Where Money Hides: Tax Havens and Offshore Accounts

Money, News, Taxes

tax havenIf your paychecks have been looking meager with recent tax increases, you may be a bit more tempted to find ways around paying your taxes. Incidentally, it’s becoming a lot harder to hide your money in offshore accounts.

Treasury Cracking Down on Foreign Accounts

At least $21 trillion is hidden offshore by the world’s richest. It’s estimated that the taxing of money leaving developing countries for offshore accounts could be enough to help those countries pay off their debts to the rest of the globe. Overall, the U.S. loses about $100 billion each year in revenue due to money being hidden away in offshore accounts.

Desperate for upping revenue, the U.S. Department of the Treasury is engaged with more than 50 countries in putting an end to tax evasion. While countries like Switzerland have been great havens for Americans in the past due to Swiss laws preventing banks from disclosing client identities, the U.S. is quickly putting an end to international tax havens. Earlier this month, Switzerland’s oldest bank was forced to close after a long battle with the U.S. government; Wegelin & Co. was forced to pay hefty fines to the U.S. and disclose names of its U.S. tax-paying clients.

FATCA

Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010, demanding full disclosure of U.S. account holders’ identities from overseas banks. While it isn’t illegal to have an international bank account, the IRS is calling for all foreign account holders to come forward with information on their overseas bank accounts. FATCA requires that U.S. taxpayers (single or married filing separately) must file Form 8938 if their foreign assets total $50,000 on the last day of the tax year or more than $75,000 at any point during the year. Married taxpayers filing jointly are required to file Form 8938 if foreign assets exceed $100,000 on the last date of the tax year or more than $150,000 at any point during the tax year. These taxpayers must disclose their bank’s information as well as the maximum value of their accounts during the year.

Lingering Costly Tax Breaks

Many corporate ventures save oodles — legally — on taxes by shipping their operations overseas. Businesses also get a tax deduction for the costs associated with their relocation. The result: 12 of the top recipients of corporate overseas tax breaks laid off more than 67,000 American workers in a two-year period. As it turns out, some of America’s biggest companies – including many firms that have taken advantage of government bailouts or rely on government contracts – use tax havens like offshore accounts.

While no one should be ashamed for writing off business expenses or taking advantage of other legitimate tax deductions, hiding money in offshore accounts is–well–illegal, and not helping the government’s need to raise taxes in general.