tax planning

Enterprise Zone Tax Savings: Be Careful

     The new tax law signed December, 2017 allows for investments in Enterprise Zones to be free of capital gains tax if held 10 years. Assuming someone is in the 23.8% federal bracket for capital gains this may seem appealing, but some of the tax savings might go to sellers of these properties. Assuming the properties appreciate immediately by half of the amount of the tax savings then the seller would indirectly get half of the value of the tax cut. If the buyer overpaid by half of 23.8% then he only saves half, which is 11.9%, then if divided by 10 years holding, that’s about 1% a year saved. Every bit of savings helps to boost returns but what

2018-10-31T13:18:12+00:00October 31st, 2018|mayflowercapital blog|Comments Off on Enterprise Zone Tax Savings: Be Careful

Will The Tax Cut Create Stimulus?

    The tax cut enacted December, 2017 cut personal income taxes by a tiny amount and over the next nine years the personal cuts will net out to zero, with most of the benefits coming in the first two years. The real potential impact of the tax cut is the corporate part which is several times larger than the personal cut. The stimulus for corporations in the form of faster depreciation deductions may seem attractive but if a business decides they can’t actually use new capital equipment then they won’t be able to take advantage of the depreciation deduction.    The lower tax rate for corporations will probably persuade some business owners to feel more prosperous and spend and consume

2018-05-03T15:02:29+00:00May 3rd, 2018|mayflowercapital blog|Comments Off on Will The Tax Cut Create Stimulus?

Tax Cut Stimulation to Boost Economy?

The new law of last month requires corporations to pay 12.5% tax on future foreign earnings of their subsidiaries. How will that effect the economy? Currently many U.S. corporations pay 12.5% to Ireland or 8.8% to Zug, Switzerland. These foreign taxes can be netted against the new U.S. foreign tax rate of 12.5% so the U.S. parent of a Swiss subsidiary would have to pay the U.S. a 3.7% tax. Thus the tax law may raise very little tax money from foreign subsidiaries.   The trend likely to emerge is that U.S. small companies that are too small to have offshore tax advantages or too weak to need tax savings may be bought out by giant multinational companies who would

2018-01-29T11:49:44+00:00January 29th, 2018|mayflowercapital blog|Comments Off on Tax Cut Stimulation to Boost Economy?

New Tax Law’s Stock Market Damaging Shock

          What is truly a huge item about the new tax law is something just the opposite of what the law’s authors intended. They sought to create a tax cut for corporations to make them globally competitive. Currently the SP500 companies are 75% of the U.S. economy. They are big enough they have been able to afford to set up offshore tax advantaged subsidiaries that benefited from the old law where they could get a zero tax rate in some cases. Now in 2018 they have to pay a minimum of 12.5% on offshore profits (actually a range of 10.75% to 15% depending on details). Thus for the SP500, which is 75% of the economy, they will

2017-12-29T15:24:02+00:00December 29th, 2017|mayflowercapital blog|Comments Off on New Tax Law’s Stock Market Damaging Shock

New Tax Law: Will It Stimulate The Economy?

   The stimulus effect for the tax cut for business owners with pass-thorough entities like an “S” corporation might amount to a $10,000 deduction if single, or $20,000, if married, for small service businesses. It could be a lot more for large non-service business like manufacturers. Suppose a self-employed single person makes a salary of $100,000 and a corporate profit of $50,000 and has no other income. Then the $50,000 corporate profit would be multiplied by 20% to get a $10,000 deduction; assuming the taxpayer was in the 24% bracket then he would save $2,400 in taxes a year.    Assuming a new Congress repeals this in three years then the taxpayer will save $7,200 cumulative over three years. That

2017-12-20T16:30:27+00:00December 20th, 2017|mayflowercapital blog|Comments Off on New Tax Law: Will It Stimulate The Economy?

Tax Cut Scaring Bond Market?

    The new tax cut bill will probably be approved very soon. This has made the bond market worry that stimulus will result in higher rates, thus hurting bonds. The ten year Treasury bond’s yield went up from 2.36% to 2.46% since yesterday, which is a significant move. The stimulus will come in the form of personal tax cuts averaging $17 a week ($884 a year) for the average person in 2025. The tax cut will result in a gain of 1.2% in after-tax income, less than the 1.7% inflation rate. If the average person makes about $55,000 a year from employment that implies a tax cut of $660 attributable to employment income. This is not enough to stimulate the

2017-12-19T12:32:36+00:00December 19th, 2017|mayflowercapital blog|Comments Off on Tax Cut Scaring Bond Market?

New Tax Bill’s Affect On The Economy

The new tax bill may make recessions deeper and sharper. When an affluent person making $300,000 maxes out their ability to buy a home with a mortgage and property tax and then suffers a deep cut in income during a recession then in the proposed new tax bill they get a smaller tax deduction for mortgage interest and property tax than under the current law. If a self-employed person benefits from this law using the pass through rate and then during a recession he has to close his business and get a job then he would be in a higher tax bracket! The new law waters down AMT tax so even if it takes away some mortgage and property tax

2017-12-15T19:10:59+00:00December 15th, 2017|mayflowercapital blog|Comments Off on New Tax Bill’s Affect On The Economy

Deflationary Aspects of the Proposed Tax Bill

The new tax bill won’t cut taxes (using a discounted model of future behavior by Congress). Currently the average corporation pays a 13% rate (another study claimed they pay 26%). The problem with the tax bill is that it permanently takes away a corporation’s ability to have a foreign subsidiary that is immune from U.S. tax law and instead imposes a modest tax rate of 12% on foreign subsidiaries (supposedly a one-time tax) on foreign earnings regardless of whether earnings are firewalled off and kept offshore or are imported to the parent company. The risk for corporations is that each year, assuming a change in Congress, tax rates can gradually be raised on this, thus whittling away any benefit. Discounting

2017-12-14T11:52:23+00:00December 14th, 2017|mayflowercapital blog|Comments Off on Deflationary Aspects of the Proposed Tax Bill

How Tax Bill Will Effect Bonds

The new tax bill will make it possible for U.S. multinational corporations to repatriate their liquid assets stored overseas. In theory this would simply be a wash since they currently hold the cash in the form of investments in bonds, so the repatriation could be as simple as telling a bond broker who is their Custodian to simply move the assets to another account based in the U.S. in which case the broker simply makes an accounting entry. However, the move will mean a lesser need for gross borrowing, even if the move doesn’t change the amount of net borrowing. (By net borrowing, I mean the amount borrowed net of the trapped offshore cash). Currently a multinational starves its headquarters

2017-12-05T12:15:11+00:00December 5th, 2017|mayflowercapital blog|Comments Off on How Tax Bill Will Effect Bonds

Tax Cutting Bill To Damage the Bond Market?

       The proposed tax bill may just barely get passed by Congress. This makes the bond market nervous as some people think there would be a risk of inflation causing deficits and stimulus. A closer look at the bill shows it may not create much stimulus. It is actually a slight tax increase on the middle class and the net benefits accrue to either wealthy people with a net worth over $11,000,000 who face estate tax, or corporations with foreign subsidiaries that will get a cut in their taxes.           The perceived risk of the bill causing inflation mystifies me because if the bill increases the deficit by $1.5Trillion over ten years that is a 0.75% a year increase in

2017-11-29T19:15:15+00:00November 29th, 2017|mayflowercapital blog|Comments Off on Tax Cutting Bill To Damage the Bond Market?