Here we are in the thick of another tax season and tax professionals everywhere are bemoaning the standard litany of issues: unreconciled bank accounts, balance sheets that don’t balance, unfiled 1099s, etc. It doesn’t have to be this way, at least not for you and your clients. Tax season is actually the perfect time to review and/or set and implement best practices for tax and accounting compliance in your clients’ businesses—and yours. Physician, heal thyself.
State Tax Planning with the “80/20 Company” Exclusion
Ted Stotzer
Many multinational groups find that foreign-source dividends and other income earned by domestic affiliates are fully or partially subject to state income taxation, even where the federal system provides an exemption. This state-level “leakage” can be material – particularly in high-tax jurisdictions – and is often overlooked because the income appears sheltered at the federal level. For groups with predominantly foreign operations, a starting structure or a restructuring that causes one or more domestic affiliates to qualify as an “80/20 company” can substantially reduce or eliminate state taxation on that income.
