Tax Mitigation vs. Tax Evasion

23 Oct
tax mitigation

Tax-mitigation vs tax evasion

Most of the bad word of mouth associated with offshore investment, tax havens and the like involves an interchange of the phrases ‘tax mitigation’ and ‘tax evasion’. As the focus of tax law in the United States and elsewhere turns to tightening a grip on ‘lost’ revenue from offshore investment holders (a seemingly punitive series of measures designed to squeeze more tax income from legal offshore investments), the news media and general populace turn a judgmental ‘hairy eyeball’ at the mere mention of wrongdoing concerning offshore assets. This misunderstanding of the definition of terms needs to be addressed.

Tax evasion is a deliberate and concerted effort to use whatever means an individual or company feels is necessary to avoid paying taxes. Tax mitigation, on the other hand, is the perfectly legal means to make use of current tax laws to legitimately lower the amount of tax burden owed. Mitigation involves identifying any and all exemptions and deductions and then making sure the taxpayer meets any criteria necessary for claiming the benefits. A thorough and comprehensive examination of all the particulars of any given exemption or deduction is required for determining if it is legally claimable on a federal, state and local level. Mitigation is about claiming what a taxpayer is entitled to under law and not about avoiding or ‘getting out’ of paying legally due taxes.

One common way to mitigate taxes on offshore investments is through an offshore universal variable life insurance plan. This type of plan gives investors the opportunity to determine how premiums are invested and how diversified the investments are in the account. If the policy/account holder makes the right choices with how the premiums are invested, the insurance plan can generate a significant and steady return on the investment. These returns are then added to the value of the policy and since they aren’t realized income at the time there are no owed taxes on the return. Tax inheritance laws may also insure any beneficiary may not even need to pay any taxes when making a claim after the taxpayer’s death.

The advantage of this type of offshore life insurance plan is twofold. First, it allows the investor to create a sizable nest egg for his or her beneficiaries over time. Second, is ensures the funds in the taxpayer’s estate are available to mange the painful final expenses he or she leaves behind. Depending on how the plan is structured it can even earn interest on it’s own cash value. And by significantly reducing the tax obligations it means more money for allocating to other investments.

It is important, by far, any investor complies with any and all legally binding tax obligations on any of their investments, offshore or onshore. It also requires a sizable amount of due diligence and tax ‘legwork’ to find all the available tax breaks and maximize the legal number of deductions and exemptions available. Certainly, if you’re unfamiliar or uncomfortable with the necessary paperwork and steps involved in the mitigation process, consult a professional tax adviser. Protect yourself, protect your investment and protect your family.

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  1. An American in Paris (or Shanghai or Tel Aviv) – Part 2 - Invest Offshore - October 28, 2012

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