Small business is foreign tax planning requires the maximum foreign tax credit. This video explains a sophisticated foreign tax planning strategy. Set this up either before your start business or within the first twelve months. After that date, you must go through a complex set of tax laws and get and IRS private ruling letter to avoid a taxable event.
The problem is that small business is not allowed the foreign tax credit for taxes paid by a foreign corporation. Without the foreign tax credit, small business's tax burden exceeds 80%. Without the foreign tax credit, the American small business incurs double taxation (taxes paid to the foreign government and again to the United States).
Just how do you save taxes when doing business overseas? The first task is to have the IRS pay your foreign taxes. This is known as the foreign tax credit. The best international tax structure is the dual resident corporation. This is the ideal structure for foreign tax credit planning.
A dual resident corporation is incorporated in both a foreign country (such as the U.K...) and in the U.S... Once dual resident corporate status is obtained, a Subchapter S election can be made with IRS approval. As a Subchapter S corporation, you will get a $1 for $1 tax credit for your foreign taxes. If by chance your foreign business losses money, you can deduct the loss on your income tax return. This is the best international tax planning strategy.
If you would like to brainstorm your foreign income tax planning, then call me, Brian Dooley CPA, MBT for a free International tax planning consultation at 949-939-3414.