Friday, April 15, 2011

BW: How to Pay No Taxes

Tax avoidance is not just for the Greeks or American multinationals.

Quite a fascinating cover story in last week's BusinessWeek, on strategies (all perfectly legal) the top 0.1% utilize to pay little to no taxes.  I was unaware of all this, and some of them are so sophisticated, only the brightest minds doing "God's work" could have originated them.  A lot of the techniques seem to be borrowing against assets for cash flow - which replace "generating income".

Some examples
  1. The "No Sale" Sale - cashing in on stocks, without triggering capital gains
  2. The "Friendly Partner" - an investor can sell property without actually selling, or incurring taxes

Here is a quick video on the topic - 4 minutes

Link to story here

  • For the well-off, this could be the best tax day since the early 1930s: Top tax rates on ordinary income, dividends, estates, and gifts will remain at or near historically low levels for at least the next two years.  "This is clearly far and away the most generous tax situation that's existed," says Gregory D. Singer, a national managing director of the wealth management group at AllianceBernstein (AB) in New York. "It's a once-in-a-lifetime opportunity." 
  • For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS.
  • The true effective rate for multimillionaires is actually far lower than that indicated by official government statistics. That's because those figures fail to include the additional income that's generated by many sophisticated tax-avoidance strategies. Several of those techniques involve some variation of complicated borrowings that never get repaid, netting the beneficiaries hundreds of millions in tax-free cash. From 2003 to 2008, for example, Los Angeles Dodgers owner and real estate developer Frank H. McCourt Jr. paid no federal or state regular income taxes.
  • Developers such as McCourt, according to a declaration in his divorce proceeding, "typically fund their lifestyle through lines of credit and loan proceeds secured by their assets while paying little or no personal income taxes."
  • For those who can afford a shrewd accountant or attorney, our era is rife with opportunity to avoid, or at least defer, tax bills, according to tax specialists and public records. It's limited only by the boundaries of taste, creativity, and the ability to understand some very complex shelters.

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