of pre-tax operating income from your business subject to a combined federal and state marginal tax rate of 45%:
  1. Option A - do nothing. Your $1,000,000 of taxable operating will result in approximately $450,000 of additional income tax liability at either your business or personal level if you operate through a flow through entity such as a sub-chapter S corporation or limited liability company. This leaves you $550,000 after taxes to invest and protect your business. 
  2. Option B - You form a 831(b) captive that writes $1,000,000 of insurance to your companies to protect them from otherwise uninsured (self-insured) risks. Your company takes an insurance expense deduction, saving $450,000 in combined federal and state income taxes. Your captive keeps the $1,000,000 to invest in loss reserves, less expenses of formation and management of the captive. 
  3. If the captive does not have any significant claim losses to pay, distributions of its excess reserves is usually at lower dividend or capital gains tax rates. In some countries this increased investment asset reserves can avoid taxation indefinitely. 
  4. If the captive is owned by an estate planning trust, the tax-advantaged asset build-up may avoid gift and estate taxes and transfer directly to children and grandchildren. 
  5. Tax Due if You Distribute Accumulated Earnings or Wind-Up Your 831(b) Captive - Generally dividends are taxed at more favorable rates when paid then the income tax savings associated with deductible premium payments. If you wind up a company, including a captive, the liquidating distribution of assets is generally taxed in the US as a capital gain to the extent the value of the assets exceeds your basis in the captive stock (generally the capital paid at formation).
  6. If you form your captive offshore and are a US business, carefully navigating the Internal Revenue Code's sub-part F controlled foreign corporation and foreign personal holding company rules is indicated to avoid unexpected compliance issues.
For a good overview of captive taxation and some excellent captive tax articles, visit our Captive Taxation section by clicking here.

Have your tax and business advisers contact us now to take your business, tax and financial planning to another level.  
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