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Does anyone out have opinions/experience with investing from offshore accounts to avoid capital gains and estate tax burdens? I would appreciate any info you could share with us.

Philip Hodge
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[[Does anyone out have opinions/experience with investing from offshore accounts to avoid capital
gains and estate tax burdens? I would appreciate any info you could share with us.]]

Problem is, if you are a US citizen, you are required to pay taxes on any income and gains earned worldwide. It doesn't matter if you have an account in the Cayman Islands...you are still liable for the taxes on any income or capital gains.

You certainly can find "promoters" out there that tell you how to "avoid" taxes by using various sexy arrangements with off shore issues. But, sooner or later, you'll want to bring those funds back into the country...and that could be a problem.

But we generally don't talk about those issues here. They are way too complicated and potentially risky to discuss here. Your best bet would be your local bookstore.

TMF Taxes
Roy
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1. All U.S. citizens are taxable on income from whatever source earned, regardless of country in which assets are located.

2. If you want to cheat, you may or may not get caught, but if you do, the IRS is out to make examples of people who do this (makes for good press for them, and they need it right now).

3. There is a box on your 1041 which you must check if you have control over an offshore account, or are a beneficiary of an offshore trust. If you don't check it and you have gone through the trouble of establishing offshore accounts, it is pretty easy to prove deliberate fraud, and yes, incarcerate you.

Bottom line: unless you either (1) renounce your citizenship and move offshore, or (2) are currently not a U.S. citizen, and are willing to spend less than half the year in the U.S., then you are playing with fire.
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You are absolutely correct!! There are far better ways to be tax efficient in the US than to go offshore. Theoretically, it is easy to go offshore. But like anything else, the details and the penalties for Americans makes it not worth the effort.

I have the opposite problem. I'm a non-US citizen who would like to invest though an inexpensive US discount brokerage. I wouldn't get taxed on my capital gains and the IRS would withhold only 30% of my dividend and interest income.

For me, that would be a GREAT deal since I basically live off capital gains. My effective tax rate would be less than 10% of income. Many people pay money managers or mutual funds 1% or more of assets to manage their investments. In my book, every 1% of assets paid to these intermediaries is equivalent to a 10% rate in income tax.

As I understand it, my problem is the US policy of only exempting $60,000 from US inheritance taxes. American citizens and legal aliens get to exempt $600,000. If I died suddenly, my kids would loose a lot of $$$.


You wrote:

1. All U.S. citizens are taxable on income from whatever source earned, regardless of country in
which assets are located.

2. If you want to cheat, you may or may not get caught, but if you do, the IRS is out to make
examples of people who do this (makes for good press for them, and they need it right now).

3. There is a box on your 1041 which you must check if you have control over an offshore
account, or are a beneficiary of an offshore trust. If you don't check it and you have gone through
the trouble of establishing offshore accounts, it is pretty easy to prove deliberate fraud, and yes,
incarcerate you.

Bottom line: unless you either (1) renounce your citizenship and move offshore, or (2) are currently
not a U.S. citizen, and are willing to spend less than half the year in the U.S., then you are playing
with fire.
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[[I have the opposite problem. I'm a non-US citizen who would like to invest though an inexpensive
US discount brokerage. I wouldn't get taxed on my capital gains and the IRS would withhold only
30% of my dividend and interest income.]]

Or perhaps even less. Remember that the 30% rate is the "default" rate. Depending upon your home country, and the tax treaty that your home country has with the US, your rate could be less. If you would like to check that out, you can read IRS Publication 901 at the IRS web site. That publication will tell you what the specific tax treaty issues are with respect to your home country.

And remember also that you must be a non-citizen AND non-resident in order to receive this "benefit". If you are a "resident alien", you would also have to pay taxes on worldwide income...just like any other US taxpayer. So make sure that you KNOW what you status actually is. IRS Publication 519 can help you with that.

[[ As I understand it, my problem is the US policy of only exempting $60,000 from US inheritance
taxes. American citizens and legal aliens get to exempt $600,000. If I died suddenly, my kids
would loose a lot of $$$.]]

But, again, this will only impact you if you are a US resident. If you are a non-citizen and non-resident, the potential estate tax pounding will not apply to you. So you really need to define your "status" with Uncle Sammy in one quick hurry. You may be under some assumptions that may not necessarily be true.

TMF Taxes
Roy

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Roy,

Thanks for the advice. But I'm standing on pretty firm ground--I think. My withhold rate is the the default rate as my country does not have a tax treaty with the USA.

The $60,000 exemption is for non-US persons (neither citizens or legal aliens). US persons get to exempt $600,000 from their estate taxes.

This info comes from a US CPA in Panama City.

Galeno


[[I have the opposite problem. I'm a non-US citizen who would like to invest though an inexpensive
US discount brokerage. I wouldn't get taxed on my capital gains and the IRS would withhold only
30% of my dividend and interest income.]]

Or perhaps even less. Remember that the 30% rate is the "default" rate. Depending upon your home
country, and the tax treaty that your home country has with the US, your rate could be less. If you
would like to check that out, you can read IRS Publication 901 at the IRS web site. That publication
will tell you what the specific tax treaty issues are with respect to your home country.

And remember also that you must be a non-citizen AND non-resident in order to receive this
"benefit". If you are a "resident alien", you would also have to pay taxes on worldwide income...just
like any other US taxpayer. So make sure that you KNOW what you status actually is. IRS
Publication 519 can help you with that.

[[ As I understand it, my problem is the US policy of only exempting $60,000 from US inheritance
taxes. American citizens and legal aliens get to exempt $600,000. If I died suddenly, my kids
would loose a lot of $$$.]]

But, again, this will only impact you if you are a US resident. If you are a non-citizen and
non-resident, the potential estate tax pounding will not apply to you. So you really need to define your
"status" with Uncle Sammy in one quick hurry. You may be under some assumptions that may not
necessarily be true.
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[[Thanks for the advice. But I'm standing on pretty firm ground--I think. My withhold rate is the the
default rate as my country does not have a tax treaty with the USA.

The $60,000 exemption is for non-US persons (neither citizens or legal aliens). US persons get to
exempt $600,000 from their estate taxes.]]

Fine. If you knew the answer, I'm not sure why you asked the question...or what your question actually was.

As I recall, you were asking about income taxes...not estate taxes. They are completely different.

In addition, all I really gave you were references from my tax liabrary and the IRS Publications. As I stated up front, I'm not an expert (or even a novice) in international taxation issues.

So if you are comfortable with your situation as it currently stands, that's great.

TMF Taxes
Roy
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[[Thanks for the advice. But I'm standing on pretty firm ground--I think. My withhold rate is the the
default rate as my country does not have a tax treaty with the USA.

The $60,000 exemption is for non-US persons (neither citizens or legal aliens). US persons get to
exempt $600,000 from their estate taxes.]]

Fine. If you knew the answer, I'm not sure why you asked the question...or what your question actually was.

As I recall, you were asking about income taxes...not estate taxes. They are completely different.

In addition, all I really gave you were references from my tax liabrary and the IRS Publications. As I stated up front, I'm not an expert (or even a novice) in international taxation issues.

So if you are comfortable with your situation as it currently stands, that's great.

TMF Taxes
Roy
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