5 Ways to Avoid Paying Taxes Legally
Our current tax regime could undergo substantial change in the coming years.
Politicians from the fringes of both parties want to revamp how our government funds itself through taxation.
While it's incredibly unlikely that anything truly significant will change, it's enough to make the more paranoid among us curious how we can protect our assets from the IRS.
If you believe you see patterns where others do not, and think the man on the radio is talking directly to you, this list is for you.
MyBankTracker sat down with Alfred Polizzotto III, partner of Brooklyn's Polizzotto and Polizzotto firm.
He's been practicing law in Brooklyn for two decades, and with his experience in estate law and financial planning, he offered some advice for people seeking asset protection.
That said, he is a lawyer and a financial planner, and only recommends legal options for asset protection.
For the most part, that limits his advice to No. 1 on our list: trusts.
While a traditional prepaid card requires a substantial amount of paperwork due to PATRIOT Act rules -- including giving up your Social Security number -- a gift card does not.
Carry one around and you'll join the ranks of all the drug traffickers and terrorists who use prepaid cards to move illicit money around.
Now we only trust drug traffickers and terrorists as far as we can throw them, but there are some things you can trust them to do right, usually. Among them is covering a paper trail.
We aren’t aware of any reloadable gift cards, so you’ll typically be limited to $250 per card.
There’s nothing stopping you from buying as many of these as you like.
Go all over town, buying prepaid gift cards, and you’ll certainly look like a lunatic to the cashiers -- that, or a generous and prolific grandparent -- but you’ll have stashed a lot of cash away where someone might not look.
If you can only fit $1,000 into four cards, however, you have to ask yourself if you think four debit cards is any less conspicuous than ten $100 bills.
Still confused? Here is some additional information to understanding prepaid debit cards.
That said, there are more, um, exotic options when it comes to prepaid cards.
Foreign debit card companies operate outside of PATRIOT Act jurisdiction and can keep substantially more cash on your card, totally anonymously -- of course, for a price.
Take, for example, the Sovereign Gold Card: you can store up to $10,000 on it at any time, anonymously, and load up to $240,000 to it a year, but it costs about $200 just to activate it.
For those who want to do things completely by the book, and have considerable means at their disposal, there are trusts. Trusts are Mr. Polizzotto’s specialty.
Parents of means might put some of their money in a child’s name by creating a trust with their children as beneficiaries -- this also helps sidestep gift and estate taxes.
The assets in a trust are not the parents’, but the parents can still exert a bit of parental control on the assets.
While we typically think of the trusts as protecting the offspring of the wealthy from their own drug and Faberge egg habits, that’s not always the case says Polizzotto.
“They can get divorced, they can die, they can develop bad habits, they can become spendthrifts, and that money that you thought was secure could end up being diminished or dissipated, even through no fault of the child.”
For asset protection purposes, irrevocable trusts are the way to go. They provide what he called “the walls that protect assets from ." Creditors cannot take that money from you if they come looking, because it simply is not yours.
Mitt Romney’s tax return reminded all of us just how poor we all are.
It turns out he's kept millions in Swiss money market accounts.
Times have changed however, and Swiss accounts are no longer the shorthand for “tax dodge” that they once were.
Nowadays the Isle of Man is where people stash their money offshore, according to Polizzotto.
For those unfamiliar, the Isle of Man is a British Crown Dependency that sits in the small gulf between Northern Ireland and the west coast of Great Britain.
It’s known for its motorcycle race, the Bee Gees and, yes, offshore bank accounts. But Polizotto wouldn’t recommend it -- or offshore accounts in general.
"I am not by any stretch an expert on that type of planning,” he said. “My comfort level is in the United States and having the assets maintained within our borders. There's a little more security in relying on the banking system here."
Though the Isle of Man probably won't experience a coup d’etat anytime soon, nationalizing the banks, Polizzotto’s point is right on.
You put yourself in a precarious position by parking your assets across oceans, in nations so underdeveloped that they’ve become dependent on providing tax havens for wealthier nations.
Certain states have homestead exemptions, laws that protect home equity up to a certain amount from creditors and other interested parties.
Most states protect only a certain amount of equity -- typically a dollar amount, not pegged to inflation -- but some states protect all of your home equity, so long as you live there.
On the East Coast, Florida’s homestead exemption is particularly generous.
It protects an entire primary residence from creditors. This means you’d have to live in Florida should you wish to take advantage of this form of asset protection, which is not exactly an attractive prospect.
That said, we’re sure there are some decent parts of Florida, but Polizzotto has a warning for anyone trying to game this exemption: “You have to establish residency…you gotta live there, you gotta have your driver's license there, vote there, pay your taxes from there, you know -- maintain a residence there.There are some people who choose to take advantage of certain jurisdictions for certain aspects of insurance and end up not making themselves aware of what that means in other areas."
As a point of comparison, he gave the example of the number of cars in New York City you see with Florida or Pennsylvania plates, for “insurance purposes.”
Insurance is cheaper in those states, explained Polizzotto, so plenty of New Yorkers save some money in the short term by registering their cars outside of the Empire State.
In Polizzotto’s words: “That's kinda called fraud."
Indeed, despite our prodding, Mr. Polizzotto was not interested in discussing illegal ways of hiding assets from the government.
Laugh all you want at the Glenn Becks of the world, but precious metals provide a reasonable way of protecting ones assets from creditors, not to mention inflation.
Many people like to buy old gold coins, but we would advise against this practice -- both nostalgia and the inherent scarcity seem to have priced a premium into these coins.
If you're looking to buy a few ounces of gold to hide in a lock box, try the bullion.
While it's sitting there, it could very well gain value.
Cash in a mattress almost certainly won't do that -- just ask Ron Paul, it will do the exact opposite.
And when you want your precious metals to turn back into cash, you can likely find a way to do it without the government or other interested parties noticing (though legally, if you’ve held onto the collectible for a year or more, you owe 28 percent).
We're not recommending anything unsavory here, but you know, there’s probably good reason that people who think the federal government is illegal tend to like gold.