Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Americans Can Still Benefit from Tax Havens

Personal_Finance / Taxes Jan 24, 2014 - 05:33 PM GMT

By: Casey_Research

Personal_Finance

By Nick Giambruno, Senior Editor, International Man

“In this world nothing can be said to be certain, except death and taxes.”–Benjamin Franklin

You are technically a slave when 100% of the fruits of your labor is taxed or otherwise confiscated by force. So, at what percentage are you not a slave?


When you consider the totality of the countless direct and indirect taxes on the local, state, and federal levels, as well as the pernicious effects of inflation, the hidden tax, many of us are at least halfway to 100%.

It is no mystery, then, why growing numbers of individuals and businesses seek ways to legally reduce this suffocating burden through structuring their affairs in low-tax jurisdictions.

Lately, with all the so-called “controversy” blaring from the media about low-tax jurisdictions (aka tax havens), and politicians piling on the wagon to denounce them, it’s no surprise that most Americans harbor the false impression that they are only for the super rich, or multinational corporations, or those engaged in illegal activity.

That is a misconception, however; tax havens offer a number of legitimate and completely legal functions that even Americans of modest means can advantageously employ.

Uh, About Those Taxes, Mr. Franklin…

In most instances, Mr. Franklin’s observation quoted above would be correct, certainly for American citizens and legal residents. However, for Americans who earn income in certain jurisdictions and meet qualifying IRS requirements, it is possible to prove Ben wrong.

First, note that the US, unlike the rest of the developed world, is the only country that enforces a system of citizenship-based taxation. This means that Americans are taxed on their worldwide income by virtue of their citizenship without regard to their country of residence. For example, an American expat who is a legal resident of and working in Switzerland, must file and pay taxes to both the US and Switzerland for income earned in Switzerland (the IRS allows credit for foreign taxes against your US tax obligation, but you might still end up paying taxes to two governments).

In contrast, the rest of the developed world practices a system of residence-based taxation. Under this system, you are only required to file and pay taxes in the country where you are a legal tax resident.

In short, American citizens and green card holders cannot escape the burden of filing and paying taxes to the US government, no matter where on earth they live or earn income. It is a unique burden that no other developed country places on its citizens.

An unfortunate example of American exceptionalism, I suppose…

An Exceptional Loophole

There is a silver lining, however, and that is the Foreign Earned Income Exclusion (FEIE).

What is it and how does it work?

If you qualify for the FEIE you can exclude a not-insignificant amount of foreign earnings from your US taxable income. This amount is adjusted annually for inflation and is set at US$97,600 for 2013.

To qualify for the FEIE, you must have foreign earned income and be either:

  1. A “bona fide resident” of a foreign country or countries for a continuous period that includes an entire tax year, or
  2. Physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Additionally, your tax home must be in a foreign country throughout the period. The IRS defines “tax home” as “the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.”

While the physical presence criterion (#2 above) is pretty straightforward, the “bona fide resident” test is less so. Basically, you must prove that you have established roots and a permanent presence in a foreign country. Without getting into too much legal jargon, TurboTax walks you through this process step-by-step and determines if you qualify for the FEIE or not. It is actually fairly simple to determine in most cases. Consult a tax professional if individual circumstances are more complex.

So, assuming that you qualify for the FEIE, you can exclude up to US$97,600 of your foreign earned income (for 2013) from your US taxable income. Keep in mind that the FEIE only reduces your US taxable income; you still have a tax liability to the country in which you reside and earned the foreign income.

That is unless you earn your income in one of these 18 countries that have no personal income tax:

Ben Was Only Half Right

The key here is to have a portable job or the ability to transplant yourself and your business to one of these 18 countries. This strategy is particularly well-suited for businesses or professions dealing with intellectual property, writers (freelance or otherwise), Internet publishing, skills that are needed in one of those countries (like engineers and medical professionals), or an income stream that can be moved across borders easily.

Through qualifying for the FEIE and utilizing the 18 countries above, Americans are able to legally prove Benjamin Franklin was only half right; taxes are not necessarily inevitable… well, at least on the first US$97,600 of foreign earned income.

Fortunately, it is still legal to take steps like this to internationalize yourself and reap the benefits of diversifying your political risk. However, if history is any guide, the window will not be open forever. Especially as governments (particularly in the West) become increasingly desperate as their fiscal situations continue to deteriorate. Learn more about it with Going Global 2014 - a report specifically geared toward teaching you the ways to internationalize yourself and your wealth.

© 2014 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in