About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Vincenzo Vilamanona is a CPA who originally worked one of the big four CPA firms, but decided to toss it all in and move to Puerto Rico. He started a company where he specializes in MNA and international tax. Today he shares his knowledge and insights with us. Whether you're thinking of moving your company to another state, or abroad, this is the podcast to listen to before you do.
Announcer: Welcome to life after business. The podcast where your host Ryan Tansom brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Hey everybody and welcome back to the life after business podcast. This is episode 142 and today's guest's name is Vincenzo Vilamanona. And I literally had to get Vincenzo on the show because I met him at a YEC event. So it's my community that I'm in, called the Young Entrepreneurs Council and I was on a snowboarding trip and here is this a very tall guy who's got a very big beard and longer hair and just as an absolute blast to chat with. And lo and behold, he's a CPA, literally would have had zero idea about that. I would have for sure thought he was anything but an accountant. So Vincenzo and I started chatting and he has a very interesting background. He came from one of the big four CPA firms. He's been in and out of MNA as it relates to tax and he just totally pulled the corporate rip cord and decided to move out of the U.S. Where are you going to live the life that he wants as he travels and it can literally just do whatever he wants.
Ryan Tansom: However, he ended up starting a company where he specializes in MNA and international tax and so Vincenzo and I are chatting on the show. We really touched on a lot of different things, so this is not a checklist of all the stuff you've got to do before you had to hand in your tax returns or anything like that. This is us just really rallying around all the different things that relate to business mergers and acquisitions and tax. So we're talking about asset versus stock sales, R and D, tax credits, understanding of the different ways to mitigate annual taxes, but then also making sure that you've got things lined up for the eventual sale. I think it's a fantastic episode. If you want to get brushed up and hear the general concepts, really be able to continuously get yourself familiar with all the different tax lingo and the different nuances that could be involved in your eventual sale.
Ryan Tansom: Super, super good. Because we're not getting so nitty gritty that it's unbearable while you're driving or while you're running. So if you make it towards the end of the episode, one thing that Vincenzo starts talking about that I think is absolutely super interesting that his one of his specialties is if you decide to travel outside of the U.S. and or if you're planning on actually moving. Like I literally, when I got done with this is my, maybe we should move to Puerto Rico because he starts talking about all the different tax advantages from moving out of the U.S or having your company in different countries. There's just a bunch of stuff that I was not familiar with that I think are interesting. So not to say that you're just going to pick up everything and move, but I think there's some interesting things to think about when you're literally talking about your income that you want for life and how to get that annual income and the most efficient way possible.
Ryan Tansom: Playing a little defense to get that income that you deserve instead of giving it all to the government, Vincenzo has got a lot of really, really creative ideas and how to do that. Before we kick it into the episode, I just wanted to make sure that everybody was aware of these growth and exit planning accelerators. We're launching the 12 month program that it's starts. We're going to have 10 people that are in the cohort and we take the phase one and phase two of our growth and exit planning process and we layer in the principles and we essentially just give you a boot-camp that gives you all of the resources and information that you need to increase the value of your company, maximize your exit options and how your team of advisors, so if you're interested in that, go onto our website. There's a registration page or shoot me a LinkedIn message and I'm happy to give you some more information.
Ryan Tansom: So we're launching one, we're shooting for August and we're going to be launched when hopefully every quarter here in the Twin Cities. Um, we've got a couple other advisors that are planning on launching across the U.S. So some pretty cool stuff going on. So if you're curious if there's going to be one of these cohorts that are launched in your cities or if you're interested, and then potentially being one of the facilitators that wants to launch a cohort, reach out to me. And then if you're an online entrepreneur, I'm going to be launching some virtual cohort peer groups that are going to be a three month program with my friend Alex McClafferty, who ended up being on the podcast with his episode titled Selling to Go Daddy. So if you're interested in either of those, reach out to me. Otherwise, I hope you enjoy this episode,
Announcer: This episode of life after business is sponsored by Ge XP collaborative. They're proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. So your company on your timeframe to the buyer of your choice at the price you want
Ryan Tansom: Vincenzo, how you doing man?
Vincenzo Vilamanona: I'm doing well. How about yourself?
Ryan Tansom: Doing good. I uh, I'm super excited to have you on my show because you and I met at the Young Entrepreneur's Escape and um, we were having a blast boarding in the mountains and I will have to say that you absolutely did not look like a CPA, right? Like, Oh my God, this guy looks like a, it looks like a total mountain head and he lives on, no, no, you're, you're diving into financials all day.
Vincenzo Vilamanona: No, no. Just nerding out on tax and tax advice.
Ryan Tansom: So you got, you got, you got to give your, before we jump into tons of tips and tricks and all this stuff that we're going to geek out on, you got to give your, you're a little bit of the background of how you got to where you are and what you're doing now.
Vincenzo Vilamanona: Yeah, no. So I mean, I, uh, I'm from New York originally and basically, you know, started sort of the classic CPA route, um, you know, did the big four, worked at Price Waterhouse Coopers and that was in finance for a while. And then, you know, about eight years ago, I just decided to, uh, to leave it all, I was just so done with New York and the, and the finance, the rat race. And, um, no, I ended up moving to South America and then, uh, and starting a practice with a focus on, on international
Ryan Tansom: Taxation?
Vincenzo Vilamanona: Right! So Americans living abroad, foreigners that invest in the United States. And, uh, that's why you know, started growing my hair out and, and, and kind of, you know, sticking my finger up to the man as far as, hey, I could be this sort of CPA without the assurance side and, you know, the green visor.
Ryan Tansom: So, pocket squares. And, um, so, you know, as we, as we dive into this, can you kind of give a little bit of the, uh, the overview of what your specialties are at your firm and what you've specialized in over the last handful of years?
Vincenzo Vilamanona: Sure. So, you know, I started out at PWC, we're doing sort of like sort of reinvent myself. I saw a real need for the international tax side. Like I said, Americans living abroad, they still have to report to their stuff and to file U.S. Tax return. And they also have to report a lot of stuff like their foreign companies, foreign bank accounts. And then the same thing for, you know, a lot of foreigners that want to get in the United States. So, you know what I mean? They want to invest in real estate here. Um, you know, foreign companies that want to invest here and whatnot. So we've kind of maneuvered ourselves and, and that niche. And that doesn't go without saying that, you know, we still have a lot of clients in the US and that stuff pretty large domestic part of our practice. But you know, it's all about, it's all about niche markets and differentiation, right? In any, any sort of business that you do. And so for us, you know, kind of being one of the sort of, you know, leaders and, and ahead of the game in the expat the world really works benefit.
Ryan Tansom: That's super cool. And then we'll, and we'll definitely dive into that stuff for the listeners. I'm just totally geek out on all the different, uh, different tax things that I know that we all think about all the along as we just get hammered with it, we'll definitely get Vincenzo, I think a lot of people, I've either got partners that they work with internationally and, or the, you know, that like you said, that they're thinking about maybe living abroad or vice or retiring, have run all these different things that I think the opening up people's eyes, especially as like a lot of the inversion and what do they call it, the inversions that were going on. So, but before we get into the hammer into that, let's maybe just cover some of the things that, you know, as, as tax day's coming up here pretty soon and a lot of the owners that are thinking, okay, like the things to think about tax wise as you're getting prepped and ready to sell and, or, cause I think there's two things and maybe we can just start with this, is that I see a lot of people Vincenzo, they know that they're going to sell, but they've been, they've been kind of almost playing, you know, the God of the, uh, the annual tax strategies versus the long-term. So what are your thoughts on that as people are trying to optimize, you know, mitigating taxes on an annual basis versus how that impacts the future structure of the eventual sale?
Vincenzo Vilamanona: Yeah, I mean, listen, uh, you know, ultimately you have to sort of look at, okay, well what's your long term? You know, what is your plan? Right? When are you going to end up selling? And of course, you know, it's good to sort of, let's say, uh, you know, buy assets to depreciate them and you know, a lot of people, you know, put money into software, etc., so that it could be depreciated, it can be a write off. But you know, you also want to sort of think of, well what does that, is that, are those assets going to, you know, kind of bring me value in a sale, right? And, and, and, and, or are they going to just sort of be, you know, written off and, and, and not going to be all factored into the purchase price value.
Vincenzo Vilamanona: Right. And so, you know, I think that's also, I mean, and look at it like, you know, you could write off, you know, software you write off over three years, um, you know, office furniture or equipment, etc., is, you know, five years. So you kind of have to think of, well, what is my sort of, you know, three to five year plan on selling? And again, is that, is that going to be worth it in terms of purchase price and going to add value to it? Or am I just really seeding a, a tax write off now?
Ryan Tansom: Why don't you, while we're on that note, maybe it touch on depreciation recapture. Cause I think that, I mean, I don't know how many times I've seen it where someone that goes to sell and then all of a sudden they're like, you know, running the numbers like holy crap, I did not know that was going to happen.
Speaker 3: Yeah, totally. Right. So, you know, when we do something, you know, when you depreciate and whether it's a, you know, an asset like a house or even equipment, you know, again, it's over, you know, a number of years, right? So you, you get to, you get to do that depreciation expense, right? And that obviously expenses against your net income and, and, and, and essentially, um, uh, you know, lowers your bottom line and your taxable income. Now, the problem is when you sell that acid, right, whether it's a house or whether it's a business and then you're, you're selling the business as a whole with assets, then you have to add back that depreciation, right? So you have to add that to your, your cost basis so that essentially you're, you're going to end up paying more, uh, more capital gains on that, right? Because you're essentially adding that to the, your, uh, your basis and you're going to, yeah, it's going to be a larger capital gain.
Ryan Tansom: Well, so then the curious as we peel that back a little bit, because the isn't depreciation recapture ordinary income too?
Vincenzo Vilamanona: Right! Exactly.
Speaker 2: So maybe give an example. Someone buys even, uh, a building piece of machinery or even a business and you know, that they've purchased as an asset and we're getting into the asset versus stock sale, but like that whole thing that they might not owe anything on gets thrown into their tax equation. Right? So can you explain how that, that ordinary income in the debt then that recapture works in what you mean by like that cost basis versus the in and I meant, you might want to do the wrap around that.
Vincenzo Vilamanona: Yeah sure. I'll do something just super easy, you know, like, like a house, right? So let's have a rental property and you know, i'd appreciates that over over time. And then at the end of the year, or it's not the end of the year. What do you, when you sell, let's say you have a a, you know, you bought the house said at 400,000 you're selling the house at 500,000 okay. So you'd say, Oh yeah, well then that's obviously a capital gain of a of 100,000 but you also depreciate that, that house that rents a property, you know, over over a number of years. And let's say the appreciation is, is $20,000 that means that you have that $100,000 capital gain, but then due to the depreciation add back that 20,000 you had depreciate it over, you know, over the years also gets added into your capital gain. However, that gets segregated into ordinary income. And so that would ah, yeah, that would essentially be taxed at ordinary income. So you have capital gains rate, which is lower, right? 15 to 23.8%. And then you also have the, uh, yeah, the ordinary income aspect of it.
Ryan Tansom: So this is where action, even for clarification purposes for me, so your cap gains and ordinary on that on that? 20 grand, right, exactly. $120,000 in cab came plus 20 grand and ordinary.
Vincenzo Vilamanona: No, no, it'd be, it'd be 20 grand. It would be, it would be segregated. So it'd be 20 grand of ordinary income and then the 100,000 cap gain.
Ryan Tansom: Well, and I think what happens is a, is usually, I mean I'm seeing especially with the 179 and maybe you want to touch on some of these depreciation, um, tactics that people use it between 179 and how they're purchasing random stuff. That to get that and how, like how traumatic that can be because of the eventual eventual sale.
Vincenzo Vilamanona: Yeah, exactly. So, I mean, that's why it's, it's one of those things where, hey, it's good to sort of take depreciation of 179 deduction, which means that basically if you, you know, let's say you buy ah, furniture machinery, you can, you can deduct, its the full amount at in the year that you purchased it, right? And so you rather than depreciate over the five years and you know, if it's $100,000 asset you can sort of 20,000 units, depreciation expense for each year are those five year period. You can just say, Hey, I'm going to do it 179 and just take the a hundred thousand right then and there that first year. Right. But the, but again, I mean the issue is that you might have this sort of add back later. Um, I the other 179 of the depreciation, which then again we'll cut into your, your, you know, your cap gain are, or at your cap gain and cut into what you ultimately end up taking home. And so a lot of people say, Oh yeah, well, you know, that's like one of the biggest like urine tax tips, right? Is Okay, well, hey, why don't you, uh, you know, just buy a bunch of equipment, etc., but if you're, if you're looking to sell the next couple of years then just know that that's going to come back to you, right? If you're not going to sound the next, you know, 10 years then fine and then, you know, the equipment will be depreciated by then and it really won't matter. But if you are, if you do have a forecast that's still on the horizon and then just know that that will, uh, you know,
Ryan Tansom: Making sure that adds to the value of the company instead of just
Vincenzo Vilamanona: Exactly!
Ryan Tansom: What are the nuances with the 179 that change with the new tax code?
Speaker 3: There was something called, um, you know, bonus depreciation. So that, again, I mean, it, it, it allowed certain fixed assets to, to be depreciated again with the one 79 roll. So it basically opened up four more asset classes to be, to be included in that one 179 role.
Ryan Tansom: Weren't some of them like trucks and SUV red trucks.
Vincenzo Vilamanona: Yeah. So the big thing was, um, yeah, like SUV is, and, and, and, and I think even like luxury cars or something like that, I mean there's, there's a lot of nuances about, you know, what you can depreciate, um, specifically when it comes to automobiles and vehicles. And so you're right. So the bonus depreciation rules allowed for yeah. If it was like trucks, etc.
Ryan Tansom: So as we're kind of touching on the, all or some of this, I know we're kind of just doing some, um, you know, some one on one potentially for some people, but I think it's so important because all these things are nuances and it's all about app being able to answer their, asked the right questions to whoever they're sitting down with. Let's, let's, let's dive into the asset versus stock sale because in, in give your, your, uh, the, the, the main contrast between the two because I think this is where, I mean there's people that you, and I know that I was like, they like is it to be an asset or a stock purchase? And like, I don't know, I'm like, well, it's a huge deal. So why don't you just, uh, give your definition of what the two are in the contrast?
Vincenzo Vilamanona: Yeah, totally. I mean, basically, um, you know, stock sales, when you sell to companies, you're actually selling the stock saying, okay, I'm selling my stock in my company. I'm no longer owning that company. And essentially you're getting rid of the company or getting rid of any sort of liabilities associated with the company, and it's actually way more, uh, favorable to the seller to do a stock sale versus an asset sale is saying, okay, you know, I have this LLC or this C-Corp and I'm just gonna sell um, you know, certain assets. Right. So, I mean, it could be, it could be all the assets of that company, you know, and then when I sell the assets, I'm not just talking about the fixed assets, but you know, also the intangible ones, right? Like customer lists or you know, the brand name, etc. And that would be more favorable to the, to the purchaser. So I think, you know, one of the biggest things is when you, when you are sort of thinking about selling the company are sort of getting there to the negotiation table is to, that's one of the first details that to hammer out, right? Are you going to, they just won't buy the assets, do they want to buy the stock? And, and kind of how you're going to maneuver that from a, from a negotiation standpoint and from a tax standpoint.
Ryan Tansom: So, an ordinary income vs an asset and then cap gains vs stock. The, the, um, can you describe like, an
Vincenzo Vilamanona: Yeah but even, even within the asset sale, it gets a little more complicated than that. Yeah. Yeah, the classifications and the, and the, um, the, the, the, what's known as the purchase price and it's sort of allocation of the assets, right? So for example, you know, I buy, I buy a company for million dollars, or I should say I buy an asset for... A bunch of assets for $1 million. And so then, you know, me and the ah and the seller have to iron out. Well, what is the, what is the allocation of the, the value of the assets? Because on the books of the seller and the assets might only be worth 600,000. Right? But I'm paying a million and there's a reason for that right? There. The reason is because of course, you know, there's value in the, in the goodwill, there's value in the brand name or the, the customer relationships. And so me as the buyer, I want to make sure that I'm maximizing sort of my depreciable assets so that the brand name and the customer relationships, etc., I can depreciate and, or amortize over the life of the assets. So, um, and by doing this allocation, there are certain assets, uh, that you as a seller would be, would classify, you know, as capital gains. And again, that that's a capital gain. And there are some assets, you know, one is like non-compete agreements where that's ah, that's something that actually is recognized that ordinary income, right? So if, if I also agree as a seller to sell a company or to sell an assets, I need to be very aware of what the allocation is of, of certain assets because I'm, again, some of these assets might be considered ordinary income. And then of course that would be, you know...
Ryan Tansom: That's obviously tax higher than, uh, than what a capital gain would be. Can you rattle off the list of the different buckets that it can get allocated into? Cause I think there's like, you know, it was a typical 10 or something like that. The, I don't know exactly what.
Vincenzo Vilamanona: Yeah I mean, that's basically the, you know, you have all the fixed assets, right? And then, you know, then that goes into the whole depreciation recapture and that and that story. And then, um, you know, there, there's customer relationships, there's, there's, there's brand name, there's goodwill, uh, yeah, employment contracts, non-compete.
Ryan Tansom: With the point of that too is like the fact that all of these are different and I don't remember, I don't know how many deals you've sat at the table where like the buyer ends up pushing what they want into different and like how, like you said, like, so you get fixed assets where you get all of a sudden you're getting at there jamming a bunch of stuff and they're saying, hey, all these trucks and cars and inventory, that's usually shit or whatever is now getting jammed into fixed assets and you're getting a bigger recapture. Huge Jigsaw puzzle that I'm most of the time the sellers are not aware of and then all of a sudden stuff happens and they just don't even know why.
Vincenzo Vilamanona: Yeah, no, I mean I think, you know, specifically when it comes to that, that's the biggest thing, right? I mean if you're going to, if you're going to agree to an asset sale, which you know, fine. I mean, it is what it is. I mean it's not the end of the world obviously like, but you, you better be ready to, you know, negotiate hard and, and figure out the, the, the purchase price allocation for all these assets and do so in a favorable manner. Right. Because again, a lot of times, you know, the stock sale might be the easier way to go or I should say the assets sale might be the easier way to go because the buyer wants it. But you, you need to be ready to, uh, to figure out the value of the assets.
Ryan Tansom: And this is where you're having your attorney and the CPA all working on this stuff. Dude, I don't know if listeners have heard my story, but this is where like our CPA did not have a lot of acquisitions under his belt even though they were a big firm. And like if you like there's just like, oh, we're just like nonchalantly doing this stuff. And like the numbers would literally swing so huge! As like this was, as these allocations were happening and I've been...Vincenzo like different thresholds that you can because like you can't play a ton against, is it? Correct me if I'm wrong, isn't there inventory that it's just an expense so it's good for everybody. It's like you're not, you can't have like 100% of it depending on how you do it. Right. So I don't know, is there like different like ranges that you can bet a typical deal would have?
Vincenzo Vilamanona: Yeah, I mean you know, again, you know like for example with fixed assets, you know you have to sort of be, you know, within reason and there is a sort of rule of thumb on, on a lot of these things. But yeah, like I said, I mean I think it's just, it's really, you know, the, the art is in the intangible assets side and their associated value cause that's really where sometimes just sort of sticking your finger up in the air, etc.
Ryan Tansom: What are, what are some things that you see people doing or that you, that you have liked that are associated with the, with the deal structure? The transaction like this, I mean, there are things that they're creative things that you're seeing people do.
Vincenzo Vilamanona: I mean, I think the other, I think another aspect of, of deal structure or, or whatnot, it's like, you know, again, that's sort of the state and local taxes. And you know, if you're, I mean, it depends on if you have like a bricks and mortar business or something that's essentially online, like an online business. And, you know, we help a lot of people like who are Amazon sellers and stuff with this. So maybe, you know, what I, what I do is more, you know, yeah. Like online if you will. But, you know, again, I'm also being aware of where you're a tax resident at the time you're selling a, you're selling a company. So for example, you know, one thing when people are, are, uh, are preparing or, or looking to sell, is it changing residency? Right? So like, I've helped people, you know, that are moving from New York to Florida or, you know, people that go from California to Nevada. And so, you know, in that move, um, it's not just, Oh, let me just move. No, it's like, okay, you know, you have to literally, you know, we had somebody take a picture of him holding a newspaper in front of a moving truck, you know, that shows, okay, this is the date I move. And then, you know, two days later the same picture, you know, down in Florida. Right. I mean, and, and you know, but this is like, you know, this is real life because you did these, these, uh, these states will go after, you know, people that try and move before they make a big sale.
Ryan Tansom: Well, let's actually dive into this Vincenzo, because I mean, I literally had a client that, you know, given the crappy weather we've had in Minnesota, like the longest winter ever, they went down, they came up and they're 10 year transition plan, accelerated to 90 days. I'm done moving. Yeah. But like, then it's up. But I'm like, okay, that impacts your estate plan, your financial plan, your real estate plan, the business plan. I mean, it'll like ripples into everything. So can you hammer out like, what are the legitimate cause? Like, like, like you, you just said, I think a lot of people underestimate like the, the loophole, right? Or they, they think that either you can just quickly, you know, six months in one day, but like, isn't it like you can't even have your service providers are charities and stuff. Yeah, so can you kinda just give us a....
Vincenzo Vilamanona: Yeah, It's all about a fact pattern, right? And, and sort of what's on paper. And so, you know, it, it is about, you know, it's stuff like, uh, you know, whatever your religious organization is or, you know, one thing is, um, your, your accountant or your doctors, your lawyers, you know, being in Florida and being able to say, yeah, I have all my doctors in Florida, you know, social, a social groups, you know, obviously the basics like voter registration, driver's license, um, you know, bank accounts. Um, I mean, there's a whole sort of checklist of stuff, but it's, yeah, I mean, again, it's, it's sort of, you know, showing that you're cutting ties with your former state and that you have ties with this new state like Florida actually. Yeah. You have to do it. I mean, you know what I mean? Like having a, you know, having a utility bill and showing you're uh, the residing in another state, you know, in that it can't be just like, oh yeah, like, you know, 184 days. I like just one day over, I mean, you really, if you're going to do it, do it right. Because if you do have sort of a big, you know, big sale and a big gain, you know, and you're, you're, you're no longer claiming residency in your former state that's taxable estate, then they're going to try and come after you. I mean, you know, New York, California, those are greedy. Those are greedy states.
Ryan Tansom: Can you explain then the long arm or whatever, because I think California, New York, Minnesota, all of the higher, the higher states isn't, I mean they'll literally go after you and asked for all the money back won't they?
Vincenzo Vilamanona: Yeah, they will go after you, and you will have to show this sort of fact pattern of the fact that you've moved all of your ties. I mean it's about showing sort of ties to the other state and so, and it, and it's, yeah, like I said, it's more of this sort of intangible of like, my social ties are here and my, you know, my service providers are here and you know, you, you have sort of paperwork to back that up.
Ryan Tansom: So, because I do have a lot of listeners that are also have e-commerce companies, what are some of your suggestions on that? Because I actually read this article Vincenzo, so it was like about how in today's world with more of these businesses that are, um, that are online, I mean, money's more fluid. So people are, I mean, like now states are literally competing with each other because of this stuff. So what are the things that you would suggest, or that you've seen or helped with, with people that have eCommerce, comes out a little bit more fluid?
Vincenzo Vilamanona: Yeah, I mean, the problem with, with, with eCommerce, you know, is of course, well where the company's located, especially if the person's, you know, kind of nomadic, which I have a lot of people, but it's also, it's also a matter of, you know, whether you might owe, let's say state tax and, uh, and, and the jurisdictions where, you know, for example, people that, that are Amazon re-sellers, right? And Amazon has a, these fulfillment centers in various states. So some of the risks that we've seen, especially, you know, at the deal table where people are like, oh, well, you know, what, if you haven't been paying your, uh, you know, your sales tax, uh, and all these states. So what if, uh, you know, the state comes after me, you know, once you sell the company. So you have a lot of issues with, uh, with, with, with sales tax, um, and whether the person is, you know, doing the proper sales tax reporting. Um, and uh, yeah, there's all these options.
Ryan Tansom: On that note too. I don't know if you've seen those. Ah, cause we were doing, we were doing business across the whole U.S. too and like in the, uh, there was a deal that my partner was working on selling as a very large deal and the difference of doing an asset versus stock Vincenzo and they had like prepped everything to try and do the stock because the liabilities go with that. Like you said, doing the prep work in the sales tax audit and all these, uh, you know, all these, you know, financial and, um, and tax reporting will help you hopefully position yourself to do a stock sale. So what does it mean, what are the, what kind of work or what tools or how do you, like how would someone go about doing and prepping and understanding how, like, what their exposure is on this stuff?
Vincenzo Vilamanona: Yeah. So, I mean there, there was like, so for state, for sales tax, there's, there's a bunch of sort of a, you know, online applications, like there's something called Tax Jar and there's a bunch of that to sort of help you calculate your sales tax for each state. So, you know, I would, I would of course, and that should be something that would be asked to do diligence, right. As far as, you know, showing all this, the sales tax returns and, and, and the calculation for that. And then, you know, it really is sort of examining if there is any sort of state tax liability in some of these, in some of these, these states in which the Amazon fulfillment center operates. And so, you know, being able to prove that, hey, you know, you don't have any sort of local tax liability that we've, um, you know, we've done the due diligence. We've, we have these memos to show or, or whatnot to prove that this is not a, this is not at risk. And yeah, and hopefully being able to do the, uh, the stock stuff because of that. But I mean, that's the thing, if you're in sort of a very either litigious type of business or in a business where there's a lot of gray area, like, um, like when you, you're looking at Amazon re-sellers and SALT for state and local tax, you know, it might, it's all about the risk of the a or it's all about the PR, the purchaser and if they're willing to take on the risk or not, you know, and, and, if you're willing to let them, you know, if you're willing to walk away, if they're not going to do a stock sale or not.
Ryan Tansom: So have you seen the um, like the stock resists impact people's ability to have the residents somewhere else? Like so like, because like you mean with an asset, you keep the corporation, all that kind of stuff too, right? So then there's a tie to states, I mean, so is, or would that impact any of that? Um, the state, um, maneuvering?
Vincenzo Vilamanona: Yeah, I mean, I think ultimately it depends on the type of business. And like I said, if it's brick or mortar or not, you know, I mean if you, yeah, I mean it's stock sales a lot cleaner so to speak, but I mean you could still do an asset sale. It, you know, get, if it, let's say it was an S-corp and you know, you were, you know, you decided personally to move ah, out of state. Right. Cause you know, in an S-corp for example, or an LLC, it, it's kind of flows through to the, uh, the, uh, to the shareholder. So again, your capital gains essentially flow through to you and, where you're located and your, your residency. So yeah, it does kind of depend on the type of business.
Ryan Tansom: How about, so if, you know, someone's got an e-commerce business and they're like looking at these numbers going, okay, like is it like because they're more mobile because of the e-commerce nature, you know, is there, I mean, is it just something where they should be like literally thinking about all this stuff on, okay, it literally is worth it for me to move because of the state, the state taxes on the, on the asset versus maybe kind of talk to it because I think...
Vincenzo Vilamanona: I was going to say I'm in the states tax on the, you know, it's such a big thing. I mean, even just moving, you know, in New York for example, moving from, uh, you know, out of New York City, just to like the burbs, just to just in New York state is a big, is a big jump, right. I mean, so and then obviously in a move from a place like New York or California to uh, yeah, to Florida, Nevada bottom and you're talking like 10% tax rate that you're going to save on that. So, you know, and that's why I tell, I mean, people, my clients that are either selling their, their, their businesses or even people that are, you know, again, like kind of looking to move abroad or whatever, it's like, all right, just don't, don't neglect the state side. Right. I mean people should start to take, I think, you know, big picture, you know, focus on a lot of other stuff. No growth or yeah, like as the first stock or whatever. But you know, don't forget, don't forget the state side of it. So the SALT.
Ryan Tansom: Oh I actually, I follow Grant Cardone who is very vocal online, LinkedIn. And he literally just moved from California to Texas or was either Texas or Florida and he's saving one point $4 million a year. And like, I mean even if you, even if you take that divided by 10, a 140 grand, you can literally fly around a lot or rent a private jet.
Vincenzo Vilamanona: And that's the thing, you know, you'd see, I mean, listen, look at the population growth of an old place like Florida. Okay. I mean there's more and more people moving down there. And I mean the, obviously the sun is nice, but let's be honest, like the tax thing, you know, especially from, like I said, the northeast big, big difference.
Ryan Tansom: So anyway, in your international, I mean like if people were to think long term or big picture about this stuff, what is that on the international stuff. Are you seeing people, because I think that there's more international buyers too, which I think a lot of people don't assume as they're selling their companies that they can literally go and like look at, you know, international buyers. But as money's flowing back and forth in the world's becoming more global and people have more opportunities to do this stuff, like what are, what are the things that you're seeing or you're recommending or strategizing with people about?
Vincenzo Vilamanona: Yeah, I mean, I think, uh, you know, from an international standpoint, um, you know, you want to make sure that, uh, you know, if it's an installment sale for example, I mean, you want to make sure that they're able to pull a, that you're the, the, the foreign currency risk is not there. Right. So that obviously everything's negotiated in dollars and that the, uh, the company that that might be buying it, buying you, um, either has the hedge was able to sort of meet a purchase price if they, if they have an issue with, with either their foreign currency or, you know, bank loan, etc. Right. I mean, I think that's, that's one aspect when it comes to sort of international buyers, you know, the other aspect is just, you know, again, I mean just, just culture. I mean, a lot of times, you know, I have people that, uh, you don't have buyers from, from South America coming in and just sort of the pace of a deal might go a lot slower. Um, and then it might be just, you know, just longer due diligence and, and it's just, you know, again, I mean, I think that people have to just sort of understand these, uh, these nuances and differences, etc.
Ryan Tansom: And you weren't you helping people do like what, I mean, even consider moving abroad and stuff like that. I mean, so how does that, how does the international tax play a role into what people should be thinking about?
Vincenzo Vilamanona: Yeah, and that's the, that's the other side, right? It's again, if people do have, we call it online businesses or even, let's say they have a brick and mortar business, but they're, you know, don't need to be at the office every day, etc. Then then there are some advantages for removing abroad, and when I say moving abroad, I mean not just like, oh, I'm going to, you know, go to Europe for three months or whatever. But you know, literally kind of moving your life and it doesn't mean that you can't ever come back to the United States, but it means that, you know, call it a nine, 10 11 months out of the year, you're, you're outside the US and the advantages of doing that, of the fallen, you are allowed to earn up to $100,000 tax free income. Right. And that's called the foreign earned income exclusion. So you could be sitting in The Bahamas, you know, working for your US company. Right. Or getting, you know, a K-One distribution for an S-Corp Llc, whatever. But because you are physically located outside of the United States working, you get that first hundred thousand dollars tax free. Now if you have a spouse that's also working, then you each get the a hundred thousand dollars foreign income exclusion. Okay, so that's basic, $200,000 tax free. Like I said, the state and local tax, obviously it would be eliminated too because you're not in, you're not living in a state.
Ryan Tansom: What, how does that implicate. Does that get taxed by your current residence, like residency or the country that you're living in? And how does that work?
Vincenzo Vilamanona: So, you know, it could be, you know, again, I mean that, that obviously depends on where you're living outside the United States. Um, so you know, for example, I mean obviously there's a lot of countries where they have zero tax like in the Caribbean, in Panama, you know, Asia, Hong Kong, Singapore. Then there's some countries that offer incentives for people to, uh, to move there. So, um, Israel has like a 10 year, uh, incentive. Portugal has ah, an incentive, like for where it's like a 20% flat tax, you know, there's tons of places, or thirdly you can, um, you could do something where you're like a little nomadic, so you're not really a tax resident of a particular country, right. So maybe you're either like perpetually traveling or let's say you're, you know, in a country for just under a hundred days or 180 days. So just under half a year and kind of splitting time between two countries. You know, there are a lot of countries too that they don't tax on your worldwide income. So as long as you're not working, or I should say, as long as you're not earning the money, like locally and you don't have to pay tax. And I know like Spain for example, has some sort of special entrepreneurial visa program where, Hey, listen, you're not taking any jobs, you're not really, you know, working locally so you could live, you know, sort of tax free there. And, you know, at that point you really just sort of stimulating the economy by spending money there. So, yeah, I mean it really depends on sort of the visa and that situation. But like I said, I mean, $200... $200? $200,000 tax free under the foreign earned income exclusion by you know, claiming a bonafide residency in another country. Right. Which means that you are, you know, living there, you have a local visa, local bank account, a long-term lease. You should have these fact patterns that says you're living there. Or You could kind of do this sort of nomadic traveling where you're just outside of the U.S. The only sort of issue with that is if you want to be qualified as nomadic then ah, you're only allowed to spend 35 days in the United States per year. So for some people that might be a little bit difficult. Other people like just so glad to get out of the U.S. So you know, they just do that.
Ryan Tansom: You make or break the equation, man. I'm just like, well this is why a lot of people are gravitating towards Puerto Rico. Right? I mean, I don't know if you've got anything to say.
Vincenzo Vilamanona: Yeah. And that's you're right. And that's the other option is Puerto Rico. It's a little different and it's kind of like an either or. So you have the international strategy, which I just explained, or you have the Puerto Rico strategy, which is that you would be in Puerto Rico for 183 days. So basically you have to spend one more day in Puerto Rico than the United States. And by doing so you have no capital gains on anything in Puerto Rico. So people literally, you know, moved to Puerto Rico even if they're anticipating selling their company so that they would not have to pay capital gains on the sale of their company. So you have a lot of people that moved to Puerto Rico for that or you have a lot of people that are day traders, hedge fund guys, etc., that, you know, just trading stocks or bonds all day and you know, make it tons of capital gains. You have other, other instances where you can, you could, let's say run a company from Puerto Rico. Let's say you get one of these virtual companies, um, you know, Amazon Seller, whatever, and uh, you know, you would, you essentially would pay a 4% corporate tax in Puerto Rico and then you could dividends, you know, out the money from the company at a 0% tax rate. So you have all this stuff. I mean it again, and then you're basically in Puerto Rico, you know, just over six months, a year and then, and then the United States for the other six months. And I mean, it's funny cause they got flights. I mean, now that this has become such a big thing in Puerto Rico, it's like, you know, if you're, if you're a Puerto Rico over one minute, you know, pass the midnight, then that means you're in Puerto Rico for a day. So now they have all these flights that like leave Puerto Rico like 12.30 - 1 am in the morning. Some people get like, oh yeah, you know what I mean? And uh, it's a real thing.
Ryan Tansom: So you literally can, you, you could chalk up a bunch of days by just doing that ?
Vincenzo Vilamanona: Chalk up a bunch of days by doing that. And uh, so yeah, I mean you have ah,when I think about it, think about that.
Ryan Tansom: If you're going to do a stock sale in three years or whatever the heck it is, I mean like, yeah, I really wouldn't pay any cap gains on that.
Vincenzo Vilamanona: Yeah, I mean you, you know what I'm saying? So you really, you know, it pays to sort of plan out your residency and and how long are you going to be because you do have to do sort of a pro-rata share of, okay, this is how much time I spent on in the company, in the U.S. versus this how much time I spend on the company in Puerto Rico. And then that would essentially be your capital gains tax free. So you can't do like, you can't do something you, I mean, well you can't really do, and that's actually the same because these are the rules changed a bit. What this is also part of the rule change with the, uh, the Trump tax plan, etc., which is yeah, you can just say, all right, you know what, I'm going to sell my company next week. I'm moving to Puerto Rico tomorrow. Do you know what I mean? it sounds sweet, but you can't, it's not that it's not that easy. But you know, again, I mean if you're just, let's say moved to Puerto Rico for like a year or two and you're really not moving there when you're splitting half in Puerto Rico, half in the U.S. Yeah. I mean you could, you could literally.
Ryan Tansom: So the big problem that I been seeing is the sheer quantity of baby boomers that are going to be selling their companies are transitioning in the next five to seven years is ridiculous. I mean, 6 million privately held companies in the U.S. that have employees, there's 21 million that are freelancers, but the rest have employees and so 4 million of them are going to be transitioning, because the average age is 62. So like think about this and that the biggest problem that I see that a lot of these people have been running their lifestyles and then making a couple hundred grand and they don't have enough savings. You mean? So we call it the value gap or whenever you want to call it the gap between like what they can literally live on and when they sell their company, which if you think about all the things we talked about, what asset versus stock sale, the depreciation recapture, all this, the residency, state tax, all of this stuff impacts how well or whether they can or can't sell their company. And so I think it's like, I swear to God, it's like the things you're talking about and need to be part of the plan because it's like, hey man, if that's the difference of like you making it or not, you should potentially think about it. Even like a hundred like let's say, you know, you're only gonna live on 150 grand or something like that. And all of a sudden that goes down to 75 because of, you know, I don't know.
Vincenzo Vilamanona: No, I mean, it's, listen, I mean, it's about, you know, it's about playing defense, not just all offense, right? I mean, you know, we're all focused on, hey, like, you know, marketing our business and expanding and growing it and trust me, I mean, I've, I've done it myself and you know, uh, all my marketing center has been great, you know, but, but it is about playing defense when it comes to, you know, where can I say whether it's, you know, on the actual transaction value, whether it's on, you know, even the cost of living, of moving to a lower low cross country or a low cost state or low tax state. Do you know what I mean? And ultimately sort of what your take home is and what your net is and whether it's, you know, Puerto Rico, or moving outside the U.S. Um, you know, like I said, you could still operate a US company. I mean, you could, you could, if you can, you know, you could go the extra mile and, and, and, and form a Puerto Rico company and do it that way. Or you know, we do stuff kind of like the Googles and Apples of the world where, you know, you can, you can have a foreign company. So if you're living outside of the United States, you can, you knew you could have a foreign company and you can effectively pay, uh, you know, a 10 and a half percent tax rates on the net income by, you know, having a USC Corp own a foreign company in like Hong Kong or no tax jurisdiction. And then, and then again, and then you pay yourself 100,000 for the foreign earned income exclusion. Um, you pay, you pay your wife a hundred thousand or, or somebody else in your family. That's with you. And, and again, you know, you can, you could save a lot of money and a, and then, and then you could, you could reinvest that money into the business, right? I mean, because that's the point is if you're, if you're out there, you know, earning, you know, half a million net on your business and you know, you're paying yourself or you're, so say you're paying the government a couple of hundred grand, right? So that's a couple hundred grand that you can't pump into marketing pump into your ad campaign or, or reinvest in a, in a new manager or, or C level executive or some sort of specialists that you need. Right? And so, you know, you could do that if you, uh, if you, if you, you know, employ some of these strategies, etc. If you're able to obviously buy I work remotely, etc.
Ryan Tansom: You just hit on a bunch of, I mean, it is a global and that's not only is it a national playing field on the tax side, but it's a global playing field and it really impacts your, your ability to make these numbers meet. And not only that, but like, it's so easy to get places these days and with you and I, I mean, that's the thing, you know, you're, you're freezing a Minnesota, I'm down here to South America and my taxes are 10%. And My, my state, who's the smart pen.
Vincenzo Vilamanona: Yeah, right. You know, that's the thing. I mean, and, and, and it's just, I mean, it's a global economy. Um, and you know, everything's digital. So, you know, I mean, I've seen a lot of people, you know, again, entertain these ideas and implement these ideas of working virtually, you know, having a remote team and yeah. And then obviously saving on, on, on their taxes and how quality of life and lower costs of living, etc., so it is very real.
Ryan Tansom: And it was funny and I had a Mac, I call myself a smart one out of this whole equation, but the, like, even the groups of the people that we hang out with, like, I mean, I'm living in Minnesota, everybody's from Seattle, Washington and New York and California and half the people from California. I'm sitting here going, all right, guys like not only, yeah, I mean the state tax is one, but like, I mean, it's really cheap to get places. I mean, like I live in and I've got, I'm literally right outside the twin cities. I have a 3,900 square foot house rambler with three acres and my taxes are $3,200 a year. And I got people that live in these nice counties by me that's 15 grand a year. But then I'm like, I mean and I think my monthly payments like 2,500 bucks a month. And I talked to someone that was like, you're in California. Like, dude, I got like 400 square feet and I paid twice. I'm like, well!
Vincenzo Vilamanona: I mean that's the thing. It's totally, it's so true. I mean, you could, you could, you could totally live wherever you want and you know, you could, you could hop up, hop a plane to have a meeting somewhere or you know, stay a couple of days somewhere and you don't have to sort of be confined to ah, you know, to, to, to some of these cities or, or sort of epicenter is a business, right? I mean, yeah, exactly. You can fall up, they're going to be flying first class. I mean, you know, so it's just, yeah, I mean it's, it's obviously what suits everyone best. But I think that, you know, especially sort of our generation more so than like our parents' generation, like people are okay with, you know, what, let's, let's hammer out some things, you know, virtually. And then our, of course, like if things get up to it or you want to, you know, seal the deal or, you know, sit across from somebody, of course you can just fly there for the week or whatever and get things done. I mean, it doesn't have to always be a face to face. And I think, you know, when you look at virtual teams, etc., that's also, we've kind of found, you know, people could run effective virtual teams and are doing so.
Ryan Tansom: So with that being said, if you do the online tax man, right, so what is, if there's a hook, so, so what, if there's anything that you want to maybe summarize what we've covered, some good ground, what would it be or what, what would be your takeaway they leave people with and then what's the best way to get in touch with?
Vincenzo Vilamanona: Yeah, yeah, it's um, I mean the website is onlinetaxman.com. Um, we have another one called globalexpatadvisors.com as well. And basically what we do is we advise people, both people that, that live in the states that even are looking at dabbling into investments outside the US. And, you know, there's a lot of reporting requirements for a foreign bank accounts, foreign investments of people that want to maybe diversify the United States or you know, like I said, I mean people that are looking at exploring either moving outside the U.S. Uh, moving to Puerto Rico, um, and you know, have any sort of international tax flavor, uh, to this situation. So we would essentially help with all the tax planning, preparation, you know, compliance, etc., for doing so. So, and obviously with that comes M&A, um, but it, it's more than that. It's, it's, it's really sort of understanding the lifestyle and what people could save by doing so.
Ryan Tansom: Vincenzo, man, I had a blast on the show. I appreciate it.
Vincenzo Vilamanona: Yeah, it's been a good time. Stay warm in Minnesota.
Ryan Tansom: Thanks man. Take care!
Speaker 2: Hey everybody. I hope you enjoy that episode. If you have any questions about the accelerator that I was talking about at the beginning of the episode, let me know because we're going to be shooting for August here in the Twin Cities. Like I said, there's a couple of other facilitators across the U.S. we are going to be launching them as well, as well as the virtual groups that we're going to be launching. So I've got a couple of things going on. If you're interested, go on to Ghp collaboratives website. We've got a lot of information there in registration page and then you can also reach out to me on LinkedIn. But if you get any questions on how to get in touch with Vincenzo, go to the show notes online tax man that hopefully with be fully, we did not convince you to up and move to Puerto Rico without much thought. So if you're going to go talk to your spouse or any of your family members, please don't blame us. So with that being said, I hope you enjoyed the episode and I will talk to next week!