Immerse yourself in the world of offshore tax shelters, and pretty soon you'll feel like you need to take a shower. I've yet to find an area of finance with more scams, schemes and dubious claims per square inch.
Some of the rip-offs are pretty obvious: A promoter takes your money, promising to hide it from the Internal Revenue Service, and either disappears with it or blackmails you for more by threatening to turn you in to the very tax agency you were trying to duck.
Others are more subtle, offering to help you set up trusts to hide assets or income, or both. Despite severe setbacks in recent years -- adverse court rulings, a meaner IRS and the capitulation of several former tax havens -- these promoters keep insisting that both aims are possible for regular Joes.
There are, in fact, a few legitimate, or at least quasi-legitimate, reasons for venturing offshore. If you're extremely wealthy and a lawsuit target, you could benefit from making your assets harder for creditors to snatch. Some of my Beverly Hills attorney sources have such offshore asset protection trusts created for their clients. You should figure on spending about $30,000 to set up an offshore asset protection trust and several thousand annually to keep it going.
Simpler ways to protect assets
For the rest of us, these attorneys say, there's a simple, three-step course to protect our assets:- Don't do things, such as defraud people, that get you named in lawsuits.
- Buy an umbrella liability policy.
- Call it a day.
You should also consider setting up a family limited partnership. And they're not just for the rich anymore.
Simply put, as a U.S. citizen, you're expected to pay U.S. taxes. To quote IRS Publication 54 (.pdf file), "If you are a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living."
Furthermore, U.S. law requires those who have more than $10,000 in a foreign trust or bank account to report those accounts on their 1040s. If you failed to do so in the past, June 30 is the deadline to come clean and avoid serious penalties.
The big question: Will you get busted?
So the question isn't whether you can legally hide income from the IRS in an offshore trust, because you can't. The only question is whether you can get away with it.In the 1990s, promoters of offshore trusts went a little nuts with claims about how easy it was to evade taxes, largely because the IRS was defanged and hardly auditing anyone anymore.
Continued: You can always just leave
More from MSN Money
- Your 15-point tax return checklist
- Home, the mother of all tax shelters
- Protect your family with a partnership
- Tax deductions that shout 'Audit me!'
- More resources on MSN Money's Tax Center
