Geared Up Issue 1 2018 | Page 45

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]. A full service law firm for franchise owners. business succession planning ◆ asset protection estate and gift planning ◆ mergers & acquisitions LLC and business structuring and governance corporate financing ◆ commercial leasing contracts ◆ employment matters federal and state income tax planning POWERED BY JOIN THE CLUB! Chris Tray 412-706-5360 [email protected] Steven M. Burke (603) 628-1454 [email protected] New Hampshire: Manchester | Concord | Portsmouth Massachusetts: Woburn | Boston McLane.com 43