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Sussex’s Flee to Canada as IRS Accuses Them of Tax Evasion
Prince Harry and Meghan Markle, also known as the Sussexes, have suggested fleeing to Canada after being accused of tax evasion in the United States.
The couple allegedly evaded taxes using dozens of limited liability companies (LLCs) registered in Delaware.
While some may view their actions as questionable, it is important to note that their utilization of LLCs is within legal bounds.
However, there are suspicions that they may have utilized offshore trusts as members of these LLCs to avoid paying taxes in the US.
To fully comprehend the implications of the Sussexes’ business dealings and finances, it is crucial to understand the intricacies of LLCs.
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One of the main reasons for utilizing LLCs is to minimize the couple’s income tax burden at both the federal and state levels.
Typically, LLCs act as a pass-through entity, meaning the income generated is declared on the individual tax filings of the LLC members, who are then subject to their regular federal income tax rates.
The highest marginal federal tax rate currently stands at 37%.
However, if an LLC chooses to be classified as a C-Corporation (C-Corp), the entity’s earnings can be retained, and it becomes liable to pay the federal corporate tax rate of 21% on its earnings.
This classification also allows for greater deductions on expenses, reducing taxable income more effectively than individual high earners like the Sussexes.
High-earning individuals are often subject to the IRS’s alternative minimum tax, which increases the amount of income taxed and restricts common tax breaks used to lower their tax bills.
Based on my assessment, it appears that the Sussexes’ LLCs are classified as C-Corps, resulting in their income being taxed at the lower rate of 21% instead of 37%.
Additionally, by establishing their C-Corps in Delaware, they can also benefit from lower state income taxes.
Delaware imposes a state income tax rate of 8.7%, significantly lower than California’s rate of 13% (plus an additional 1% for individual earners over $1 million).
This strategic maneuver allows the Sussexes to save a considerable amount of money.
While treating LLCs as C-Corps offers advantages, such as reduced tax rates, there is a potential risk of double taxation for the members.
However, it is reasonable to assume that the Sussexes’ business manager and financial advisor have taken measures to minimize this risk.
Another advantage of utilizing LLCs is the legal protection they provide for personal assets.
In the event of a breach of contract lawsuit, only assets belonging to the specific LLC involved in the contract would be susceptible to seizure, safeguarding the personal assets of the Sussexes and their other LLCs.
LLCs also offer anonymity, although it has been discovered that the Sussexes are behind numerous LLCs.
The choice of Delaware as the state for registration is likely due to its business-friendly environment, including low state income taxes and flexible corporate governance options.
Despite severing financial ties with the royal family, Meghan Markle remains obligated to file and pay US taxes as an American citizen.
This requirement extends to the couple’s children, Archie and Lilibet, regardless of their royal status.
Whether residing in the UK or Canada, Megan will continue to fulfill her tax obligations as an American citizen, filing annual returns and paying taxes on worldwide income.
In summary, the Sussexes’ decision to flee to Canada amid accusations of tax evasion has shed light on their use of LLCs to minimize their tax burden.
While their actions may be legally permissible, questions remain regarding the utilization of offshore trusts and potential risks associated with treating LLCs as C-Corps.
Regardless, Megan Markle’s American citizenship ensures that she will continue to fulfill her tax obligations, irrespective of her royal status.
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