Apple Inc. has $170 billion in cash on their balance sheet, and yet, they are going to issue $17 billion in bonds. Whatever for? To circumvent the double taxation that U.S. corporations have to pay on all overseas profits. Corporations keep their overseas profits out of the U.S. so they aren’t taxed twice, at up to 35%. As a result, the cash that Apple wants to buy back its own shares to reward shareholders has to come from issuing bonds in a foreign country.
Similarly, there is tax arbitrage between U.S. states. Maryland and New Jersey imposed a ‘millionaire’s tax’ on high income earners to balance their budgets. But those high income earners simply moved to a nearby state. Both Maryland and New Jersey saw their tax revenue plummet from high earners when they expected a sharp increase from the new tax. Many wealthy with a few residences simply spent more time at one of their other homes in a state with less income tax.
Small business and part-time business owners open limited-liability companies in states with no income tax. If your business is performed online or a holding company, it does not have to be in the state where operations are performed. Having worked in venture capital, tax liabilities of all kinds are very important to investors and forming a start-up legal structure in states or locales with low tax rates is often mandatory.
Retirees on a fixed income are more sensitive to taxes of all kinds and can enjoy a higher standard of living by relocating to a state with a lower overall tax burden. Many people only focus on income taxes but you must compute sales tax, property tax, and other taxes to your particular situation.
As taxes continue to increase, getting expert advice from someone who specializes in tax planning (not just a tax preparer,) is critical to minimize your tax burden. Plus, they will know what all you need to do to comply with tax rules so your effort isn’t undone by any tax-compliance audit.