A tax haven may sound like some far off place overseas where you have to hide not only yourself but also your money. While that’s true in the broad sense, you can still take advantage of something resembling tax havens here in America. However, with everyone having to pay federally, the locations where there isn’t a state tax are sometimes being criticized for not joining the fray in making residents pay out.
Likewise, if you happen to have an overseas account while still living part of the time in America, you have a secret weapon available to reduce your taxes.
What Places in America are Considered Tax Havens?
Delaware has recently been accused by the Citizens for Tax Justice for being one of the worst offenders in harboring companies that don’t disclose their ownership. Because the state doesn’t require corporations to disclose their owners, it’s meant some companies illegally moving their money across the Delaware state border to avoid any tax penalties.
While this is being rightfully criticized, what can an individual do to reduce their taxes? You might be surprised to learn how many states still have no state tax, which can reduce your overall tax burdens by almost half.
According to ABC News, 10 states currently have no state tax. This includes Washington State in the west, Texas in the middle, to New Hampshire in the east. Even though they’ve been deemed tax havens, some of them still take their share through taxes on dividends or through a sales tax.
Only Nevada seems appropriately the most like any tax haven in the United States. If they could somehow avoid paying federal taxes, their population would quickly generate into wall-to-wall housing developments throughout the desert. As it is now, the Las Vegas area is having a huge renaissance in startup tech companies due to the lack of state tax, plenty of tax credits, and the influence of Zappos’ Tony Hsieh.
What happens, though, when you end up living overseas part of the time and have some income from there? You may be surprised at how much this can cut out from your federal taxes. It’s a creative form of tax haven that everyone should talk to their accountant about.
Foreign Earned Income Exclusion
If you make up to $97,600 in a European country, you can technically write that off your U.S. taxes through the Foreign Earned Income Exclusion. The catch is you need to prove you were a resident in that other country for a certain part of the tax year. Fortunately, this isn’t a hidden exclusion, and Casey Research says it’s available on tax programs like TurboTax. Even so, determining the exact definition of what a permanent resident is in another country can get complex, which means you should probably consult with a real accountant as well.
Through the incentives above, you might want to consider a move to what might be designated a tax haven, even if they’re only tax reducers. No matter you opinion on tax rates, a real tax haven in every U.S. state will only come when everyone pays their share based on fairness.