There are a number of tax scams out there who endorse tax free ports and take advantage of loopholes. Luckily for us there is no need to use these tax scams and there are more legal means to evade paying your income taxes.
Nevertheless they do require some extra effort, but the outcome is more than worthwhile, successfully lowering your taxes or ultimately avoiding paying them altogether. Some of these methods may require you to change your tax state of affairs, so that you qualify for deductions and omissions to your income.
There is a clear difference between tax evasion and tax avoidance. Tax evasion involves using illegal methods to reduce or remove tax charges. However tax avoidance, comprises of tax planning and tactic to legally decrease or eliminate your tax charges. The IRS in fact encourages taxpayers to pursue all opportunities for legitimate deductions.
Below are three prime examples:
Take Advantage of Credits
If you qualify for credits, then take advantage of them. The two forms of credits at present are refundable and non-refundable. Refundable credits can help to decrease your tax less than zero which means you’ll obtain a refund. Whereas non-refundable credits, can decrease your tax no lower than zero, not resulting in a refund. An example of a refundable credit is the earned income credit, which was created explicitly for low-income taxpayers. It works on the basis, that if you are entitled to claiming the credit, it is a possibility that you’ll receive a refund larger than what you paid in tax through the year, thus removing your tax altogether.
Set up your Business in a Foreign Country
Although you’ll still be taxed living in a foreign country, as the United States is the only country in the world who taxes citizens who move abroad. Nevertheless overseas business income is taxed at a lower rate in comparison to individual earned income. In order to qualify for this tax break and make the most of it, you will have to become a resident of another country. Although you don’t fully need to emigrate, you do need to undertake the process involved when becoming a resident of a different country. You’ll also still be able to maintain a US citizenship even though you’re a resident of another country. You’ll only be expected and forced to take full citizenship in a different country, if you sacrifice your citizenship along with privileges to the Internal Revenue Service to tax you.
Having a foreign business, is the most beneficial tax method, as it permits you to take up to £104,000 from your company, tax-free. Living abroad drastically reduces your taxes, as up to £59,410 of your income may qualify in being exempted from your income tax calculations.
Record your tax returns
By listing your tax returns you can take full advantage of the deductions you may be entitled to. The most rewarding deductions available are for business losses. Not only can you deduct your start-up business expenses but also any supplementary costs associated with running your business. Therefore you are only taxed on what you actually earn, once your expenses have been deducted.
About the author:
This post was written by Gail Newland, a freelance writer.