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| Index
of Sovereign Society Articles |
| An All
Seasons Tax Tip—Foreign Currency “Tax Swaps” |
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| How can you
take advantage of the U.S. dollar’s short-term strength while holding onto
your medium-to long-term foreign currency positions? |
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| This may
not sound possible…but it is! You can hold onto your foreign currency positions,
and at the same time, benefit from a stronger U.S. dollar. No, you have
not entered into the Twilight Zone. Rather, you are about to embark on
a crash course in foreign currency “Tax Swaps.” |
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| 2005
was an unusual year for foreign currencies and precious metals. We saw
the U.S. dollar surge against the Swiss franc, the euro and the British
pound. |
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| At
the same time, precious metals outpaced the greenback. This pattern is
unusual, because when the U.S. dollar rises against other paper currencies,
it usually loses value against gold, too. But, this oddity is easily explained.
First, the precious metals strength can be attributed to strong supply
and demand fundamentals. 2005 saw precious metals break their dependence
on U.S. dollar weakness as the primary basis for appreciation. I believe
this signals a move from a mini bull to a major bull market in precious
metals, and with it, fundamental strength against all currencies. |
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| Second, this
year’s dollar strength can be attributed to a short-term bear market rally
for the dollar. A sluggish U.S. economy, heightened inflationary concerns,
staggering debt, record trade deficits, the loss of life and property due
to natural disasters and the ongoing War on Terrorism, it is difficult
to believe the U.S. dollar is truly strong. |
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| Instead, dollar
strength is more a result of rising interest rates and a once-in-a-lifetime
repatriation of dollars from offshore havens by American companies rushing
to take advantage of a one-time reduced corporate tax on these funds (5%
for 2005 only). Once interest rates stop rising, and capital inflows slow
down, the dollar will stop rising as well. The question then, for those
of you with holdings in euros, Swiss francs and pounds is “How can I benefit
from this dollar strength without giving up the foreign currencies that
are expected to recover and increase in value in 2006?” |
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| In many cases,
tax swaps are the answer. So, what’s a tax swap? Basically, it’s a tool
for lowering your tax obligation. Let’s say you are holding Swiss francs
whose market value has decreased since time of purchase. Further, you view
the franc’s fundamentals as strong with the potential for an increase in
future value from present value. Simply sell the Swiss francs and immediately
repurchase them. That captures a capital loss, which can be used to offset
capital gains elsewhere in your portfolio. Additionally, you still own
the same asset with an expectation of future gains. Commodities such as
precious metals and foreign currencies are not governed by the “wash sale”
rule for securities contained in the U.S. Tax Code (IRC Sec. 1091). Therefore,
you can sell foreign currencies and immediately repurchase them at current
market prices. |
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| Normal spreads,
commissions and transfer fees could make this transaction cost prohibitive,
with commissions, spreads and fees of 4%-6% or even more. However, by working
with a company such as ours that offers preferential commissions of 2%
or less for foreign currency tax swap transactions, this technique rapidly
changes from cost prohibitive to cost effective. |
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| The timing
to maximize your tax loss is when the markets are at the low end of their
trading ranges, not the end of the tax year. Technically and seasonally,
the time is now to consider a foreign currency tax swap. |
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The
Sovereign Society, headquartered in Waterford, Ireland, was founded in
1998 to provide proven legal strategies for individuals to protect their
wealth and privacy, lower their taxes and to help improve their personal
freedom and liberty.
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The
Society's highly qualified contacts recommend only carefully chosen banks
and investment advisors as well as financial and legal professionals located
in select tax and asset haven jurisdictions around the world. The Society
provides advice concerning the establishement and operation of offshore
bank accounts, asset protection trusts, international business corporations
(IBCs), private foundations, second citizenships and foreign residency,
as well as practical safeguards for financial, Internet and personal privacy.
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The
Sovereign Society stands alone in fulfilling this singular, international
offshore service role for its members. To learn more about our organization
and how you too can become a member, Click the link below:
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| You have
three choices: |
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1. DO NOTHING
and wait for the markets to recover. With this choice, there is no tax
advantage.
2. SELL NOW
and exit the market. You get to deduct your losses, but you could be selling
out at the bottom and you lose your “safety” or “survival” hedge that the
foreign currencies provide.
3. TAX SWAP.
Take advantage of the low prices today, and lock in your tax advantage
for 2006 while maintaining your peace of mind by holding your foreign currency
positions. |
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| Even if you
don’t need this tax-saving capital loss in the current tax year, you are
permitted to use US$3,000 per year and roll the remainder forward to the
next year. The tax swap is an excellent strategy if you hold foreign currencies
purchased at higher prices, want to save money on taxes and believe that
the dollar will weaken in the medium-to long-term. If that describes you,
then you are a candidate for a foreign currency tax swap. |
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The
Strange Disappearance of 100,000 American Millionaires
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Last
year, the number of American millionaires fell by 100,000. Yet 200,000
new millionaires showed up overseas. Why? Because hugely profitable
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and Wall Street special interests. Like our recommended investments that
gained 797% and 1,794% during the bear market and our other investments
up 85%..117%...177%...225%. Find out what they don't want you to know...
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