As the old saying goes, “nothing is certain except death and taxes.” Despite the certainty of taxes, many people take steps to reduce or even avoid paying them altogether.
It is common knowledge that tax avoidance and evasion are not acceptable in the eyes of the IRS, but some taxpayers look for legitimate ways to lower their tax bills. The use of a tax haven is one method that many people have heard of, but do not necessarily understand.
What is a tax haven?
Some countries have tax rates that are much lower than the U.S., especially when it comes to corporations. These countries are tax havens, and many American business owners and taxpayers look to establish a presence in low or no-tax countries to reduce how much they owe to the IRS.
Despite the legality of doing business or living in another country for tax savings, the IRS tracks businesses and individuals who do so. Common tax haven countries include Guam, Switzerland, the U.S. Virgin Islands, and many others.
Should you use a tax haven to save money?
While tax havens are often legal, they do not make sense for most taxpayers. For instance, the costs of establishing yourself in a foreign country are extremely high. You will also need financial and legal counsel to ensure everything is legitimate. Accordingly, you may end up paying more than you ultimately save on taxes. And in the event there are discrepancies, you could face an audit.
There are many other ways you can save money on taxes that are simpler, less expensive, and above the board. There are numerous deductions and credits available to both individuals and business owners. It is possible to reduce taxes on a home sale when the seller meets certain criteria. You can also time your retirement contributions effectively to reduce the tax rate associated with them.