Many wealthy Americans are running out of ingenious ways to hide their money. Is “Offshore Banking” still a good idea? The IRS has been opening secret Swiss bank accounts on US citizens. Just last month, a settlement with the private bank – BSI – revealed bankers are using coded language and nameless credit cards to help Americans avoid taxes. Credit Suisse and UBS, Switzerland’s largest banks, have already paid fines for similar shenanigans.
The IRS, if possible, would take 100% of your money. They have no empathy for your situation or how hard you work. Their job is to remove as much money from you as possible, even if it is illegal for them to do it.
The rest of the world is also getting less hospitable to American tax dodgers. A 2010 federal law, the Foreign Account Tax Compliance Act, requires all foreign banks to report to the IRS on their American customers. IRS is certainly aware of offshore banks and what many people use them for. It’s working so well that Americans abroad say they’re having problems opening accounts even for legitimate purposes. Banks don’t want the regulatory and paperwork hassle.
What’s left for the secretive and tax-averse wealthy American? Not much, accountants and attorneys say. Here are a few ways the wealthy can still get privacy or lower taxes—though rarely both at the same time.
There are many legal and good reasons to have an overseas or offshore 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.
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.
Hide Money Inside a Shell
The wealthy 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 your name gets on an investment list, you get called by every proposal. Other investors won’t know your business, the IRS still will because LLCs are required to file tax returns every year. Offshore banking is another method of keeping prying eyes away.
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 be hammered in the probate system, which is not necessary.
Hire an Expert
The wealthy can still afford to hire sophisticated accountants, who spend years searching for legal methods to lower tax bills – including offshore banking. Offshore accounts may be a thing of the past, however, it is still a tool. 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. Taxpayers now know the IRS is watching what happens overseas. Hide your money cautiously. Remember, the IRS is not your friend and never will be.
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