Tax Shelters for High Income
Tax shelter is a way you can shield your money from government taxation. You can choose from different forms of tax shelters. However, some of them are illegal depending on the country you are in. To explore further on tax shelter, you have to be able to take time understanding taxes.
Flow-through Shares as a Tax Shelter
In the United States, the following forms of tax shelters are legal: (1) limited partnerships and (2) retirement plans. Limited partnerships or flow-through shares are most often imposed on companies that have tax sheltered investments. These companies which invest on industries which provide high economic value for the locality are often given tax deductions. These tax deductions are circulated among the shareholders because return of investment is not immediate and most often will take time. In order to provide safe returns, the government provides tax holidays or tax shelter to the cost of exploration, if we take for example a mining company.
Tax Sheltered Annuities
Annuities are usually deferred from taxation by the government. What one pays to an insurance company for future use, which is usually a retirement plan, is deducted from one’s taxable income. This makes this kind of legal tax shelter the most appealing to the typical American. However, in the assumption of understanding taxes, the amount becomes taxable when the money is paid back to the insurance holder especially after retirement. In the event that the insurance holder dies after retirement or within the collecting phase of the insurance, the death benefit he or she would receive is higher compared to what the holder paid into it. The dependents included by the holder will also receive the amount paid as annuity.
Offshore Tax Shelters That Work
By offshore, it means “exporting” your money overseas where taxes are much lower. One would usually deal with private entities or private equity firms who then invest your money in tax havens overseas where, as the name implies, the tax is lower. There are Internet-based companies that provide offshore tax shelter. This technique however has attracted attention from public officials. Big people in politics and business have been going offshore to get away from tax. Even universities, foundations, pension funds have resorted to offshore tax shelter.
Going offshore no longer exclusive
Individual retirement accounts have now joined the tide to going offshore. This makes the act of doing so no longer exclusive for the rich. What companies do to exercise an offshore tax shelter is to incorporate in a tax haven where they ideally need a director and a shareholder even without the usual requirements of annual returns and audited accounts. In order to make the same scheme available for the ordinary American citizen, internet-based offshore tax shelter exists. In order to make sure that one goes to the right company, you could always consult people you know or check out online forums in your locality. One could simply know which countries are considered tax havens and open an account in those local banks. One could be assured of privacy and the same tax shelter.
The Amount of Lost Government Income
Sources indicate that a whooping 10 billion US dollars is lost by the United States government to offshore tax shelter. The rich has benefited a lot from this, leaving the ordinary tax payer to pay the right taxes. Reciprocally, the government must also return in the form of services what the honest taxpayer is giving. This is very staggering especially to citizens who would have benefited from this amount of lost government revenue. Similar to tax evasion, this may be considered a public crime when prohibited by law.
Offshore Tax Shelter Conquering the Non-Rich
As the “technique” has reached ordinary taxpayers in the embodiment of private equity firms, promotion is a lot different than that for rich citizens. Promoters often use the phrase “do not retire poor” through sheltering their remaining money from being converted into government revenue. One may break this thought into two separate but related points, both at the expense of the taxpayer. The first point is that the taxpayer may have negative ideas on the government’s responsibility of providing necessary services for the taxpayer. An example is the bail outs for big companies during the financial crisis which also created the occupy movements. Another is that the taxpayer has seen that a lot like him or her end up retiring poor. This pushes them to seek means to not end up being so.
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