>>So the maximum Mickelson could pay in state and income taxes, payroll and other income-related taxes would be around 60 percent. But that rate is only if he did absolutely no tax planning or basic deductions.
So it's absolute worse case scenario then. Reading the rest of the article, it sounds like he can get it to below 50% with some moderate effort. Since rich people can afford professional accountants, I conclude he actually could get it to below 50% if he wanted or his accountants could suggest some tax loophole in another state to get it below 50%.
A further improvement could be to move from California to say Nevada and pay no state tax at all. The next step would be reorganizing the business structure to keep most income / assets in the offshore jurisdictions. So on, so on, so on...
See, you are starting to justify cutting the tax rate from 60% to 50%, but why stop there?
The problem is created by the government/public asking for 60% to begin with and creating the sticker shock.
1) Yes, but if you legally reside in California [edit] or continue to do business in California, you still owe California taxes. Indeed, California will treat you as having not actually left California--and the federal courts would agree with them. (These jurisdictional principles have basic tax law worldwide for more than a century.) If you don't pay your income taxes to the jurisdiction(s) in which it is owed, you've committed a felony, and you'll end up paying all of the taxes owed, plus penalties and penalty-rate interest. There's also the potential for jail time.
2) There are many tax-regimes that are specifically targeted to prevent the movement of business assets offshore. In the US, running afoul of these rules is a minimum of $10,000 per violation (depending on the circumstances, potentially meaning per asset), plus the possibility of criminal sanctions. Moreover, locating assets offshore doesn't eliminate tax jurisdiction--you still owe income taxes in the jurisdiction in which you earn the income. (Basic international tax law.) All you really accomplish is to make yourself subject to additional income taxes in another jurisdiction, and worse--you may have rendered yourself out of eligibility for tax treaties that would have eliminated the double taxation.
3) Stop spreading FUD. The government isn't asking for 60%. And that's besides the point. Before the Reagan "Revolution", the marginal rate was greater than 60%. Right now, taxes are at near-historical lows. If you would prefer not to pay taxes, you could always move to a zero-tax haven like Somalia. I hear it's a lovely place this time of year.
Dubai is a lovely place as long as you love empty desert visas, sandstorms, and you don't mind not having many of the freedoms or safeties that you would enjoy in the US, Europe, or even most of Asia.
For example, public kissing is a felony in Dubai. A woman walking around in public "indecently clothed" is a felony (though exceptions are provided for hotel guests and beach visitors). Drinking is a felony, though hotels and other tourist spots are excepted. There is no free speech in the UAE. If you badmouth the royal family, you've committed a felony. If you badmouth Islam, you could be put to death (but most likely would be killed by religious zealots long before trial). Worse, for expatriates--if you aren't a UAE citizen and you commit a violation of your employment agreement, you've committed a felony and your visa is subject to destruction, effectively barring you from leaving the country without the assistance of your embassy.
Oh...and by the way...if you're a foreign corporation, you end up paying a 50+% income tax. While there technically is no income tax in Dubai, all companies doing business in any UAE member state must be at least 50% owned by a local company, and by law, all eligible local companies are owned by the state or a member of the royal family.
I have quite a few clients that operate in Dubai. Without exception, they limit their time in Dubai to strictly what is necessary for their business, because it's a decidedly unpleasant place to be once you've experienced the very limited touristy options.
Free economic zones like the Dubai Internet City exist, where 100% foreign ownership is permitted. I agree that there are many other issues though. Could I have your input on this please (if you have the time): https://news.ycombinator.com/item?id=6904888 .. I'd love to hear your opinion since you have a lot of knowledge in this field.
Unfortunately, due to your admission that you ran the whole thing illegally, and in the EU, I can't make any suggestions (even in general terms) without running afoul of legal restrictions (I'm not an EU lawyer) or my firm's tax practice restrictions (due to the potential illegality of your prior structure/activities). I'm not even allowed to refer you to one of my firm's local offices.
I would suggest that you hire a local (to you) lawyer. Since it appears that you also have accounting needs, you should look for a firm which provides both legal and accounting services.
As for the Dubai Internet City: it's intended for specific business activities within the Free Zone. It's not a panacea that gives you access to the rest of Dubai or the UAE (for that you still need a 50% local owner.) That's great if you want to do business in the Free Zone, but if you're not a local to that region then there are far superior jurisdictions to be located if you plan on having international business operations.
Also, the royal family has a tendency to radically change laws every time a new generation comes into power, so the current business-favorable laws may change for the worse in a few years. If that happens, it could be very difficult to get out.
Oh please. Your CA income taxes are deductible, IIRC there's a line on the 1040 specifically for you to fill in your state income taxes. And I say that as someone who has filed self-employed for several years and so pay double the payroll taxes (ie picking up the employer's part as well as the employees).
I was trying to figure out where this was myself, digging thru last year's tax forms. Looks like you need to itemize and complete a Schedule A to use it.
