What’s left for the secretive and tax-averse ?
Here are four ways that all aspirants to wealth can still get secrecy and/or lower taxes.
1) Go overseas / offshore
There are legitimate reasons to have an overseas bank account. Americans who live overseas might want ready access to their money. An offshore trust may offer more protection from creditors or lawsuits than one set up in the U.S. An overseas limited liability company, or LLC, might let you hide aspects of your business from competitors. That’s “totally legal,” says lawyer Martin Press . “You can have money anywhere in the world.”
It’s not the tax dodge it used to be. Traditionally, banks in tax havens such as Switzerland haven’t reported those accounts to the IRS, making it possible to hide not just what’s in the account but its entire existence.
2) Hide inside a shell and keep your name off public records
The rich often use shell companies, like LLCs, to buy property or investments, so that the company name, not the individual, shows up on public documents. Another reason these structures are used to buy into hedge funds, private equity, and venture capital funds: Rich investors mostly want to avoid endless solicitations for other investments. “Once you get on somebody’s list, you get hit with every proposal,” says Such, a tax attorney. While other investors won’t know your business, the IRS still will because LLCs are required to file tax returns every year- when owned more than 10 % by an American. When the LLC is owned by a trust ( see next section) the ownership – by a trust is not known because trusts are not registered – or because the public record only shown nominees not the actual owners.
3) Use a trust
Trusts can be used to keep assets hidden from nosy neighbors and to keep tax bills down, within reason. Income from property or investments held in the trust goes to the beneficiaries free of estate or gift taxes. Beneficiaries also can avoid regular income taxes—if the trust pays the taxes rather than the individual. Another advantage of trusts is the way they pass automatically to heirs after your death. Otherwise, your possessions and the details of your estate can get caught in the probate system, which is often quite public. Trusts are most often not registered – no public register means no one knows unless you tell them.
4) Hire an expert
The wealthy can still afford to hire sophisticated accountants, who spend years searching for legal ways to lower tax bills. A recent U.S. Senate report identified a few esoteric strategies that rely on derivatives or deferred compensation to lower tax bills. Most of the time, the goal isn’t to hide money but to control the timing of income and what form it arrives in. For example, taxpayers can pay lower rates if income is in the form of long-term capital gains rather than ordinary income.
Still, clients are getting cautious about aggressive tax planning, especially if it involves any overseas transactions, says Jack A. Bass, tax strategist with Jack A. Bass and Associates.Tax payers now know the IRS is watching what happens overseas, and the effect is similar to when drivers know police are out looking for speeders. “They’re not driving 95 down the Interstate,” Gannaway says. “They’re driving 75 with their foot close to the brake. However, the IRS is looking for millions in accounts and transfer payments – not a few hundred thousand or even a few million. If you don’t have a public criminal record or a google search revealing lawsuits you are not on anyone’s radar “.