taxes even though you are in a high-income tax state. One such
way is through residency or through the use of certain types of
trusts. For example, if you have a trust and it’s domiciled in certain
select states, then any LLC units that are held by that trust would
be deemed, in effect, the property of that state. It’s important to
note that there are 10 states (New York, for example) that do not
recognize non-resident trusts, but there are many more that do, so
you’ll need to do your homework first.
This strategy isn’t for everyone because there’s complexity
involved, and one needs to look at the cost/benefit analysis of it.
Quantitative factors such as passive investment taxes, sourced trade
or business income/real estate, and administrative fees to set up and
manage the trust need to be weighed along with other qualitative
factors, but if it’s determined that it makes sense to go forward,
then this gateway into another tax haven is definitely worth a look.
Bottom line: These types of trusts may not be applicable today
but could be applicable at some point down the road. In addition
to resolving part of the state income tax issue, if a franchisee is
really interested in developing wealth beyond their own life, then
these trusts can create dynasties that only few Americans have ever
accomplished.
Irrespective of the changes present in the new tax law, I want
to point out the Work Opportunity Tax Credit. This has been
around for some time yet continues to be a relatively unknown/
unused tax saving opportunity. The WOTC is a federal tax credit
available to employers who hire and retain veterans and other
individuals with significant barriers to employment. Planet Fitness
franchisees can save 40 cents on eligible payroll dollars related to
a qualified hire, up to the first $6,000 in many instances (and up
to the first $9,000 in other cases). High employee turnover rates
are typical in this type of business, thus making Planet Fitness
franchisees near perfect candidates for the WOTC. And the ironic
thing is that the franchisee doesn’t need to do anything more than
what they’re already doing to take advantage of this tax opportunity
– the work is actually done by their payroll service provider or
another third party. The franchisee doesn’t have to pay any money
to administer it as the payroll service provider will take a piece of
the action if there is any action to be had.
Another tax opportunity that has largely been overlooked
by many within the Planet Fitness network is a 1031 tax-free
exchange. The majority of Planet Fitness franchisees lease their
property. If they were to have lease terms with renewal options that
extend to 30 years, the value of those leases and improvements at
the day of transaction, if a transaction were to occur, would actually
have a favorable tax retreatment as the franchisee could roll that
money over as a 1031 tax-free exchange, just like it was real estate.
As a final takeaway, to progress forward the objectives of Planet
Fitness entrepreneurs, I strongly advise you to evaluate the long-
term impact of the tax bill in consultation with their strategic tax
advisors. The tax code and its ass ociated regulations are comprised
of over 10 million words, so it’s essential you seek out those who
know and understand its complexity in order to raise your own
awareness as a business operator and put visibility on what other-
wise may be hiding in plain sight. G
Carl Famiglietti, CPA is managing partner of The MFA
Companies, a progressive business consulting firm that facilitates
growth for Planet Fitness franchise operators throughout the United
States. Famiglietti can be reached at [email protected].
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