IRS Tax Reduction

Xcel Law Group provides comprehensive tax planning and tax compliance to effectively reduce the income tax liabilities for small and middle size businesses.

Income tax liability of a small or middle size business could be effectively reduced through business structure with intellectual property development.

For example, a clinic with one doctor as the owner has a gross profit of $100,000 in 2012. If the doctor will take this $100,000 by the end of the year as salary, the doctor shall incur payroll tax liability in the amount of about $30,000, taking into consideration that the doctor is at the highest tax bracket. If doctor chooses to leave such profit in the corporation as re-investment, the corporation will incur about $30,000 income tax. As the result, either way, there will be about $30,000 tax liability on the $100,000 profit.

If doctor establishes a new corporation in a tax free state, such as Cayman Island, register a trademark through that Cayman Island corporation, then license such trademark to be used in doctor’s practice to the clinic. By the end of 2012, if the trademark licensing agreement provides a license fee of $100,000, the clinic will incur $100,000 trademark licensing fee expenses in 2012 to reduce the profit of the clinic to zero. The Cayman Island corporation will receive this $100,000 income as licensing fee for the trademark. Because Cayman Island is a tax free state, the $100,000 is subject no income tax to any government authorities. The Cayman Island corporation can establish another company in the United States as a subsidiary to invest such $100,000 back to the United States. Because this $100,000 is investment, it is free of both state and federal tax. The doctor will then has the choice to either invest such amount through the corporation, or charge expenses to the corporation to have the benefit of such $100,000 without any tax liabilities.

If you have any questions or concerns regarding this matter, please feel free to contact us for a consultation.