Ep. 7 | Tax Planning for Foreign Entrepreneurs
Download MP3Welcome to the mister r show, brought to you by the Monthly Recurring Revenue Institute. If you're an accounting firm owner or manager seeking harmony between work and life while optimizing profitability, you're in the right place. Our goal, to empower you with the knowledge and tools necessary to enhance both your personal and financial well-being. In every episode, we bring you insights from esteemed individuals in the field who share their valuable expertise and practical steps. Join us on this journey as we collaborate to revolutionize your business and enrich your life.
John Tripolsky:Welcome everybody back to another episode of the Mr. R Show, hosted, brought to you, presented by the Monthly Recurring Revenue Institute. On this episode today, we're gonna focus really on a good topic we hear a lot about, have heard a lot about, which is really how how do we support those foreign investors looking at The US, looking at The United States as an opportunity for them and their portfolios. So couldn't think of a better person to join us than who you are about to meet, Angie Ortega. So Angie's actually, she's the founder of CEO accountant.
John Tripolsky:So what a great name. Right? We're talking foreign investors, we're talking CEOs, and of course we're talking accounts. So Angie's gonna hop on here with us, go through this topic and really walk through it with Chris and myself. Obviously, Chris personally in their private practice, they've handled a lot of foreign investors.
John Tripolsky:Really looking at just businesses as a whole, investment properties in the real estate side, a lot of experience and a lot of great takeaways
John Tripolsky:are about to
John Tripolsky:come from this episode. So hopefully, you guys enjoy it as much as we do recording these. Let's stop wasting time. Let's jump right into it. Hey, everybody and welcome back to the Mr.
John Tripolsky:R show. Here as always, we have a great guest with us. Across from me as always as well is my partner in crime, the guy I've known for a very long time, smartest guy that I know personally in the tax world, has run his practice pretty much, let's say, like a fine oiled machine and learning a little bit along the way. Chris Pacura, how
Chris Picciurro:are we today, buddy? Johnny t, great to be back on the mister r show. I am very excited about our guest today. You know, I mean, we've been talking about this show. I know it's kind of in in in its infancy, and we have our teaching tax flow show that's about been around about a year.
Chris Picciurro:And, you know, I've been looking for an expert when it comes to foreign nationals investing in The United States. I'm really excited we have that today. And all of you tax practitioners out there, I could promise you, of course, you're gonna pick up that free CPE, but you're gonna grab some takeaways and have an amazing resource, at
John Tripolsky:your disposal. Awesome. Awesome. So you already heard the intro. You, if you actually took the time and
John Tripolsky:read the show notes, you see who our guest is on
John Tripolsky:the show. And as Chris mentioned too, you know what? I should preface this. I said, the smartest person, I think, is how I word it, the smartest person in the tax room. Chris, you may be, you may be beat out
John Tripolsky:by this one. She may be a little smarter
Chris Picciurro:than you. Well, John, you said you said the smartest guy in the tax world. It's all true with that. I I I agree. You know, it's always good to bring in people smarter and more talented than you.
Chris Picciurro:So, John, I think I'm the only person you own the tax world. So that
John Tripolsky:Oh, yeah. Now you're making and I
John Tripolsky:know she's, like, dot she's chomping at the bit to get in here and and stop chatting. Right.
John Tripolsky:But, you know, the one thing that
John Tripolsky:it doesn't take hard to beat you at, you know, you always put in pickleball jokes, and I always like to say the hair jokes. You know, anybody could be you in the hair world.
John Tripolsky:I have I have more I have more hair on my chin than you have on your head. And that's what taxes will do to
John Tripolsky:you to some people if you go about it
John Tripolsky:the stressful way. So cutting to the chase, Angie, welcome to the show. As Chris mentioned, he's super excited to have you here. So tell us a little bit about yourself.
Angie Ortega:Well, thank you so much for bringing me to the show. I I'm really grateful for this opportunity. Well, my name is Angie Ortega, the CEO accountant. I work strictly with foreign nationals that do business here in The US. So today, it's gonna be a very interesting topic, that not a lot of accountants have a very well versed expertise in.
Angie Ortega:So I'm really, glad to be here and be able to guide, other accountants in this journey.
John Tripolsky:So well, we're so happy to have you here. So I I have to ask the burning question. Right? So how how did you get into this? Like, how did you find this niche?
John Tripolsky:And then, really, how did you how did you get maybe your first couple clients in this realm? I mean, was this something where you had a lot of inquiries on and started to send them elsewhere and then realized, hey. I have an interest in this. Walk us through that
John Tripolsky:a little bit from earlier on.
Angie Ortega:Well, my story really started, in the tax industry, over a little about a decade ago. I started doing taxes when I was very young. I think I started at 19 years old. And, you know, I I started like any other accountant first, you know, understanding basic taxes, basic accounting. I went to college.
Angie Ortega:When I graduated, that's when I knew that I wanna do this full time. I wanted to create a business. I have a very business mindset, and I got into mentorship first. I I, I really invested in getting mentors. I really invested in understanding the market that I wanted to cater to, what what would make me different compared to others around the market, and I wanted to create something worldwide.
Angie Ortega:So from my mentorships, I noticed that there was a specific niche, which is foreign entrepreneurs that wanted to start a business in The US that not a lot of accountants have an expertise or knowledge in. And that's when I really started diving in. This was about five years ago. I started diving in into the industry, understanding the tax laws, the implications, you know, the nuances around that, and that's where I really got into that particular niche. How I started getting my clients is a little different.
Angie Ortega:I actually went out and created joint ventures. I started getting, referrals from very strategic partnerships, and, that's how I started my journey.
John Tripolsky:Excellent. Excellent. And then as far as for some of those early clients that
John Tripolsky:you may have had, I mean, did you did you notice right out of the gate that they all had very similar questions or anything like that? Or did some of them just have kind of off the wall
Angie Ortega:No. Very similar questions. Very, very similar. I think with foreign, entrepreneurs that want to come into The US market, the majority was, well, what is my tax implication? What, you know, what do I what will be my responsibilities, and, what would what does that entitle?
Angie Ortega:Right? There's a lot of misconception on, well, I'm a foreign. I don't have a physical presence and access. I don't pay taxes in The US. That does not apply for everyone.
Angie Ortega:Right? So, coming across these clients, I started to notice that they wanted to build a business, but they did not have a great understanding what their tax taxes would be. And, my first couple of clients really started in the ecommerce sector, IT, ecommerce. And then it started to evolve more into the investor side. Investors wanted to come in, understand the taxes, understand the actual, compliances around that and the, structuring of the corporation.
Angie Ortega:What would be the best case scenario for tax purposes? Because for our foreigner investors, they think completely different than someone that wants to come in and just pay to an ecommerce store. Right?
John Tripolsky:Absolutely. Well, I
Chris Picciurro:love that what Angie said is one of the things it's written on my board here in my office is collaboration over competition. In creating those joint ventures with other accountants is so key as we we we the Mr. R Show and the MRR Institute teaches to really niche down, and specialize and also collaborate with other accountants. So love to hear that, in creating those joint ventures is you know, I'll we'll we'll circle back to that, you know, later on in the in the episode here. But, yeah, that's that's awesome.
Chris Picciurro:And, I mean, Angie's got a passion for helping these people out. I think that what you know, to gotta start the the 30,000 foot view of foreign nationals, of course, the tax code versus them is is is aliens. We don't I said I wouldn't say that, but I I did. We don't like that term. But as foreign nationals investing here in The United States, obviously, they'll they'll come from different, expectations.
Chris Picciurro:Right? Some of them might be investing in real estate, and and sometimes their their expectation of returns is a little a little different. Someone some of them might be trying to get, cash or or or out of the country that they live in over here where it's at least in some type of hard asset. Some of them are trying to establish a business so that for for citizenship potentially. So Angie, could you tell us kind of, you know, what buckets of investors that you're seeing, not necessarily what country they're coming from yet, but what what what their objectives are for different investors or not?
Angie Ortega:For most of these investors that do come in, like you mentioned already, they do come from different they have different plans and strategies around why they wanna come into The US. I see, I'll see the good majority of them would want to come in because they wanna get an investor visa, come to The US legally, be able to live within The US, and live an American lifestyle. Right? Because they wanna get out of their home country. I do get a lot that, they don't want to live in The US, but they wanna move their money or move their assets or expand their whatever they are currently have within their home country.
Angie Ortega:Why? Because they don't wanna keep their money in in one place. Right? They're looking for different opportunities to keep growing their, their finances or their income. And then we do have a lot that do come as startups that just want to venture out and they wanna see, hey.
Angie Ortega:Maybe I can make it. And we get that here here, even here in The US. Right? And foreign investors are not just people that live abroad. There also can be living here in The US that are not US residents, under a particular visa, but they want to create a business.
Angie Ortega:They want to invest. They want to start living an American lifestyle. So we do get a quite a bit of different scenarios.
Chris Picciurro:I'm gonna ask another question about that classification. You know, and it can be very confusing. But do you typically for some of the foreign nationals that you're working with, foreign investors, foreign entrepreneurs, obviously, they come over let's say they they come into The United States and they and they begin investing, on an I mean, an on an investor visa. So they're a US nonresident for our federal tax purposes. Do you, see them becoming a US tax resident over the course of years based on the days they're staying here?
Chris Picciurro:Or or is that something that you and then do you continue to work with them? Can you touch on that? Because that's really you know, when I first started getting into the tax business, I I I I was like, well, if someone how could someone be a US tax resident, but they're not a citizen? And that's a completely different concept. Can you touch on that for our practitioners?
Chris Picciurro:Because I was confused about it quite a bit.
Angie Ortega:Yes. There's definitely, a fine line, right, between immigration and what immigration allows and then, of course, what the IRS states. With a lot of that that do come to The US, we start looking into the physical presence nexus. How long have they been in The US? And when once they meet that physical presence nexus according to the IRS code, then that's when they are considered a tax resident of The US, which therefore they move from a ten forty n r to a ten forty.
Angie Ortega:Right? And they will have to claim taxes and pay taxes as a US tax resident. But what does that mean also for them? That they have to understand they also have to pay now worldwide income. If they didn't have to do that before, now they will.
Angie Ortega:Right? Because then now they have to abide by those tax rules. So, yes, there is a there is a big fine line with immigration and what the IRS allows.
Chris Picciurro:Exactly. And that's why you want someone like Angie to navigate that because a lot of times, foreign nationals, foreign investors, they'll come to The United States here, and a lot of times they have some other business, some other financial resources, bank accounts. And once they become a US tax resident, even though they're not a citizen, now we're talking, like you mentioned, now they're going to to that ten forty. We have potential FBAR issues. We've got potential, reporting of foreign businesses, foreign tax credits, and it's it it and there's some good consequences from an estate tax side, potentially, having the bigger exemption amounts.
Chris Picciurro:But the but that that's a very interesting thing, especially when you run into a situation where you might have one spouse that's here, one spouse that's not here, or children here. So, gosh, it's so good that you, you know, that you have that knowledge and, and you're able to navigate those those foreign nationals. I call them foreign nationals. I know foreign entrepreneurs. So so there's that path of sounds like someone coming to The United States as an entrepreneur, setting up a business with the path of them being a a US tax resident and maybe a citizen.
Chris Picciurro:There's also a significant amount of people and especially because in our private practice, it's real very real estate heavy, that buy rental properties here in The United States. Now and sometime now now it's a little more difficult, but before, they could they could even set up bank accounts here, get ITINs, and never step foot in The United States, let's say, ten, twelve years ago. Can you talk us through a little bit about let's say you have a foreign national that and we can let's just say they're from, Australia. Yeah. I know Australia has different rules, but that's it doesn't really matter where they're from.
Chris Picciurro:We'll dive into some of those later. They wanna buy an investment property. Let's say it's in Atlanta, very popular place for them to buy. They're concerned about maybe forming an LLC. They and they get referred to you, but they know they need an ITIN, and they and they might be subject to FIRPTA withholding.
Chris Picciurro:Can you talk a little bit about, your role as a certifying acceptance agent and and what you would what what you would talk to that client about?
Angie Ortega:Well, first, so let's say they're coming in, they want to invest in a property, they don't they're not looking to come to The US. They're just wanting to, you know, allocate their income or their their their profits. Right? So, in this case, we look at different scenarios. We still have to look at the tax implications of having an LLC if an LLC is even the best structure for them.
Angie Ortega:Right? Because sometimes they wanna have a corporation first and then an LLC under that to obtain properties. And also it comes down to the country that they're in because we have to look into the tax treaty at that point. So for example, if they're looking to come in and buy a property as a single member LLC, they are considered foreign owned LLC with effective connected income because they are conducting business within The US. They are receiving rental income within The US, which therefore they will be then required to file that ten forty and r and then apply for the ITIN.
Angie Ortega:Now the ITIN can be applied, two different ways. One through the corporation structure or through the actual tax return. And aside from the ten forty n r, they have to submit the fifty four seventy two, which is a very important form to submit on time because otherwise they get that $25,000 penalty fee, which a lot of them don't understand that that is actually you know an important form to file versus a ten forty nr I was like we can go away with the ten forty nr but not with the form fifty four seventy two but
Chris Picciurro:oh go ahead I'm sorry
Angie Ortega:That's okay. But, you know, that's why we we before we even incorporate, we have to see what they're willing to or what they're wanting to invest in, what type of property, if it's through the real estate, and then determine which structure is, correct for them. Because one thing that I look into is what country, what are the tax implications within that country as well if it's if it allows a flow through entity, if they also have to pay an income tax in their home country, if they have an LLC, or if there's another structure that will be better for them according to what their goals are.
Chris Picciurro:And that is so as tax practitioners out there, I know, this is something that is it's very tricky, and you have to be aware of that. When you have a foreign national that starts that forms an LLC here, you know, we we know that LLCs are disregarded entities for federal tax purposes. So even if it's a single member LLC, if the person was a a US tax resident, that would just slap the rental property on their ten forty. But if they're a nonresident, this fifty four seventy two form has to be filed. Isn't that
Angie Ortega:is Angie, is that annually, I believe? It's annually with the tax return.
Chris Picciurro:So With the tax return. Yeah. And I we had some we had some on enforcing tax penalties because it's not it's hard for them to sit and go through an audit to argue mortgage interest, travel expenses, mileage. Yeah. They can, but it's still there there's gonna be a compromise.
Chris Picciurro:If you didn't file a form or you filed a form late, there's no way out of that. You are gonna get the the penalty. So, can you Andy, can you just touch a little bit on that $54.72? And and if if a practitioner what would you advise, god forbid, and and it happens, we don't live in a bubble, They are working with a foreign national. Sometimes they don't even know the foreign national.
Chris Picciurro:Hopefully, you're not dabbling in ten forty in our work. You either do it full time or you're not. But let's say you decide to dabble, and you filed returns for someone for three years, and you never filed a fifty four seventy two and it just came to your attention, sometimes the property's out getting sold and, uh-oh. What was what would you recommend that someone consider other than, you know, maybe say a few hail Marys or something? But but file fifty four seventy two remedies.
Chris Picciurro:I mean, it's gotta happen sometimes.
Angie Ortega:It's gonna have to be filed. You know, IRS doesn't like it when you're trying because it it will be considered an an invasion of attacks. Mhmm. So it it will have to be filed. You will have to deal with the consequences right after.
Angie Ortega:You will have to explain to the client, hey. We came across this. Unfortunately, it has to be filed. We can probably remedy or we can probably negotiate with the IRS, penalty fees that will be assessed because they will be assessed. Mhmm.
Angie Ortega:And then, you know, kinda take it away. And, I do I have seen clients where they get that first year abatement, right, abated. So that can be one off, let's say for three years. But that second or third year, it will have to be then negotiated with a reasonable cause of why it was not filed to determine if the IRS will even waive off those fees or at least reduce them. So that's where tax resolution comes into place.
Angie Ortega:Right? So if if I would suggest if an accountant does wanna take an account with a foreign national, be sure to understand the full tax implications because the IRS does not take a, oh, I did not know as an answer, for, you know, not filing certain forms.
Chris Picciurro:And I'm not I've seen situations where where taxpayers basically just ate the FIRPTA withholding. It's it just took their money. Anyway, I'm not advising that, but I I know. You mentioned something really important, and I'm always looking at from the tax tax preparer's perspective. You mentioned effectively connected income.
Chris Picciurro:We call it ECI. And understanding that let let's say I've got a facts matter. Let's say I'm a I'm an I'm an accountant in the middle of Ohio. I have a client that does property management. That property management company now brings in a starts managing a property for a foreign national.
Chris Picciurro:Let's assume they don't have a LLC. They just own a property outright. Obviously, that foreign national is not gonna have a a social security number. They're they're subject to a a, a FIRP to withholding. I believe it's 30% of gross.
Angie Ortega:30%.
Chris Picciurro:Is there any remedies for electing out of that at all? So I mean, what's on Because you wanna advise your client. If you're the accountant, you wanna advise your client on that. Oh, first of all, call Angie, but if she's not available, you know, advise your client.
Angie Ortega:Yes. You definitely can. In certain countries, we do have tax treaties, with a lot of countries. And if that particular client lives within a tax treaty, we can then, declare that w eight Ben, and then have that withholding, for them not to be a withholding. Right?
Angie Ortega:That does not apply for everyone, but that is one way to, have that not done on their behalf. Obviously, if they are receiving income from The US, that does not waive them off from, filing a ten forty n r even though they are a nonresident or they don't have, you know, they they're not nationals of The US. They just they do still have effective connective income. Right? And they will be required to file a ten forty and r and then pay taxes if they have to pay taxes here in The US.
Angie Ortega:If there is a tax treaty in place, then we use the tax treaty benefits to determine if they pay a lesser tax rate or they don't pay at all. So case by case scenario. But, yes, it can be waived off if they have a WA band with the tax treaty in place.
Chris Picciurro:Right. So if you have that and and I see it all the time. Again, we're in the real estate space, but if you have a if you're a tax professional and you have a client that is acting as what we would call a withholding agent, right, although they're they're collecting their revenue and they're dispersing it, to foreign foreign nationals, foreign entrepreneurs, there's a 30% withholding based on gross. And guess who's gonna get assessed that penalty? Is IRS gonna go after someone overseas, or are they gonna come after you?
Chris Picciurro:So you wanna make sure that you have a that w eight series form on file, if applicable, to elect out of the withholding or reduced withholding. And and like Angie said, it's a case by case basis because there we have you know, in general, the countries The United States plays nice with have tax treaties, and some of them they don't play nice with don't have tax treaty benefits.
John Tripolsky:And Angie, on that note too, what as far as for, you know, looking at
John Tripolsky:a global map, I mean, where do you see the majority of investors and and foreign entrepreneurs coming from? Is there is there any hot spots, I should say?
Angie Ortega:Yeah. There is. There's definitely. I'll see one of the major ones is our sister. I'll see our our country right on top of us, which is Canada.
Angie Ortega:We do get a lot of Canadians, Australians, the UK, India, Mexicans as well. I do get a lot of people from Mexico. And, I'm starting to see more of, South Americans, coming in, and that's because of what's happening within their home countries. That's the doll you know, their their dollar currency is not worth anything. And so For sure.
Angie Ortega:But, yeah, a lot of them do come from Canada, I'll say.
John Tripolsky:And even looking at that, you know, the volume of we'll we'll just say foreign investors for entrepreneurs. Are a lot of them you know, Chris, kinda go back to what you said a little while ago. And and, obviously, as as you and everybody knows, I am not in the tax world every single day. So the questions I have are more from the the average Joe, we should say. The makeup of these individuals or or these grouping of individuals, do you see it as somebody who, again, doesn't necessarily see themselves, say, traveling to The US on a frequent basis, doing business here in person?
John Tripolsky:Or is it somebody looking at you know, do you have individuals setting up satellite offices? Like, me coming from the tech space, you know, I looked at it for a while ago. It seemed like everybody and their cousin, it was the other way around. They were opening up, offices in Dublin. So in Ireland, like, a lot of the the big tech firms, a lot of them were opening up offices over there.
John Tripolsky:I mean, obviously, it was for a number of reasons. We don't have to go into that realm. But, again, kind
Chris Picciurro:of that question of, you
John Tripolsky:know, you mentioned a lot of Canadians. You mentioned India in there specifically. Are they opening up offices here, kind of building teams here, building the company here, or are they just more or less looking to do more business here virtually, I should say?
Angie Ortega:What what I guess it depends. But with what I'm getting, so far or at least the type of clients that we are, receiving is that, I'll say a little a spectrum of two. One is they just wanna invest. They just wanna move their money. They're not looking to come to The US.
Angie Ortega:All they're just gonna probably gonna invest in a property, you know, and then have somebody else manage it. Right? Because they have other businesses to take care of. Then I do have those ones that do want to move to The US. They wanna get rid of that Canadian residency or you know, residency from their home country, move it to The US.
Angie Ortega:So they are looking to invest, whether it's a brick and mortar and create an actual business and and build it up, hire, lease, contact us, whatever that is. They will actually be coming into The US. So we do get a little bit of both. Right? And we have different type of investors.
Angie Ortega:We come from, you know, trying to build a brick and mortar and ones that just want passive income.
John Tripolsky:Excellent. Excellent. It's what you That's just
Chris Picciurro:got me entered out. You know, I would say twelve years ago, we had that crazy cocktail of our currency and the Canadian dollar almost being par. We had the 08/00/2009 kinda crash of the real estate market. We saw Canadians flooding in, especially in areas of Florida. Many paying cash.
Chris Picciurro:Some of the Canadian banks would actually let them get a loan against these assets. Besides that, you know, obviously, Canada is probably our friendliest neighbor. It's very I I John and I both grew up in Detroit, and so we were we were if we were any good at golf, we could hit a golf ball over to Canada, and we used
John Tripolsky:to go there a lot. But Fun fun fact about Canada, if I could break break it for one moment. Did you know that Detroit is the only place in America that you can actually look south into Canada across the Detroit River? There you go. Fun fact fun fact if anybody's on jeopardy.
John Tripolsky:So there you go.
Chris Picciurro:Yeah. Windsor, Canada. Windsor Windsor, Ontario. I'm sorry. And Detroit, Michigan.
Chris Picciurro:But, Angie, just kinda since Canada, it is the most prevalent country, and practitioners are you know, they're they're investing in Florida. I feel like people from, like, Saskatchewan and and in the western part love investing in Arizona. Some of them are snowbirds, but then they might rent their house out sometimes. Some of them are trying to not be here for six months on purpose. But the point is, there are some special rules, some considerations for that Canadian investor.
Chris Picciurro:Can you touch on those, this 30,000 foot view, for that for that tax practitioner?
Angie Ortega:Sure. With Canadians in particular, it's a little bit different how we handle and manage, their their taxation. I take a little bit more precautions on how we structure them and depending on the type of business that they wanna conduct here in The US, just because with the tax treaty that we have in place with The US and Canada, it's it's very strict. One, because Canada does not see an LLC as a corporation. So if they say, oh, I wanna form an LLC, I'm like, okay.
Angie Ortega:You can do that, but you have to understand that you will have to pay taxes here and then flow that through your Canadian tax return and then pay your taxes in Canada. Probably you'll get a a tax treaty benefit in Canada or whatever taxes you pay here in The US. A lot of people don't like that because their taxable rate in Canada is we higher than what it is here in The US. That's one. Right?
Angie Ortega:There's no double taxation, quote, unquote, but it still flows through into their Canadian tax return. When they're trying to invest in property, right, and and actual, property, going into the real estate, I'm very particular how they are actually structured. And the reason why is because a lot of them, if they do invest here, not only are they gonna be paying taxes or whatever comes here in Canada as well, and they're like I said, their taxes are a lot higher. So in this case, what we like to do is have them structure first in Canada, then move into The US as a corporation, whether it's an LLP, and then through the LLP, create the, LLCs, under them to buy out properties. This is a better strategy for them, for Canadians because it avoids, or it reduces not avoids, it reduces their, taxable income.
Angie Ortega:Right. So they have a very specific way of how we have to actually conduct their business under a real estate investment compared to if they wanna go into IT or ecommerce, then that's a whole different story. Right?
Chris Picciurro:Exactly. So they they the bottom line and we're not here to give Canadian tax advice. Obviously, Angie's got some resources, I'm sure, in Canada. But the Canadian revenue agency doesn't look at at an LLC as a as a disregarded or a flow through entity, and that that's the genesis of the problem. So proper structuring, is important, and that do you, and you've touched on something, you know, an LLP versus the LLC, but also earlier on, you touched on potentially creating a corporate entity.
Chris Picciurro:Obviously, there's you know, in owning real estate in a corporation, if you're a US resident, isn't always the best idea. But for foreign nationals, I mean, obviously, with the state tax consideration, are there benefits for them to consider owning their business or real estate in a a domestic corp here or or some type of foreign corporation?
Angie Ortega:Right. It depends on each scenario. Right? We we have to look more into the tax implication. Obviously, there's the legalities around incorporation, so that's more of a business aspect.
Angie Ortega:But when it comes to the tax implications, in real estate, you don't always wanna have everything under a corporation. Right, because of of the, asset protection. Right? But in certain cases, yes, we do want them to have a corporation, a c corp, because they can't apply for an s corp. A c corp, they will pay actual income tax here in The US.
Angie Ortega:Right now it's at a 21% taxable rate, and they will only pay, personal income tax if they withdraw dividends. Right? Because they can't put themselves under a salary. And that's only if. Right?
Angie Ortega:So there's strategies around that as well. That's what we always say have them incorporate in their home country depending on where they're coming from. But let's just say we're talking about Canada, incorporate in their home country, then come into The US, incorporate here, and then probably create the LLP if they're going into that real estate investment investments.
Chris Picciurro:And have you no. That's really good advice. I know this is and you might you might say, hey, hey, grandpa. They don't this isn't happening anymore. But I feel like ten, twelve years ago when I was in the space a little more, we had people investing using some type of retirement account, like a super fund from Australia.
Chris Picciurro:The UK, I think, allowed people it's it's kinda like this similar to a self directed IRA that we would have here in The United States, but board nationals were using their retirement accounts to invest in in businesses of property here. Have you seen anything like that at all? Or is it Recently.
Angie Ortega:Not recently. I think the that we've received is that they have businesses in their home country, and they just wanna move their assets.
Chris Picciurro:Yeah. Yeah.
Angie Ortega:But they can. I mean, there are certain countries that do allow that. Right? Mhmm. They do allow to use their retirement, proceeds into a a real estate investment here in The US.
Angie Ortega:Obviously, it has to be structured on a proper way, but, yes, it can be done.
Chris Picciurro:Did you and that kind of dovetails in when we're you're walking back to that LLP. I wanna touch on kinda shift gears now because this happens to a lot of tax professionals also. Fact pattern would be, have a client, hey, I'm for you know, I formed an LLC. It's myself, my business partner, and my cousin, that that lives, in Israel, and he's Israeli citizen. But we you know, he kicked in some money, so we we want him to be a member of this LLC.
Chris Picciurro:And I think that might trigger some type of potential withholding issues. Could you kinda talk about 30,000 foot view, but because a lot of times as a tax professionals, we get stuck when we run into this new situation. Some of the things that we should consider, unfortunately, a lot of times we find out about these changes after the fact. But, when when a LLC or an LLP is obviously an s corp can't bring in a foreign entrepreneur as an investor. What things should we consider?
Angie Ortega:Yes. Whenever you do have a partnership, once you have multi members, within an LLC or an LLP, which is also a limited liability partnership. Right? That's a little bit different, how their business structured. So in this case, when they you are bringing a foreign national, into a partnership, they do have a 37% withholding that has to be done on a quarterly basis on the actual, proceeds that that partner, brings in.
Angie Ortega:Right? It has to be paid out. Every year, we have to file the eighty eight zero four, 80 eight zero five. There if there's a partner based out of The US, then that person will be responsible for that, you know, submitting those withholdings. If if they're all born nationals within an LLC, then there has to be there has to be an appointed, US representative for that corporation, under that partnership.
Angie Ortega:And not only that, 2022 rolled out the k twos, k threes, which is another added, tax forms under a partnership for foreign nationals. This is where IRS wants to know where the money's coming from. Right? If it's US source, if it's foreign source, if you have if that partnership has another partner that's based outside of The US or, under, like, another corporation. So it's a lot more complex at that point.
Angie Ortega:Right? The the forms become a lot more complex for tax preparers. So if you don't have a very good understanding of how to prepare these forms, I would suggest to partner up with another accountant that does or or to just forward it to someone that can handle those type of cases because the tax implications or the liability around that for a tax preparer is really high.
Chris Picciurro:Exactly. And and think about the so that foreign national, there the entity itself is required to to have quarterly withholding for that foreign national share of the income. And I hate to say in the but, you know, how many of these entities are actually doing bookkeeping each quarter and tracking that? So when you bring on that foreign national as a partner, a lot of clients don't understand it comes with a ton of responsibility, unintended consequence. So maybe if if someone's coming in just as a as a source of capital, maybe you should structure it where it's a loan, instead of being a member of this LLC.
Chris Picciurro:Now I think it would work differently if you had a c corporation. Right? Because if someone bought shares in a c corporation, then they're they're obviously be be withholding on their dividends. I think you touched on that a little bit earlier. Is that correct?
Angie Ortega:That's right. Under a c corp, this is why we say that I personally hate the partnership structure.
Chris Picciurro:Uh-huh. Good. Yeah. It's it's very
Angie Ortega:I don't recommend it. I tell if you're gonna have partners, we're gonna have to go the c corp route incorporating just because it's easier to, have shares within a corporation. And, obviously, there's no withholding requirement and less tax forms to to submit other than, of course, a fifty four seventy two that has to be submitted under also a c corp structure. But other than that, it's a lot easier to manage than a partnership. So yes.
Chris Picciurro:And then on top of with the partnership structure, now that foreign national will need to file a ten forty n r, potentially file in all these states that they might do business in. Exactly. You're opening up a can of worms, in other words Yeah. What I'm what I'm saying. And and you don't even realize it.
Chris Picciurro:So, you know, what do you in that case I don't know. You you gotta
Angie Ortega:I don't know. Have to get a ten forty and r, get the ITIN. Most of them will get money back because they do get a, you know, 37% versus a 30%, you know, taxable rate. It's there's that little small gap right there. Right?
Angie Ortega:So I'll say, well, you'll have a, a low savings towards the end of the year, but it will still take a while before the IRS even remits that, mostly in their first tax year. Right? Remits that refund.
Chris Picciurro:That bring me to a question is, what tips can you give to, tax professionals, and and here's the fact pattern. A foreign national has FIRPTA withholding or some type of let's say, does I I know I keep using the real estate example. Let's say it is an ecommerce business and they have 50,000 of profit allocated to them. Let's say we have the perfect client, white pickup fence client, 37% sent to the IRS. We're not even touching, nonresident state tax withholdings, but that, you know, really this this, podcast is really focused on federal tax.
Chris Picciurro:So they have this withholding, and, and they need to they're gonna try to get it back. Right? So they're gonna file a ten forty n r. Sounds like they'll need an I 10. And but do they need a representative, like, here?
Chris Picciurro:They might not even have a bank account here. How are they gonna get how can they get direct deposit? What are yeah. How what are some practical tips you can give practitioners? Because, yes, it's great to say I I should get a refund, but is IRS gonna mail a check overseas?
Chris Picciurro:You know, there's a practical side of it. Could you touch on some of those challenges?
Angie Ortega:Yes. It's definitely a challenge. Mostly when they are getting a refund and they don't have a US bank account, they don't have someone here in The US. So we have come across that. Right?
Angie Ortega:And most of that, because they do have to get an ITIN, we can still treat, A lot of them use what we call the bank product. Right? A lot of accountants use bank product for US residents that have it, you know, to deposit. Very similar. It's very tricky, because most of them will have to get a check.
Angie Ortega:Will have to either, get a check and, you know, deposit it in their foreign bank. Some of them will allow it. Some of them won't. It it becomes a lot more chaotic, in that case. And what what a lot of them tend to do is that they just forward any, balances, into the next year's tax return and just keep rolling it until they are able to open up a bank account.
Angie Ortega:So it is a it is this is why I don't recommend going that route because you do come across these challenges.
Chris Picciurro:Absolutely. That that's a huge challenge when you and that's a that's a strategy, though, is it just keep that that carry forward going because in general, I believe, and I could be wrong, but the foreign the foreign investor at some to establish a US bank account might have to come actually to The United States and some banks might have an overseas presence. You know, I know those, but that's a challenge logistically to get them that that refund.
Angie Ortega:They wanna move it back into the company. Right? Because at that point, they can't have a US bank account. So that's another way how we've handled it is that, hey. If if there's no other possibility, we're just gonna have to put it back into the company, and it's just gonna come in as a shareholder contribution, into the corporation or into the partnership, right back into the company.
Angie Ortega:Right? So it's another investment going back in. Their strategies, depends on the country too. You know? But for corporations in itself can open up a US bank account, whether they come here to The US or online.
Angie Ortega:So we do have a lot that open up with, Relay Bank, is one of our preferred banks for our nationals that can't come to The US, for our foreign nationals that can't come to The US, to open up a business checking account. Mhmm. And, now for a personal, they do have to come to The US, unfortunately. There's no other way around that one.
Chris Picciurro:Well, that's understandable. It it when sometimes we run into situations where someone is using a foreign corporation and the foreign corporation just comes in and does business here, have you run into situations like that before? There's no tier structure and what are the challenges? I I mean, I don't I'm I know enough to be dangerous. I know there's, like, a something with branch profits, taxes.
Chris Picciurro:But just some of the challenges with that because, again, as a I mean, how many times is a practitioner you have a client and they say, oh, well, you know, actually, my mom my mom owns a corporation and she started doing business here in The States. She's, you know, she lives in Australia and you're like, oh, boy. You know, this corporation is a foreign corporation. I know maybe touched on eleven twenty f, but, yeah, what are what could what what are some of your thoughts on that and and, advice?
Angie Ortega:Well, that's where that eleven twenty f comes into place. Right? These are this is an actual tax form that needs to be filed when a foreign corporation has US presence. Right? They are conducting a business here in The US under a foreign structure.
Angie Ortega:Now there are a lot more to the eleven twenty f. Right? We also have to see, well, do they come from a foreign country? What I mean, the tax treaty. Right?
Angie Ortega:So if they've come from Australia, we can use the tax treaty benefits so that they don't actually have to pay an income tax under that, guidance. But does it apply for everyone? No. It does not. Then we also have to see if they have other tax forms that we have to submit.
Angie Ortega:Right? And I don't like to touch those very often just because there's it's very tricky. Right. Exactly. It's like, yeah.
Angie Ortega:Let me first look to see what country you're from, what kind of business you're doing here in The US, what's your physical presence next is within The US, what exactly you're doing, and then we'll we'll see if we're taking you on as, like, a big end. But, yes, in reality, it's it's definitely complex, not for someone I think for those type of cases, you wanna have someone that really understands the the nuances of filing those forms. Yeah.
John Tripolsky:Exactly.
Angie Ortega:Very long that tax form. And that and there's no software that has that tax form. You literally have to do this from grabbing the, tax forms from the IRS website.
Chris Picciurro:That's the theme is that a lot of time, the unintended consequences of having a lot of tax compliance, you know, is is challenging. And I would imagine some of these entities, use potentially cryptocurrency. Some of them don't have traditional bank accounts with a QBO feed. You know? So there's, like, there are a lot of challenges and thus, hence, why this this knowledge you have is so valuable.
Chris Picciurro:You know, because, again, we don't want the tax tail to wag the dog, but a lot of times, there there are things where where money's coming into The United States. And and for many people, The United States is an attractive option even if they don't get a great return because we actually ask them regardless of if you like the government, don't like the government, we have an established government. We have building codes. We have rules, and some places don't. You know?
Chris Picciurro:And and that's that's interesting. Now you one thing that you mentioned I wanna touch on, I knew that we had a lot of Canadians, Australians, people from The UK investing here. But you you said there's some more, Mexican nationals investing here in The United States. And, what type of what are you seeing on that front as far as what they're trying to accomplish in different different industries that they're they're they're investing in? And and also, can can you touch on any if you if you have any experience on any special rules with with Mexico and The United States?
Angie Ortega:Yeah. But Mexico has, very similar to Canada. Right? Because there there is a tax treaty between Mexico and The US. And depends on what they're trying to invest, we have to see, okay, what will be those consequences, right, within Mexico and The US.
Angie Ortega:I'll say that we're coming we get a lot of investors in the real estate, but we are getting them a lot more in the IT sector. They're looking to invest in the IT. They're looking to do more like the outsourcing, type of business where they are, you know, just creating job opportunities for other firms or for other, IT industries. Now in them in particular with Mexico and in itself is we have to look more into the what are their their tax implications or their business structure within Mexico and then coming into The US. Right?
Angie Ortega:Because there is that cross border, between, you know, laws, the the cross border laws, and then, of course, what kind of business. Very similar to Canada, I'll say, when it comes to that, but it's a little bit more flexible, when it comes to their implications. And it's gets structured almost the same way. But I'll say I'll take it case by case scenarios on those. Now I'll say that for accountants, whenever you are looking to, let's say, if a client does come in or a potential client comes in, they are a foreign national or they want to invest or they already started a business and they're moving from another accountant because they didn't know any better, because they do get a lot of those as well.
Angie Ortega:And, just do your due diligence. Right? Do your due diligence. Make sure that is this a client that you wanna take on? Is this a type of responsibility I wanna take on?
Angie Ortega:And then go from there. Right? What what are their maybe work with them on restructuring them. That's more like tax planning. That's, providing that CFO or CFO services or advisory services.
Angie Ortega:And then, partner up with someone, if that works. Right? If it's a client or this is an industry that you wanna learn, partner up with another accountant that was willing to do that as well. For me, an instance, I I learned literally, from reading books. Really?
Angie Ortega:Reading books, understanding the tax laws, and then going to other accountants that had, an expertise in this field and getting their point of views and understanding what they're doing, partnering up with them. And that's how I got started in that sense. Right? So I always suggest the same thing for other accountants. Don't take a a a this type of client if you're not very well versed on all the implications around
John Tripolsky:it. That's excellent advice, Angie. And it's, you know, going back to what you guys spoke about a little bit ago, I've been sitting here writing and typing notes while you guys are talking because this I I shouldn't say that this is over my head, but it is over my head, which I I enjoy it. I mean, I think, you know, listening to you guys chat back and forth on this, if it's somebody that has potentially turned these types of clients away, just I wouldn't say out of fear, but almost of just being being outside of their wheelhouse. Right?
John Tripolsky:But they have an interest in it. It's not saying that you have to totally reinvent the way that you approach clients. Right? It's it's almost an add on if there's an interest in it and obviously a passion behind it. And you gave some great advice there too.
John Tripolsky:And obviously, what I was alluding to, what you guys spoke about is a lot of it comes down to strategy. Right? So there's there's a lot of strategy involved really from point a to z. But then on that note as well too, Angie, do you have any examples of and we'll we'll kinda play devil's advocate, but, you know, kinda ying and yang this together. For anybody that's looking to potentially offer this as a service and take on these types of clients, what maybe are two polar opposite stories?
John Tripolsky:Right? Like, what might be the absolute easiest one you've ever had, where somebody has come to you or have been referred to you? But then adverse, what was the absolute nightmare? I wish I'd say nightmare of a client, but nightmare of a situation. So really looking at it from both sides, you know, not just and I'll let you start with whichever one you want, the good or the bad.
John Tripolsky:Maybe we'll start with the bad first so we don't scare anybody off and then wrap it up with a good one. Because I know we're we're kinda creeping up here on on pretty close to an hour or so. We appreciate it.
Angie Ortega:Of course. So I'll give you a bad scenario. This actually this is recent. I we had a meeting with a client yesterday.
Chris Picciurro:Oh, not
John Tripolsky:me. So extremely recent. Like, you're still in this.
Angie Ortega:Yes. And I'll say this has been one of the, wow, I don't know what they were thinking kinda scenario. So this this is, like, an account that has four different LLCs. Four different LLC's this is a manufacturing company, based out of, Peru, I believe, based out of Peru. They're conducting business here in The US.
Angie Ortega:They are manufacturing a clothing manufacturing company and they created four different LLCs and the first, error that we saw that their previous accountant did was that in 2020 they filed it under a partnership when it's considered a single member LLC. First error that we saw. Second error that we saw is that none of the tax, returns were filed the 5472. And, then the $10.14 dollar was obviously done wrong. So we had to literally tell the client, hey.
Angie Ortega:Not only do we have to do a cleanup work, cleanup work, we're gonna have to restructure you. So this is where that tax planning comes into place. But we also have to do tax resolution after they've bagged, the consequences, and then we have to look into the future, right, to make sure that we are in compliance and you are good and set to go according now to the new structuring of your business. I think this has been a very challenging account because this is a company that made over $2,000,000. So just to kinda give you perspective of what that can look like after the fact.
Angie Ortega:Right? So that one is a very complex account because we have to do a cleanup work, resolution, tax planning, and then projections for the future.
Chris Picciurro:Well, that's oh, go ahead. I'm sorry, Angie.
Angie Ortega:And I'm saying this is where that expertise, that advice goes into. So it is a good account because I'm like, well, I know what my worth is, and I could charge a pretty good penny for this type of work. Right? But when it comes down to the client, it's we have to be very empathetic and unfortunately let them know, hey, this was done this way, and this is how we have to do it to fix it and move forward. Right?
Angie Ortega:So
Chris Picciurro:Well, that and wanna touch on one more thing here, because there's another challenging thing from the practitioner standpoint. We talked about a lot of these foreign nationals don't have bank accounts here yet. Let's say they're just getting started. How do you get paid from that? You know, they they they could wire money to you, I guess.
Chris Picciurro:They could maybe they have a Venmo or something. But in the practical side of it is if they don't have a bank account in The United States, what would what are some of the, you know, tactics because especially you you I I you probably give them a quote and get a good amount paid in advance just because of the nature of the work. But, yeah, what are some of the challenges that that, we're not trying to deter practitioners from this, of course. What are some of the challenges just doing business with these foreign nationals getting paid?
Angie Ortega:I don't I never come across challenges, to be honest with you. Oh, good. To be bad. I guess I've been lucky on that aspect. Right?
Angie Ortega:So most of them obviously don't pay from a US bank account. They pay from a foreign, and they use a credit card or they use a business account. Okay. And they do ACH, wire transfers, from bank to bank, or they pay directly into the invoice that we send them over. I haven't come across a a scenario where, like, hey.
Angie Ortega:I just there's no way that I can pay or you know? So it's very interesting. I haven't had that, you know, problem, at at least in my end.
Chris Picciurro:Well, I think what you're doing yeah. In general, I feel like the, foreign nationals are real good about paying and under and and appreciate our service, and you are you know, a lot of them are really afraid of IRS, you know, and they and they realize that they need you. Like, you're their lifeline a lot for a lot of them. So, man, well, I wanna say on behalf of John, and myself, we really appreciate you being on this episode. I can't, recommend someone talk to you more if they run into foreign national issues.
Chris Picciurro:In fact, I'm after I wanna talk to you about introducing you to some groups, that are looking for presenters on this, subject, real estate investor groups. And, yeah, Angie, what's the best best ways for someone to contact you? And we're gonna put all this in the show notes. But what's the best way to for someone to contact you if they're looking to collaborate with you?
Angie Ortega:Yeah. Of course. Well, they can follow me on social media. They can send me a private message. They can look me up in LinkedIn.
Angie Ortega:And, of course, they can, always email me at info@CEOaccountant.com, and I'll be more than happy to, guide them, help them out. You know? I'm I I love to help other accountants, and I love to provide value. So that's my my because I I receive the same from others, and I just, you know, share my knowledge to other accountants as well. So
Chris Picciurro:Mhmm. Well, I think one of the things we talk about is is, commerce follows culture. So your your culture the fact that you don't have problems, you know, getting paid from these foreign nationals tells me that your culture is is great. They love working with you. I think anyone listening to this podcast, is gonna understand that that you're very down to earth, practical, yet extremely knowledgeable on the on the rules, and the rules are the rules.
Chris Picciurro:But, again, that's where planning can come in. And sounds like a lot of times these foreign nationals come in, not necessarily just you specifically, but in general in our profession, with a fire to put out. They didn't know what they and and then once you get that fire put out, you can work on the tax planning side. So thank you so much, and I hope, I hope everyone got a good takeaway from this, and thanks for listening to the Mr. R Show.
John Tripolsky:As always, thank you everybody for joining us here on the Mr. R Show. Angie, thank you so much for joining us as well and really walking us through really what your day to day is a little bit with these clients. I know you shared some fantastic examples, which hopefully our our listeners took a few notes from as well. Few takeaways there.
John Tripolsky:Chris, my buddy, always thank you for joining us and co hosting the show with me. I know your private practice. I mean, you've been running that for twenty plus years. A lot of experience there. Again, we're not gonna date anybody on this show, but twenty plus years.
John Tripolsky:It's a good bet. A lot of experience, but hopefully everybody enjoyed this one. Again, as much as we do recording these, the goal of this obviously is to provide you with a little insight into an area of a practice that you may sometimes shy away from a little bit just because it maybe not be your niche, may not be your comfort zone, but hopefully you can expand that a little bit or even if it's not something that you wanna focus on specifically, really aiding you in finding those strategic partners, really aligning yourself with some individuals that do focus in that area. Hopefully this show allows you to bring a little bit more, confidence in that topic to the table. So hopefully, you guys everybody enjoyed it.
John Tripolsky:Any questions, as always, shoot them over to us. That's hello at m r r institute dot com. Hello at m r r institute dot com. Shoot us any show topics, maybe some feedback even on this show, or any questions that you may have for anybody within our community as well. So as always, we'll see everybody very soon.
Disclaimer:The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum, and you should carefully examine the risk factors and other information contained in the memorandum. The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney.
Disclaimer:Investment advisory services are offered through Cabin Advisors, a registered investment adviser. Securities are offered through Cabin Securities, a registered broker dealer.
