Imagine that I run two firms - one that provides primary top-level advice, guidance, etc. here in the states, and with the other doing some or all of the implementation work in a U.S. territory like Puerto Rico. Much of the profits can end up in PR, and when your continental entity needs cash it can borrow it from your PR-entity at a decent interest rate to further reduce states-based taxable income. You don't really even need to be a citizen of PR for that to begin working. That's one of innumerable ways to reduce your tax burden here. An ambitious accounting and legal team can help you ensure that you keep as much of your total billings as possible.
We don't do this - we're too small and due to ambitious growth we end up eating most or all of our earnings each year anyway. Definitely seen it before.
However it is a pretty simple one off step to incorporate, which your accountant should handle easily for you. After that optimise to maximize cashflow, and don't get excited about other tax savings. Some people get bogged down trying to save little pieces of tax by, for instance, buying assets they don't really need. Optimise for best cashflow. Optimise for best cashflow. There I said it three times. I am a finance professional who has held fc roles. I think about tax very rarely. I think about cashflow constantly.
Optimise cashflow for consultants:
Charge more Charge up front If you supply anything make a margin on it, and get paid upfront Bill on time Bill on time. Seriously stop working and write your bill out. A well functioning finance department at the client will pay all authorised invoices around the due date. Authorisation takes time, get in the queue early. Chase your debts immediately, if you have large bills due for payment call your clients accounts payable (know who this is) and ask them if they have the bill and ask them to confirm what date it will be paid on and the amount. Send statements too. I see this every day, where someone is waiting for co to pay them but co has no record of the invoice, it is in spam, in the wrong persons inbox etc. AP departments don't mind being chased, they expect it, it is their job, don't be shy!
Copy your bills directly to accounts payable as well as your direct contact. AP are generally good at chasing internal people for things they know about
I don't believe it's dysfunctional for this particular reason. There are for sure trade-offs between simplification & trying to optimize for the best outcome. A simpler tax code would be nice but then people on all sides of the political aisle would start saying we should really give X a break for Y reasons and that's how it seems to get complicated.
There is literally a 20% tax break for most small businesses this year in the US.
Healthcare can be cut in half if you are below certain requirements but make a $1 more & you pay the whole bill. This one I agree seems silly. Though it's maybe to simplified & should be more complex with a sliding scale.
A popular move for freelancers is to start an S-Corp LLC where you pay yourself a fair wage compared to others in the industry. This money gets taxed hard. Harder personally for you than if you worked for someone else. You can pay yourself dividends though with any extra money your earn as long as it's less than your wage income. This money gets taxed much less.
How you invest your money is also taxed all sorts of different ways.
Note - I'm not a tax professional & the above is just my understanding. Someone who is a professional or has more experience would give better advice hence my original post.
The cheaper (with AI and automation) it gets for IRS to chase for transfer pricing violations, the more likely it is to get a fine.
It's not a crime if they don't catch you.
And don't be the cheap client yourself in that regard 120€/hour for a good/excellent freelance accountant, I never want to go back to less experienced/professional/passionate ones.
Some examples: When you open a one person business in France there is a program to give you a 0% tax rate in the first year, but you need to apply and for that you need to know it exists.
Employing yourself can cost you 70% taxes. At the start when you rates might be low you can pay around 25% with the right corporate structure, instead of up to 45%.
edit: typo