For most of us who have lived all our lives in one of the many high-tax nations of the world, we simply take it for granted, without ever questioning the moral justifiability of taxation. In the US today, almost 40% of your income can be legally seized by the state in the name of taxation. The situation is as, if not more, bleak in many other developed first-world nations.
Proponents of taxation argue that it is a necessary aspect of funding the country, providing to the needy, creating social equality, infrastructure, etc. However, if one puts all these theories aside and looks at what taxation really is, it is easy to see why some political philosophers and libertarians have held the view that “taxation is theft”.
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For, is the definition of theft not “taking another person’s property without their permission”? Is this not exactly what taxation is?
Furthermore, there are many thriving economies where direct taxation is minimal or non-existent, and they are able to provide for all their people perfectly well. The notion that taxation is a necessary evil therefore might not be so sound, and at the least worth questioning.
Whatever your view about the morality of taxation might be, almost all of us would like to find ways to reduce or eliminate our hefty tax bills. Therefore, putting aside the philosophical debate for a while, let us rather turn to the practicality of how to greatly reduce or even eliminate your taxes.
Becoming a resident of a low tax or zero tax country is by far the most effective way to eliminate most or all of your taxes. There are many incredible countries out there which don’t believe in stealing all of their citizens hard-earned wealth in the form of forced taxation. These have become known as “tax havens”; however, you would be surprised at how many jurisdictions offer incredibly tax friendly environments, even those who are not officially deemed to be tax havens.
Typical “onshore” jurisdictions like the UAE, Georgia, Macedonia, Russia, and Hong Kong, all have zero or low income tax rates. Then there are the classic offshore tax havens like Cayman Islands, Antigua, Belize, St. Lucia, and many others with famously low taxes. The advantage of these offshore jurisdictions is they generally make it extremely easy for wealthy immigrants to acquire citizenship.
So, what are you waiting for? Become a citizen of a tax haven and renounce your US citizenship!
There’s the catch. The US taxes its citizens on all of their worldwide income, regardless of whether they even live in the States or not. Doesn’t sound fair right? All in the name of the social good. In other words, what this means, is that for US citizens to effectively be able to go through the full process of moving to a tax haven to eliminate their taxes, they also need to renounce their US citizenship.
Understandably, this might be a bit too big a step for many, which is why we will now look at other less extreme methods of reducing your taxes. However, bear in mind, none of these are quite as effective as simply packing your bags and moving to a new tax-friendly country.
The next best choice, if immigrating is not for you, is to make intelligent use of offshore companies, offshore trusts, bank accounts, and other financial structures in foreign jurisdictions. If you are a US citizen, it will be extremely difficult to completely eradicate all of your taxes; however, there are tools which, if used in the right way, can greatly optimise and minimise your tax bill.
This is a highly complex area, and we won’t go into all the nuances here. But many wealthy businessmen and individuals have effectively used offshore corporate entities, foreign bank accounts, offshore trusts, and other vehicles in tax-neutral jurisdictions to restructure their wealth and legally reduce their taxes.
The most common corporate vehicles to use are either an offshore company or an offshore trust. These two structures have different features which suit different requirements.
An offshore company is usually most suitable for those who wish to use the offshore tax haven as part of their business operations to minimize corporate taxation and access other benefits which are available to offshore companies. Offshore trusts are more suitable for individuals who intend to use the jurisdiction as a safe haven to protect their personal assets from exorbitant taxes and other dangers.
Aside from making use of offshore financial vehicles to reduce your taxes, there are also various financial tools available in your own jurisdiction which, when properly used, can lead to greatly reduced personal taxation.
These include trusts, special types of corporate entities, foundations, various types of alternative investment vehicles, and many more. Of course, the benefits of these types of structures can be maximised if they are formed in tax-friendly offshore jurisdictions.
One of the best and simplest ways to eradicate your taxes is to make use of tax deductions and credits to reduce your taxable income. These include various business expenses, tuition costs, medical expenses, charitable donations and more.
Most people don’t take the time to plan their taxes effectively and use tax deductions to their advantage. It is worth seeking the expert guidance of a tax consultant to help you in this area. You will be amazed at just how much of your tax bill can be slashed by properly claiming all of your business expenses.
Estate taxes are an especially immoral form of taxation. The fact is that you would have already incurred taxes on earning and investing your estate, and then your heirs will have to again pay taxation when they inherit it. Thus, another important tax reduction tool is gifting your wealth to your heirs before you die so as to reduce the amount of estate tax they will have to pay.
While this is not a direct way to reduce your own personal tax, it can help lead to much lower overall taxes on your estate, and ensure that the legacy you leave isn’t eaten up by unfair estate taxes. There are also other effective estate planning methods to reduce taxes, such as using tax efficient trusts.
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The list wouldn’t be complete without mentioning one other method which many have been used by many, with varying success, to eliminate taxes: tax evasion. We have mentioned this for completeness; however, we cannot and do not recommend illegally evading taxes. Regardless of how unfair taxation may be or feel, the unfortunate fact is that it is sanctioned by the law.
Illegal methods to evade taxes include making false statements on your tax returns, exaggerating tax deductions, concealing all or some of your taxable income, illegally transferring or hiding your assets etc. While doing this may be extremely tempting and look like a fast and easy way to eliminate your taxes, it can have severe consequences.
Governments are becoming more efficient at tracking financial flows and catching tax evaders. Consequences can range from fines to actual jail time. Therefore, wherever possible, it is much more advisable to take the time and effort to employ legal means to reduce your taxes. As you can see, there are many legitimate and highly effective ways to do this.
So, is taxation theft?
We’ll leave that up to you to decide. One thing is certain though, and that is for those of you who are tired of having almost half of your income taken/stolen by the IRS, there are many practical and real solutions to reduce and even completely eliminate your taxes.
The best methods will differ for each individual based on their specific circumstances and preferences. Thus, it is always advisable to get the help of an expert tax planner to help you on your journey to eradicating taxes and claiming true financial freedom.
Without a customised legal strategy, you put yourself at risk.
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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.
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