By Nicholas West
While people feel compelled to continue debating various government shutdowns, the reality remains that tax collection is expected to continue uninterrupted. The old maxim that the two great inescapable realities are death and taxes should come as an affront to the liberty minded, however. The mandatory payment of taxes is as unnatural as death is natural, and is a human construct that is a historically recent phenomenon..
The concept of raising tax revenue in the United States began with the Civil War when a 3-5% tax bracket was established to fund the effort. It was a temporary measure that set an expiration date 10 years later. All told, 10% of households were exposed to some form of taxation.
The subsequent interrelationship between the Federal Reserve and the Internal Revenue Service that occurred decades later in 1913 created a permanent mandatory taxation that has only escalated its demands since, and has given rise to the “death and taxes” we’ve come to accept for merely being born inside the United States.
It, therefore, behooves us to look at the various legal methods for reducing our exposure to taxes and thus better enjoy the fruits of our labor.
Disclaimer: It’s important, of course, to always seek expert advice before filing your tax return. The 74,000-page tax code is only growing and contains a minefield of ways to cause you harm.
Foreign Corporations and Investing
For those who don’t wish to go to the most extreme measure and renounce citizenship (though record numbers of people are), getting yourself offshore in one way or another can be highly beneficial. The mainstream media would apparently like people to feel as though having a foreign corporation is illegal, or at least morally repugnant, but it remains perfectly legal. While mega corporations and celebrities are often the focus of these “dirty tax avoider” mainstream accounts, it is a relatively low-cost vehicle that might be a good option for certain individuals. If you’re an Internet entrepreneur, you have the option of setting your business up anywhere. There are many desirable territories for establishing a business to shelter yourself from taxes. If you don’t have a need to create a company, you still can open investment funds in other locales. Do be careful of professed experts that one might find on the Internet and take great care in studying the location and the type of corporation, as well as overall cost. It is also important to note that if money is moved overseas – or any type of income earned there – it can be subjected to substantial repatriation fees.
Pre-tax Retirement Accounts
Many retirement plans like 401(k)s and IRAs can be funded with pre-tax dollars, and earnings will grow tax-free. You won’t pay taxes on those funds until withdrawals at retirement. By contributing to these accounts, you reduce your current tax burden while saving and investing in a beneficial environment.
These types of accounts have deposit limits according to tax law. For example, you can only contribute $5500 in pre-tax money per year to an IRA if you’re under fifty years old, and $6500/year if you’re above fifty. You are permitted to contribute up to $18,000/year ($24,000 if older than 50) in pre-tax income to employer-driven plans like 401(k)s.
Contribute to Non-Profit Organizations/Organize Your Business As A Non-Profit
As detailed on the Vin Armani Show by Dan Johnson, Executive Director of the Tax Revolution Institute, there is another interesting legal way to reduce personal tax exposure while directly investing in competition against the State. As Dan recounts, Arizona has become a documented example of the effectiveness of a “Universal Tax Credit” strategy.
In 1997, Arizona implemented the nation’s first charitable tax credit, allowing tax payers to redirect up to $200 of their tax bill to non-profits that serve low-income Arizonans. In 2015, 116,000 Arizona taxpayers used the credit, sending $32.3 million to deserving non-profits.
Arizona’s charitable tax credit … became so popular that it was increased to $400.
By combining the political right’s desire for a direct reduction in taxes, and the political left’s desire for providing more services, private non-profit organizations give support to both sides. Moreover, its success can be proven empirically, which all but guarantees the proliferation of the idea from the local to the federal level. The key is to get the word out and become involved building this concept.
Socialsafety.net is another vehicle being set up by Dan Johnson which will offer a database of the 1.5 million non-profits already doing a much better job of building communities than the federal government ever could.
Private Family Foundations
When you read stories about “humanitarians” Bill Gates, Warren Buffett and Mark Zuckerberg giving away all of their billions to charity, what they don’t tell you is that it’s really a strategy to protect their wealth from taxes. Private foundations are a tax-free environment to hold and grow investments that still remain under your custodial control. They also protect and pass assets to your heirs as seamlessly as changing the trustees and the board of directors.
Once you start a charitable family foundation, you are able to contribute the equivalent of 30% of your income to it each year. If you give more in a single year, that donation can be carried over and claimed on your taxes the following year. You can even transfer ownership of your home into the trust and your full mortgage payment is now “tax deductible” as a charitable contribution.
These charitable foundations do have rules. They require that you spend 5% of the value of the holdings each year on charitable activities. This 5% can include management, rent and other administration expenses, but should have a genuine element of charity. Other rules like no “self-dealing” where your charity spends money at your for-profit business and no support for politicians are also notable.
Setting up a charitable family trust is not as difficult or as expensive as you may think. Watch an informative seminar on this topic here.
Perhaps the easiest way to begin a path toward tax reduction is either to avoid getting on the grid to begin with, or remove yourself from the grid in every way possible. While it’s nearly impossible for anyone with a Social Security Number not to have a tax target on their back, non-traditional forms of employment and exchange can help promote freedom in even the smallest of ways.
Central to embarking on this path is to understand the concepts surrounding counter economies, or what is often referred to as Agorism. An essential lecture on the topic is available here from one of the leading voices in Agorism, Derrick Broze, as he covers the philosophies and strategies of “vertical” and “horizontal” Agorism. Derrick covers the foundation for this lifestyle that can be rooted in barter, sharing networks, payments via cryptocurrencies and precious metals, farming co-ops, community gardens and other means of extreme localism that are perfectly legal as a means of conducting business in most areas.
Additionally, by joining the ranks of the self-employed, other benefits are conferred such as ease of filing under sole proprietorship, paying your children to work in your business which carries a lower tax rate, home office deductions, charitable contributions that can become business expenses, as well as more flexible retirement contributions.
By applying any or all of these techniques, you can take a frontline approach to avoiding excessive taxation not only at the federal level, but at your local level as well.
Nicholas West writes for Counter Markets.