The American Tax Checklist: Ticking Off all the Types of Taxes

The United States Tax Code is a comprehensive collection of tax prescriptions that outline all the possible ways in which the tax applies to any individual. Failure to comply with the Tax Code rarely ever means that you’ll be sent to jail, however, you could incur penalties for non-compliance. 

The IRS can charge penalties amounting up to 25% of all taxes that you haven’t paid before. A quarter of your overall incomes and wealth can potentially be ceased as part of your payment. To put things in perspective, this amounts to a total of $25,000 for every $100,000 missed in taxes. Considering that the rate itself is between 10%-37%, the cumulative is going to be far less if you just filed your taxes. For this reason, tax evasion or accidental non-compliance costs you far more than paying taxes in the first place.

As someone looking to maintain your long-term financial wellbeing, it makes sense to look for ways that you can reduce your tax burdens. The first step in all of this is to know the tax system and beginning to file your taxes that you can later file a return for. Once your incomes are reported in the system, you can then use the loopholes present to take advantage. 

 

The United States Tax System

The tax system in the United States fundamentally applies to a wide range of incomes earned by individuals. There are further sub-categories that describe the ways in which tax applies to your various financial resources. 

Fortunately, the Internal Revenue Service releases tax guides that can help you decide what taxes you should expect to pay and the returns on the taxable income you can get. 

 

Taxes on Individuals

Individual taxes usually comprise of taxes that you have to pay on the incomes coming in from different sources. This includes real estate, shareholdings, wages, capital gains and much more. 

 

Income Taxes

The real challenge with your income taxes really comes from what qualifies as taxable income for you. This includes a broad range of incomes that may include health insurance, travel reimbursements and many similar payments. Your taxable income includes:

 

1. Wages, including: 
  • Self-employment wages
  • Non-Self-Employment wages
  • Advanced Commissions, if and only if you are a cash-method taxpayer
  • All employer allowances and reimbursements
  • Bonuses and awards
  • Employee achievement awards
  • Secured Notes for Payment, valued at the fair price of the asset less the proportion of payments already made.
  • Severance Pay
  • The amount of Medicare and Social Security payments made by your employer on your behalf.
  • Stock appreciation rights, if and only if you have exercised the right.
  • Stock options
  • Dividends on Restricted Stocks
  • Dividends included in income.
  • All forms of Health and Accident benefits

 

2. Interest-Based Incomes 
  • Interest payments received as beneficiaries of estates and funds
  • Income from property given to a child under your care
  • Income from treasury bonds and bills
  • Returns on mutual funds
  • All payments from collected rents and leases
  • Security deposits 
  • Royalties 

 

3. Capital Taxes

These taxes are charged on property that you acquire through a purchase or receive as payment for your services or sell yourself. This can include any number of instruments such as stocks and bonds, real estate etc.

 

Taxes on Purchases

  • Taxes on bought real estate, you pay taxes on the cost of the property including but not restricted to: sales tax, freight taxes, and excise taxes, legal and accounting fees.
  • Taxes on the Fair Market Value of the real estate bought
  • Mortgages on an existing property
  • Taxes on the settlement cost
  • Taxes left unpaid by the previous owner
  • Stocks and Bonds 

 

Taxes on Sales 

  • Gains from publically traded stocks
  • Self-created capital assets including patents, inventions and the like.
  • Capital gains reinvested in funds
  • Gains on sale of depreciated property

 

Each of the types of expenses listed above are to be included as part of your taxable income. The IRS also offers an explanation of the extenuating circumstances where you can exclude the tax from your payments. 

 

How Can Filing Taxes Help?

Ultimately, your tax burdens have to be fulfilled one way or another. Financial astuteness requires that you minimize your tax burdens in a way such that your taxable income is decreased. It’s entirely possible to manage this redistribution of your taxable income. These steps include setting up your corporations abroad, siphoning off your funds to offshore locations and getting multiple passports.

As they say, discretion is the better part of valour. As a financial libertarian myself, I hold much stock in financial prudence when dealing with financial regulations because there is little anyone can do if they’re caught in the cross-hairs. For one thing, no one really has to break the law in order to reduce their financial obligations to the state when there is a possibility that their burdens can be reduced. For another, it helps to comply with state regulations to avoid being subjected to excessive scrutiny or be thrown in a cage. 

 

Combining Tax Returns With Shrewd Asset Distribution

In a situation where the state allows you to reduce your own payments for as long as you comply with regulations, it makes much more sense to play the system rather than antagonize it. 

Working with some of the measures that I’ve mentioned above like multiple passports, foreign bank accounts and foreign incorporations can help you avoid much of the tax burdens. With the returns that you file for any taxes you’ve paid, you can probably save a big chunk of the funds that you paid as taxes before.

The combined effects of these strategies can lend much support to your long term financial stability and sustain your economic independence. 

 

Where Should You Start?

The best things you can do is to hire an excellent Chartered Public Accountant (CPA) who specializes in the offshore markets. The number one complaint I receive when taking on new clients is that their current CPA is woefully ill-equipped to deal with the new structures and investments we are setting up. Therefore I recommend forming a relationship with a CPA immediately – To speak with the firm we use click here.

 

About The Author

Mikkel Thorup host of The Expat Money Show

Mikkel Thorup is the host of The Expat Money Show podcast and the author of #1 Best-Selling book Expat Secrets on Amazon. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran.

His goal is to help Expats like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again. For more information on his legal (but creative) tax strategies for Expats watch this free video.