This may not sound like great news if you are tired of paying high taxes, but it could be a blessing in disguise! There are many ways to legally avoid paying the U.S. These are more like investment plans that can help you avoid income tax in the long run. One of the best things you can do to save your money is by taking your business to new territories. This way, you will be able to direct your earnings from other countries to back in the U.S.
From establishing a new residency to establishing your business in new U.S. territories, there are many ways through which you can get better lower interest on your earnings. To help avoid that unpleasant surprise, here are some easy moves many people can make to cut their tax bills. In many cases, you must itemize rather than take the standard deduction to use these strategies, but the extra effort may be worth it.
Move Outside of the United States
There are numerous ways to move your home and work to another country where you can avoid paying taxes. This method is especially popular among high net worth individuals who want better tax rates in a fast way. Many foreign citizens also like to invest in the U.S. and hold their assets there. This strategy is commonly known as the Physical Presence Test for the Foreign Earned Income Exclusion (FEIE). If you consult an expert in making a tax strategy, they will first come up with this strategy.You need to take full advantage of this strategy to qualify for one of the current tax treaties with other countries. In most cases, you will have a better tax rate if you do not file taxes instead of using the standard deduction. If you have resided outside of the U.S. for around 330 days out of your total 365 days, then you get a tax exemption of around $101,300 on your annual tax computation as per IRS. The best part about this strategy is that you can leave the U.S. any time you want. Once you move to a new tax-friendly nation, you can start receiving these tax benefits ostensibly after 34 days.
However, you need to remember that this tax exemption specifically refers to your time outside the U.S. in a foreign land. There is a major difference between spending time outside the U.S. and in a foreign land. You need to understand it first and what to do to qualify for FETE. For example, if someone who works on a boat or cruise ship spends more than 34 days after the U.S., he is still not eligible for FETE. This is because spending time in international water is not seem under the same category as spending time in a foreign land.
But, you need not worry about anything as these physical tests are generally easy to qualify for. However, you need to consider one more thing to qualify for FETE, which is time spent in international air space. Those long hours you will spend traveling in flight generally make up for most of the journey. And to qualify to become eligible for this tax exemption under FETE, you need to spend legally over 34 days in a foreign land, excluding the travel time. So, while physical presence may seem like the easiest way around, you need to be careful and watch out for certain things in the first place.
Establish Your Residency Somewhere Else
Another legal way to avoid paying taxes in the U.S. is by establishing your business or residing outside the U.S. With this. You can get several different tax benefits and make more money over time. Your new residency will offer you a better savings rate on your foreign income and lower taxation on dividends from foreign stocks. Your foreign earned income will be considered a non-resident income by the U.S. government, and you will have to pay a lower tax rate of 15% on such income.While you must have been living outside the U.S. for a longer period before you can qualify for this tax benefit, and you need to meet certain conditions, your passport should be issued from another country. You must have a permanent home in another country and also reside there at least 5 out of every six months in your home country. If these things are fulfilled, the IRS will allow your foreign earned income to be tax-exempt.
When you start looking at your options, you will see many countries where you can apply for residency. Taking your business offshore with your new residency is the best thing you can do for your business. With countries like Mexico offering citizenship after spending five years, it's worth going the stretch for your second citizenship. Additionally, there are different ways to claim your second citizenship from a new country.
This includes
- Naturalization for citizenship
- Citizenship through descendant
- Making investments to support countries' economy
- Marrying a foreign resident
Do Not Hold Money in US Banks
There is no good system for keeping your money on U.S. soil, and the IRS is getting harder to beat in a law enforcement capacity. The IRS will ask questions regarding monthly bank statements, deposits, and withdrawals. They will often ask for a copy of more and the right documents, so keeping receipts is the best option here. The IRS can also get access to bank statements, so it is necessary to be very careful in this area and only keep your money in a safe place you trust.Many people use U.S. banks, but using them is a good way to find yourself with an IRS audit in the end. This can happen suddenly and without warning, so making sure the IRS cannot identify you is good. There are multiple ways you can keep your money on your home soil and make sure you do not have to pay more than usual.
These are:
- Using a foreign bank account
- Keeping money in a bank that is part of the gold standard
- Keep your income in an overseas account
- Place all deposits into a cash account
This can be a long process, so you will have to be patient and vigilant at the same time during this whole procedure. If you are not ready for this long-term commitment, then it is better to stay away from it than face serious repercussions at the end of the day. All your hard work will pay less tax than should have been paid if not for these strategies.
Invest Abroad
Another way you can save money on taxes is by investing abroad. You might not be aware, but the U.S. tax system is one of the most complex and complex taxes. It is complicated, but there are also a lot of loopholes in the system. You will get a deduction for a few different reasons, and around eight types of deductions are claimed by taxpayers every year.To keep your taxes to an absolute minimum, you need to invest in foreign stocks and other investment vehicles which can provide you with different tax benefits. For example, investments in foreign real estate can help you avoid paying taxes on various income sources such as rental income or capital gains from the sale. This process can be easier if you have an international account that helps you transfer money between countries with relative ease and speed. This is why many people are shifting investments to international accounts and making savings out of it.
The point here is that you are paying fewer taxes, and investing in foreign stocks can be a better investment in the long run. You will be getting great returns, and this will let you save money which will be used as a tax deduction. The methods mentioned above are some of the best ways to pay less tax, and they can all benefit your business in general. Even though there are certain things you need to keep in mind while using these strategies, it is never too late to start on the right path. You can do that by taking help from financial experts in the market.
Move To One of The U.S. Territories
If you have already started planning how to pay fewer taxes, you will be aware that several U.S. territories are in our backyard. You might think that these are some islands that do not exist, but they do indeed. For example, in the Caribbean and Pacific, you can find many areas where the governments are friendly toward business activity. Some of these territories include:- The Northern Mariana Islands
- Virgin Islands
- Puerto Rico
- Guam and many more.
As a business owner, Puerto Rico is the perfect getaway for you as it offers many tax incentives to investors and business owners. Virgin Islands in the U.S. is another great option for you to settle down as a business. With one such program, you will be able to cut down around 90% on your annual tax amounts. However, there are certain rules associated with it which involve spending around six months to a year here. For all those businesses who are making some heavy figures regularly, these programs are best suited for them. If you are one such business, you will see that setting up in territories like Puerto Rico will save you more tax money than FETE.
This is why many people are shifting their businesses to these places and making a big difference in their finances in the long run. You can start your business in these territories and pay fewer taxes than usual. The only thing you need to do is get your finances in order before going ahead with the great decision. Choosing the right territory might not be as important as you think it is, and it might not be that difficult to work out as well.
Renounce your citizenship
Renouncing your citizenship might not be the smartest idea, but it can help you pay less tax. Countries like Canada, the U.K., and Australia have a lot of people who have taken their citizenship and started paying less tax. You can use your dual citizenship to do the same thing and save a lot of money.You can also make use of this strategy in different ways, such as through dual taxation treaties or with countries that do not have a tax treaty with the United States. With such strategies, you will be able to save on huge amounts of taxes while living in another country altogether. For example, countries like Australia, the U.K., and Canada pay much lesser taxes than the United States. As a result, you will be paying only around 15-20% taxes in these countries, which is huge.
To make things even better, you can open an account or have a business in any one of these countries and save a lot of money. You will also use this move to legally reduce your tax burden in the United States. If you do not think that this move will be beneficial for your business, then think again because it can turn out to be one of the best decisions you have ever made for your financial management. This will create a big difference where you are spending less money on taxes, but it also stays away from all those financial penalties associated with taxes.
Benefits of Taking Your Business Offshore
Many benefits come with taking your business offshore, and these benefits are definitely worth using. Not only will you save a lot of money, but you can also use your profits to get around a lot of financial penalties. The benefits of offshore organizing include; reduced tax, no FICA (Social Security/Social Insurance Tax) on income, and many more. So with that being said, let's look at the benefits of offshore investing,which are:
- Reduced Costs
Available in both corporate and personal life, offshore resources offer cost-of-living savings. In addition, offshore training opportunities also hold out earnings to the promise of giving costs. These are best for those who are yet to grow the company enough to stay at parity with the possibilities of technology, which leads to human capital growth and productivity improvements. - Compliance
Companies navigate different legal issues when they are offshore. With so many issues coming along, there is the possibility of multiple choices in settling the disputes. Thus, offshore companies have many more options to deal with the changes happening every day. As a result, they also move with confidence while handling major issues. Sometimes, they have options to opt for a more nuanced solution, and sooner or later, the matter gets resolved. - No Double Taxation Or Penalties
There is no double taxation or penalties when offshore investing in stocks, bonds, real estate, or other financial assets. You pay the same taxes but do not get any notice or idea of what you are paying in case. This can be a huge saving while saving on your paying the same taxes on conventional funds. Offshore investing confers impartiality in the laws and the labor compacts. Whether it is funds or working capital where these are managed, there is complete freedom of the funds and funds concerns offshore. - Explore New Opportunities As A Business
When it comes to offshore investing, there are lots of opportunities that come forward. You can explore the international or globalizing markets to build an organization where the clients are conventional and major as much as they are expected. The offshore markets, it is possible to talk to major clients. That's a great fruitful and vast possibility in such markets. There are lots of things to be explored purposefully or even explored accidentally. Offshore markets are available in various parts of the world.
Frequently Asked Questions
- Is it legal to renounce my citizenship?
Yes! The United States allows people to renounce their citizenship, but certain rules and conditions are involved in it. First of all, you need to be living outside the country for a few years before you can apply for this program. Then, after you have been living out of the country for more than a decade, you can start the process. - How many citizens can you have as a U.S. resident?
According to U.S. law, you can have as many citizenships as possible, but it is at your perils. Most countries do not allow dual citizenship, and if they do, they will not make it easy for you to do it. So you need to be very careful with this strategy because it can backfire on your business very easily. - Can I claim my tax breaks from another country?
If you are a U.S. citizen living in America, you cannot claim your tax breaks from any other country unless there is a treaty between them and the United States. - How can I stop myself from paying taxes in the future?
You can do many things to keep yourself from paying any taxes in the future. For example, you can set up a trust fund or a family business to ensure that you are not charged with such things. However, you need to understand that it is easier to get a taxation break when you have already paid your dues.
