The United States population is about 311 million people which represents about 4.5 percent of the worlds’ 7 billion viable consumers. For the United States to remain a world leader in business, it must remain competitive on a global level with regard to government effectiveness, economic development for entrepreneurial growth, and the costs of doing business.

Because of globalization, people and business no longer need to be based in the USA for success or even rely on the US for survival. Businesses and people in the USA can move out of the country and become successful in many regions of the world including: Latin America, Russia, Arabia, India, Asia, Africa, the West Indies, and specifically city states such as Dubai or Singapore. Many of the reasons people go offshore are for logistics, to sell to the global customer, and to take advantage of favorable business environments. Some countries even offer the ability for retained earnings enabling tax-deferred reinvestment and capital growth offshore. Allowing retained earnings lets companies to grow and reinvest rapidly and locally without ongoing tax regulation and filings, and seems to keep more money flowing in local regions. In countries like the USA, you must pay taxes and fees as you go either quarterly or at the end of each year, but there is no way to retain the revenues past fiscal year-end and invest it without involving complex tax regulations, filings, disclosures, or penalties.

Within the jurisdictions of the USA, the same holds true, people and business go to where there is the least friction and lower: red tape, regulation, litigation, fees, waste, corruption, and other economic costs. And guess what, if a business is relocating in one of the 50 US states or territories, there is competition between the jurisdictions. Any relocating company can freely ask the state officials the question, “what can you do for us”, and the state economic development folks will begin dancing, singing, and offering tax and other incentives for the company and its’ employees to move into their jurisdiction.

The point is that the United States will need to engage the same economic development both internally and externally to make our federal environment more fair and friendly to insiders and outsiders who want to invest in America. The dirty secret is that people from inside the USA and outside in developed countries want a token of good faith, a fair system, investor protection, and a good legal system. Moreover, they want to have confidence in America, it’s leaders and the system of business law. However, if the structure smells like a costly bureaucratic shakedown, then international investors will not invest in the USA.

To compare tax rates, in the USA, you pay federal income tax, state income tax, sales taxes, and also corporate taxes. Keep in mind, these taxes are paid before the individual can invest the money in their local or regional community where it would also be taxed.

The federal tax rate in the United States for corporations is 35% plus potential state taxes which is higher than most countries around the world. Higher than Indian’s 33% base rate, and China and Brazil’s initial corporate income tax of 25% and higher than Russian corporate tax which is 20%. See KPMG Tax Table. Whereas, there are countries with extremely competitive rates, safe jurisdictions, and available talent in the region. Various examples would be: Singapore, Czech Republic, Lithuania, Bermuda, Bahrain, Montenegro, Macau, Qatar, Paraguay and others.

In contrast, Dubai which is a major city state government and emirate within the United Arab Emirates allows for a corporate styled LLC Limited Liability Company which has no corporate taxes, no income tax and no retained earnings taxes. Much of Dubai’s government revenues come from annual fees for services and the expatriates & foreign companies that locate there.

The focus of this analysis is not just corporate tax rates, but the TBDB Total Burden of Doing Business versus total benefits for member loyalty. As with any credit card , if you do not like their fees and rewards, you can dump them for a better card with better rewards such as Visa, MasterCard American Express and Discover. VISA (NYSE: V[FREE Stock Trend Analysis]) MasterCard (NYSE: MA) American Express (NYSE: AXP) and Discover (NYSE: DFS). The same value proposition will draw the creators, producers, and contributors to the best service provider.

Going forward, it is my view that the most successful economies in the world will have strategies to provide benefits to those who locate in their country to do business. In the end, the citizens of these forward-thinking countries or jurisdictions will reap the benefits of such international respect and good will. During this political season, we hear reporters asking generic tax reform questions such as “Show Me the Math; yet, there is an incredibly simple answer that was provided to me by a old farmer with a 4th grade education. The answer is that, “50% of nothing is still nothing”, and the countries that promote good will and economic incentives will be rewarded with 10 or even up to 20 percent of the revenues from top companies including much of world investment and trade.

With all of this being said, volume businesses such as WalMart (NYSE: WMT) or Amazon (NASDAQ: AMZN) create vast revenues based in incentives, pricing, customer satisfaction and value. As such, the centers which promote economic fairness, freedom and security will become super-hubs of free markets, prosperity, and success for the long-term. This is just one more reason why management consulting firms such as Booz Allen Hamilton (NYSE: BAH) and international law and accounting firms such as Accenture (NYSE: ACN) will continue to flourish while international online education such as law schools for tax and finance such will also expand enrollment. See TJSL Online Graduate Tax Program

In the end, strategic government policy is the key to developing GCA or “Global Competitive Advantage” and also the secret to bringing new business into your country where relocated or new companies hire more local people, create local and national economic activity, and ultimately the key to revenue generation.

About the Author: Dr. George Mentz JD, MBA, CWM – Mentz is a world recognized Certified Chartered Wealth Manager and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us or www.selfhelpbook.org  Mentz is a licensed attorney and CWM Chartered Wealth Manager

Mentz is part of the National Underwriter Panel of Experts for Advisor FX and FYI http://www.advisorfyi.com/expert/

*No tax investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.
References:
TJSL Thomas Jefferson School of Law Graduate Tax and Finance http://llmprogram.tjsl.edu
Global Tax Table from KPMG http://www.kpmg.com/global/en/whatwedo/tax/tax-tools-and-resources/pages…
IRS http://www.irs.gov/Businesses/Corporations
AAFM American Academy of Financial Management

Authors: George Mentz and Prof. William Byrnes

Are you logging long hours? Do you feel like you never leave the office? Answering calls seven days a week? You may be one of the many Americans who can relate to the current employment trends, which after-all haven’t changed much in the last five years.

Weekday v. Weekend Work

For example, recent statistics show that in 2010, 82 percent of employed persons worked on an average weekday, compared with 35 percent on an average weekend day. [1] The data is not much different from 2005 figures which reported, about 83 percent of employed persons worked on an average weekday, compared with 32 percent on an average weekend day. [2]

Interesting the job shortage and subsequent increased job market competition created by the financial crisis did not have a significant impact on the quantity of work for the average worker. In both 2005 and 2010, on average, employed persons worked 7.5 hours on the days they worked. More hours were worked, on average, on weekdays than on weekend days–7.9 hours compared with 5.5 hours, respectively.

Closing the Gender Gap

Are women starting to work more hours as compared to data presented five years ago? The results indicate a positive response. On the days that they worked, employed men worked 41 minutes more than employed women. This difference partly reflects women’s greater likelihood of working part time.

Yet even among full-time workers (those usually working 35 hours or more per week), men worked longer than women–8.2 hours compared with 7.8 hours.

Nevertheless, in 2005, on the days they worked, employed men worked about three-quarters of an hour more than employed women. Another slight deviation showing an equality of working conditions can also be seen among full-time workers (those usually working 35 hours or more per week), in that in 2005 men also worked longer than women—8.3 versus 7.7 hours.

Shift to Flexible Schedules

In 2010, on the days that they worked, 24 percent of employed persons did some or all of their work at home, and 83 percent did some or all of their work at their workplace. Gender did not play a part in this statistic however, as men and women were about equally likely to do some or all of their work at home.

Higher Education and Work from Home

Do those with higher education degrees work more from home? Recent information collected also says yes. On the days that they worked, 36 percent of employed people age 25 and over with a bachelor’s degree or higher did some work at home, compared with only 10 percent of those with less than a high school diploma.

Self-Employed and Work From Home

Most anyone who has ever owned a small business can relate to the fact that their work never stops. The statistics back-up this general contention as reports show these individuals are over 3 times a likely to work from home. In other words, self-employed workers were three times more likely than wage and salary workers to have done some work at home on days worked—64 percent compared with 19 percent.

Employment Going Forward

With over 9 percent unemployment in the summer of 2011, and the most challenging economy in recent history, one can only hope that we are in the “Great Transition’ rather than any type depression.  American’s are retooling, going back to school [3], starting new businesses, and more are working from home using new technology or even  leaving to work abroad.  More and more US Citizens are running small local businesses, and these small businesses, as stated by the SBA,  are the said to be engine of growth in our economy. [4]

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

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[1] 2010 data obtained from the U.S. Bureau of Labor Statistics–The American Time Use Survey (ATUS) 2010 Summary. http://www.bls.gov/news.release/atus.nr0.htm. Last Accessed 6/23/2010.

[2] 2005 data obtained from the Bureau of Labor Statistics. ATUS. http://www.bls.gov/news.release/archives/atus_07272006.pdf. Last Accessed 6/23/2010.

[3] Study: Online Education Continues Its Meteoric Growth -  by Jeff Greer http://www.usnews.com/education/online-education/articles/2010/01/26/study-online-education-continues-its-meteoric-growth

[4] How important are small businesses to the U.S. economy?  http://www.sba.gov/advocacy/7495/8420

The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that will touch the life insurance business – one affecting Corporate-Owned Life Insurance (“COLI”) and the other affecting carriers’ Dividends-Received Deduction (“DRD”).

In response to alarm that the proposals tamper with the tax preferred status of life insurance, the Treasury recently issued a letter clarifying that these proposals center around tax arbitrage issues, not the tax treatment of death benefits.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of corporate life insurance in Advisor’s Journal, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC 11-41).

For in-depth analysis of taxation affecting corporations, see Advisor’s Main Library: A – The Corporate Income Tax.

Why is this Topic Important to Wealth Managers? This blogticle presents discussion related to the State Small Business Credit which is now being applied for by an increasing number of states. The program is intended to provide capital to small businesses. Wealth managers with small business clients in these states should be mindful of the potential access to new capital.

Late last month the U.S. Department of the Treasury announced the approval of State Small Business Credit Initiative (SSBCI) applications from Connecticut, Missouri, and Vermont. The planned use of SSBCI funds by these states is intended to help create new jobs and is expected to spur more than $534 million in additional small business lending. The SSBCI program, which supports state-level small business lending programs, is one component of the Small Business Jobs Act.

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 (the “Act”).[1] The Act created the SSBCI, which was funded with $1.5 billion to strengthen state programs that support lending to small businesses and small manufacturers. In total, the SSBCI is expected to help spur up to $15 billion in lending to small businesses.

Under the SSBCI, participating states will use the federal funds for programs that leverage private lending to help finance small businesses and manufacturers that are creditworthy, but are not getting the loans they need to expand and create jobs. The SSBCI will allow states to build on successful models for state small business programs, including collateral support programs, Capital Access Programs (CAPs) and loan guarantee programs.  Existing and new state programs are eligible for support under the SSBCI.

“These critical funds will help small businesses access the capital they need to expand their operations, create new jobs, and continue supporting our nation’s economic recovery,” said Treasury Secretary Tim Geithner. “Public-private lending partnerships, such as the State Small Business Credit Initiative, have a proven track record of success, and I’m pleased that this funding is on its way to support economic growth in these states.”

Under the SSBCI, all states are offered the opportunity to apply for federal funds for state-run programs that partner with private lenders to increase the amount of credit available to small businesses. States must demonstrate a reasonable expectation that a minimum of $10 in new private lending will result from every $1 in federal funding. Accordingly, the $1.5 billion federal funding commitment for this program overall is expected to result in at least $15 billion in additional private lending nationwide.

Details on the applications approved earlier in March, which the states expect will generate a cumulative total of at least $534 million in new small business lending in Connecticut ($133 million), Missouri ($269 million), and Vermont ($132 million).

The Treasury has previously approved funding for SSBCI programs in California, Michigan, and North Carolina. Additional applications are expected to be approved in the coming weeks.

Next week’s blogticles will contain helpful tips for wealth managers.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

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[1] PL 111-240.

The Tax Court has reopened the question of whether limited partners are entitled to an exemption from self-employment taxes—an issue that’s been in hibernation for over 13 years.  The Tax Court recently concluded that status as a limited partner does not necessarily exempt a partner from self-employment taxes; the exemption depends on the partner’s level of participation in partnership business. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of small businesses in Advisor’s Journal, see IRS Announces Lenient Lien Program for Small Business (CC 11-48)

For in-depth analysis of partnership taxation, see Advisor’s Main Library: H–Partnership Taxation

Why is this Topic Important to Wealth Managers? This blogiticle discusses how financial statements are used in connection with business insurance planning. The information is presented because valuations become an important factor in a number of situations where wealth managers are working with clients.

First, properly kept financial statement can help ensure easier access to capital as well as give a truer understanding of the business’ financial position. Second, insurance underwriters are concerned with risk exposure. Thus most businesses are required to provide financial information of the company through the financial statements when a substantial amount of insurance is purchased.

In addition, the financial statements are commonly used in the risk management processes. Assets are usually examined to determine what amount of exposure the business may have. Further, outstanding liabilities in connection with cash flow may present operational and risk issues.

But one area where financial statements are really important is: business valuation. Most if not all business valuation is based primarily on financial statement analysis. This process generally begins with an examination of the assets of the business. Further, as was discussed yesterday the amount that a business’ assets exceed its liabilities is called owner’s equity.  During personal planning situations with closely held corporations and other entities, owner’s equity is an important amount, as this is what the owners are entitled to after all liabilities are settled with assets on hand.

Moreover, business valuation is important when drafting buy-sell agreements or purchasing insurance in connection with a buy-sell or otherwise on a key employee, including but not limited to owners of such organizations.  Small businesses are especially sensitive to the exposure of ownership ending up with individuals the surviving owner(s) don’t want to do business with.

Thus, under the traditional buy-sell agreement the owners enter into a binding buy-sell agreement among themselves. They contract to purchase the interest of any other owner who dies; each stockholder agrees and contracts for the sale of his or her interest at death. Alternatively, the agreement may be between the owners and the entity, obligating the business to purchase the shares of a deceased owner and either hold the shares as treasury stock or retire them. Either route that is exercised must nevertheless be based upon some valuation. This is where the financial statements come into use.

In other words, key employee insurance and buy-sell agreements are generally based on some total dollar amount that represents the value of the business. This figure is usually based on some number that is related to the financial statements and accounting of the business. Whether it’s the total assets, a factor of revenue or income, or some other determination, the need for a basic knowledge of financial accounting for small businesses is essential.

What’s more, because a price or method of establishing the sales price is generally set out in the agreement, the accuracy of financial reporting and presentation within the financial statements is critical. Since the amount to be paid for the deceased’s stock is set out in the contract, and since the terms of payment are agreed upon in advance those keeping unsound records and accounts will likely incorrectly value the business which could negatively affect other planning aspects.

For a detailed analysis on business valuation and how it relates to buy sell agreements see Advanced Markets AdvisorFX: Insurance Needs Revealed in Financial Statements.

For sample buy-sell and cross purchase agreements see Advanced Markets AdvisorFX: Sample Close Corporation Buy-Sell Agreements.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

Treasury Secretary Timothy Geithner sparked outrage when he suggested at a recent House Ways and Means subcommittee meeting that “Congress has to revisit this basic question about whether it makes sense for us as a country to allow certain businesses to choose whether they’re treated as corporations for tax purposes or not.” Geithner’s comments about pass-through entities forced a collective gasp from millions of small business owners who could lose their ability to compete if subject to a double tax regime.   Behind client referrals, professional referrals were the second biggest producer.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous Advisor’s Journal coverage of the Obama administration’s budget and tax proposals, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41) & Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01).

For in-depth analysis of S corporation taxation, see Advisor’s Main Library: B—Corporation’s Election Under Subchapter S.

If you have small business clients who are struggling with back taxes and/or tax liens, you can give them some good news. The IRS is offering help for both individuals and small businesses that are struggling to “meet their tax obligations, without adding unnecessary burden to [the] taxpayers.”  The new program includes a number of features discussed in today’s Advanced Markets Journal.   Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

Repeal of the health reform law’s business-to-business 1099 reporting requirement is a step closer, with the U.S. Senate passing an amendment on February 2 that would repeal the provision.  Praising passage of the Senate amendment, Senator Stabenow said, “Today we provided a common-sense solution for business owners so they can focus on creating jobs, not filling out paperwork for the IRS…. If left unchecked, 40 million small businesses would see their IRS 1099 paperwork increase 2000 percent.”

President Obama even praised the repeal efforts in his state of the union address, receiving a resounding round of applause.  Acknowledging that his health care reform law has its share of flaws, and offering to work with the Congress to correct those flaws, he said that “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Health Care Reform Act’s enhanced 1099 reporting requirement in Advisor’s Journal, see Health Care Reform Causes an Avalanche of 1099s (CC 10-84).

Why is this Topic Important to Wealth Managers? Discusses the Small Business Tax Credit as enacted by the Health Care Legislation.  Provides an overview of important information concerning small businesses and the use of the tax credit.

During 2010, President Obama realized his goal of providing health care coverage to all Americans when Congress passed the Patient Protection and Affordable Care Act, [1] and the Health Care and Education Reconciliation Act of 2010.[2]

Under the new health care legislation many new changes will affect taxpayers beginning last year.  This week’s blogticles are dedicated to the discussion of the health care legislation and the impact it is projected to have.  We begin with a discussion of the Small Business Tax Credit.

Under the new law, the Small Business Tax Credit allows qualified small employers to elect, beginning in 2010 a tax credit for some percentage of their employee health care coverage expenses.  Generally, a “qualified small employer” is an employer who has the equivalent of 25 full-time workers or less (e.g., a firm with fewer than 50 half-time workers would be eligible), pay average annual wages below $50,000, and cover at least 50 percent of the cost of health care coverage for their workers.[3]

Further, the tax credit will cover up to 35 percent of the premiums a small business pays to cover its workers until 2014, when the rate will increase to 50 percent.  Nevertheless, the credit has phase out provisions which gradually reduce the credit amount for businesses with average wages between $25,000 and $50,000 and for businesses with the equivalent of between 10 and 25 full-time workers.

The United States Department of Health and Human Services Estimates that up to 4 million small businesses are eligible for tax credits to “help them provide insurance benefits to their workers.” [4]

The incentive behind the tax credit appears to be two-fold.  First, The Congressional Budget Office estimates that the tax credit will save small businesses $40 billion by 2019.  Secondly, small businesses face “extraordinary challenges in providing affordable health coverage to employees, “including premiums that are 18 percent higher on average than large businesses pay for the same coverage.” [5]

Estimates also show that small businesses have 3 to 4 times as much administrative cost built into premiums than as compared to the large group market.  In addition, small businesses are also considered to be at a disadvantage in negotiating with insurance companies because they lack significant bargaining power. [6]

For detailed guidance on the Small Business Tax Credit see Internal Revenue Service Notice 2010-44. [7] The guidance clarifies, in part, that small businesses can receive the credit not only for traditional health insurance coverage but also for add-on dental, vision, and other limited-scope coverage.

Tomorrow’s blogticle will continue the discussion on the health care legislation.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Pub. L. No. 111-148.

[2] Pub. L. No. 111-152.

[3] See generally, Patient Protection and Affordable Care Act Sec. 1421, as modified by section 10105.

[4] http://www.healthcare.gov/law/about/order/byyear.html.  Last Accessed 1/2/2011.

[5] Id.

[6] Administration Releases New Guidance On Small Business Health Care Tax Credit.  http://www.whitehouse.gov/sites/default/files/rss_viewer/health_reform_small_business_guidance.pdf.  May 17, 2010.  Last Accessed 1/2/2011.

[7] Internal Revenue Service.  Section 45R – Tax Credit for Employee Health Insurance Expenses of Small Employers Notice 2010-4.  http://www.irs.gov/pub/irs-drop/n-10-44.pdf.  Last Accessed 1/2/2011.