Trading Stocks Within Corporation

[Launcelot]

s About Taxes)/Trading stocks within corporation Advertisement Expert: Richard Fritzler - 12/16/2006 Wow, your answers are great!

If I set up a corporation in Nevada, could the address be a PO Box, the phone number a cell phone, and what do you mean by having a bank account in that state?  Would I have to open one at a local branch?  Basically, I'm asking, could I set up a corporation in Nevada without the cost of having a physical office in Nevada and without leaving Indiana?

Secondly, what about offshore corporations.  Would I be required to pay taxes if I set up an offshore corporation and made a profit trading stocks through it, even if I never brought the profits back into the US but instead used it to by a vacation home in Switzerland?  Is there any way to legally utilize an offshore corporation to eliminate or minimize taxes?

Thanks so much for your help!

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And you used Nevada as an example because it has low taxes?  Is it the lowest of the 50 states?  Can I incorporate in Nevada even though I live in Indiana?

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Is it possible to set up a corporation to trade stocks and not get taxed on the gains and dividends?  In other words, if you reinvested the gains and taxes, the business would not show a profit and would not have anything to be taxed.  It would be like your own personal mutual fund.

Thanks for your help!

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[Ardleigh]

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"And you used Nevada as an example because it has low taxes?  Is it the lowest of the 50 states?  "

Zero is pretty low. I did use Nevada as the example and there are a lot reasons, tax savings is certainly one good reason but it just one of the reasons.

"Can I incorporate in Nevada even though I live in Indiana?"

Yes.

But your questions should not stop there. You should also ask if it would do any good, and, is that true for all businesses.

For you it will do some good. And No, it would not necessarily be a viable solution for all businesses.

Specifically because you intend to trade stocks, and that is not an Indiana centric business the corporation can choose what State is offering the best incentives for operating there. Obviously, in spite of the fact that Indiana is famous for vehicle axles and other drive line parts, it might be a good idea for a vehicle manufacturer to do business there, but it is not mandatory. Toyota chose a different state, Honda Chose a different state. . . well when you think about it, thousands if not millions of companies chose a different state to operate in. You can choose that for your business. If on the other hand, I did want to be a gear manufacturer, and I wanted to draw upon the skills and training of the people of Indiana, and I opened shop there, I'd have to file my corporation in Indiana.

Since you are "trading" and that would happen at a broker, that broker might be in New York or Chicago, or you might bypass the brokerage all together and trade right on the exchange, you wouldn't have to file in those states just because someone provided a service to your corporation. You would file your corporation in the state that it operates. In the state that it has an address, a telephone and a bank account. If that happens to be in Nevada, then you would be required to file it in Nevada. Oh, look, we just saved 8.5% by not paying Indiana State taxes.

Richard 800 590-6612  

[Kiva]

The "Model Business Corporation Act"(the defining standard) specifically states that a PO box is not enough, realizing that you can't really "do" business in a 3" x 5" hole in a wall. So if you are not doing business there, you must be doing business somewhere else, and then Indiana would be the logical focus. You can use a Nevada Cell phone in your business, and you might be able to claim it is your only phone and enough of a phone, but if is always answered in Indiana. . . and if you're going to pay $40-60 a month for that why not apply that to a real working solution. The Model Business Corporation Act, also claims that you cannot "do business" without a bank account. Now you can have a brokerage account, and again you might be able to claim that you can do all your banking through it. But let's look at what our goal was: To absolutely prove that you are doing business in Nevada and Only in Nevada. If you just have a PO box, you're not doing business, if you only have a brokerage account and it is not in Nevada, then you're not doing that part of the business in Nevada. If you only have a cell phone, and that is being answered in Nevada, then you're not doing that part in Nevada.

Are you doing business in Nevada? If not, what state could claim that you are doing business there? Well Indiana would have a claim, if your only brokerage account was with a brokerage that was domestically created in NY, they might have a claim, and if your broker was in Chicago, then Illinois would have a claim. None of these would be a great result. If the 8.5% State tax savings doesn't more than cover the cost, then just be a corporation in Indiana.

You as a US citizen are required to pay taxes on your worldwide income, regardless where it is generated or where it is stored. Failing to do that is tax evasion and tax evasion is criminal. People go to jail. I think that is bad.

No there is no way to use an Offshore concept to legally minimize taxes. Now, you may here a lot of stories of people not paying taxes who have been using offshore concepts. But that doesn't make it legal.

Just like you have heard of stories of people driving 120 MPH on one or more of your local highways. That doesn't make it legal.

And just so you know, the IRS is ramping up enforcement, so even those that have gotten away with it in the past, will most likely get caught.

But let me ask you, if the tax rate on dividends into a properly structured corporation is only 4.5%, that means that if you make $50,000 of true net profit, the tax at the end of the year is only $2,250, how hard are you going to work to get lower? How much will you spend to try to cut that.

Now certainly I can see cutting your taxes from 33.5% to 4.5%, but after that it is hard to cost justify.

Richard

Phone 800 590-6612

[Kyran]

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You'll be taxed, but you will be taxed much lower, so more of your profit can go back into the investments and your investment portfolio will grow faster, than if you did those same investments as an individual.

For example, if your earning enough personal income to  invest in $200,000 in General Motors right now, and got $10,000 of dividends this year, you personally would pay Federal taxes of 33-35%, you might even pay only 25 or 28%(but unlikely) plus your state taxes of 3-9%, so you might be able to reinvest $5500 to $7000.

If a properly structured corporation in Nevada made that same investment, it would only pay 4.5% in taxes and could reinvest $9550 of the $10,000.

After a few year of compounding your investment, you can see where you might have twice as much in your investment portfolio as a real corporation.

Richard Fritzler

www.owelesstax.com

phone 800 590-6612

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