Yes.. they were absolute idiots with US income and paper trail and deserve the wrath. The memorandum you need is not from an accounting firm but from a licensed attorney.
No, on the depreciation recapture it will be 25% of the prior depreciated $5MM. So the savings isn't excessive, but you would be saving a couple percentage points compared to regular equity trading. Again trading of 1256 contracts would get you a better rate than that. The only advantage to your situation is that depreciation recapture is paid on the sale so it is certainly tax deferred while you hold the property. Cap gains in real estate appreciation can be avoided through a roll, but you cannot avoid the dep recap. But the issue is that your argument falls apart if you try to use the tax deferred period to your advantage to compound gains. After the first year the depreciation of the real estate is no longer large enough to cover the trading gains. So really you aren't benefiting nearly as much as it seems from this strat.
Texas is a great state for an LLC. I formed my LLC but I live and have my main office out of Texas. The fee was $400 to file the articles of incorporation. Be sure to review which style of "Incorporation" works for you. LLC, C corp, LP. etc. as a trader, as I'm not sure the rules. I would imagine they are not much different. Make sure you understand the Pass through Tax advantage and that you are up to date on the new IRS code. Some things have changed for 2011, including taxation for Health Care.
I'm not following the recapture hitting you directly. The entity bought back your ownership. You are out and your buyout distribution is reported on your schedule D taxed at 15% long term gain rate. The Foreign LLC holds any liabilities moving forward with no assets and for all practical purposes ceases to exist.
LLC is pass-thru whether offshore or not. You are claiming the depreciation on a piece of US real estate. When the sale of that real estate occurs, the IRS will want the recap. Doesn't matter that it all happened under an LLC, it is assessed during the current tax period. If the LLC buys you out, then you have schedule D income. Then the remaining owners of the LLC are liable for the recap. It was a profitable sale. The entity cannot cease to exist if it still owns assets in excess of liabilities. If you sold the assets then in the end, it all still comes back to you given the pass thru nature of the entity. That's what I've been trying to tell you. The IRS calls your LLC a disregarded entity, meaning for tax purposes it doesn't distinguish between the foreign LLC and you as an individual.
I've spent hours and hours researching IRS and legal documents on these proposed tax shelters in hopes that I would find something that would hold up. There is really no legitimate way to accomplish what you are talking about without the tax liability. There are a ton of law firms and tax specialists out there that are setting these things up for a profit, but in the end, you are the one who is liable when the IRS comes knocking. You might never get audited. In the event that you do get audited, none of what you are saying will remove or reduce the required payments. And if you can't pay, then it's jail time bro. And the lawyer who set you up won't even get touched because all he did was create the legal entities, you were the one responsible for reporting the income to the IRS.
Have you investigated Series LLC's? IRS Form 8832 is optional and only required if the Foreign LLC elects to be taxed as a disregarded entity. Form 5471 is the key... You want your entity to operate tax deferred until distribution or liquidation. Form 5471 is similar in some respects to the information return for a partnership, an S corporation or a trust. Unlike a regular C corporation, the income of a foreign corporation may be either taxed to the shareholders or tax deferred until there is a distribution or a liquidation.
Would this idea fly, keeping everything legal?: What if a make a trading company with my family. Let's say I am the headtrader on salary, my wife is employed as secretary, the son is the janitor, the daughter is the driver, for example. Since companies taxed on net profit, we just have to spend all/most of the trading /company profits on the company, what happens to be the family. So the idea here is that everything what a family needs would be spent from the trading profits until there is no profit left, thus we won't pay company tax. Who is to say my company can not have paid healthcare for every employee? The cars of course belong to the company too, insurance and maintenance are all paid by the company. We can also have company paid meals, etc. So the advantage would be twofold: 1. Instead of paying a high % tax from my personal profits as a retail trader, we would pay much smaller taxes on the much smaller salaries. 2. Most everything what a family needs could be used as company running expenses. Would this work? Again, keeping everything legal. My guess is that it could work but there is a cut off level what the capital and the profits need to reach before setting it up to make it worthy to do so...
You can't legally buy cars through the company for personal use. You can make your payroll as big as you want but there will be social security taxes on both sides, employer and employee plus all the bookeeping. Health insurance is a legit expense. Get some serious legal advise before you start doing all that, it would suck to charged for tax evasion trying to save a few bucks.
Well, I would actually make the payroll small. Since the family expenses are paid mostly by the company, the salaries are needed in case of audit and maybe for paying social security. One of the biggest write off/expense could be if the building where the office is, is also the family house. Let's say one floor is the office, the other is for the family. The family could rent it from the company for some ridiculously small amount and such. I am not planning to do it, I just like a mental challenge. I don't see why a small company couldn't own 2-3 cars, well maybe we need 2 properties and transportation is also included in the benefits....Or we have to have some kind of clientele, even if small just to justify the cars... Vegas vacation? Just save the ticket from the Traders Expo....