Investors Strategy For Tax Avoidance

August 9, 2010 | Author admin

Getting a huge tax bill is the a major enemy to a large company and so most large corporations and businesses will go to great lengths to minimize tax , they will structure their business in a tax haven country, or they will just exploit the legal system to the largest degree possible. Only a few years ago the very organisation that provided IT equipment to the US government was found to have evaded federal tax for a lot of years. These are all legal tax avoidance methods , and part of an investor friendly regime that exists in the world, aiming to attract foreign investors.

Capital gains tax and small investors:

Tax law in a lot of countries require that you pay capital gains tax on gains made on the stock market, and equally it offers tax deductions based on money lost in stock market investing. The law is pretty much the same in most western countries, in England and the US for instance you can claim huge amounts of money lost in the stock market, against your tax liability, it has to be up to a maximum of £3,000 / $3,000 per tax year, and the remaining amount to be deducted is just carried on to the next tax year. This is how the law applies to individual investors! This 3,000 figure can be claimed against tax liability on other forms of income, such as property capital gains tax or business tax.

I am not much of an accountant, and different rules apply to different countries , but this should provide you with a rough guide of how the law applies. Tax deductions only apply on investments that are long term , which I think has a 2 month minimum period of investment . So the law actually allows you to do the following:

If profits made on stocks are $70,000 and pose a potential tax liability on it, you can pick a stock that is certain to go down and ‘lose’ one hundred thousand on it, over many months within the tax year. The idea is to hedge this $100,000 loss through a 3rd investor, using Put options etc. No actual loss is incurred . But you will be able to present a seventy thousand dollar profit and a $100,000 loss to the tax man. The tax man will add up the figures resulting in a $30,000 tax deduction. So not only you will not owe him a cent on the seventy grand made on the stock market, but you will also claim three thousand dollars against your total tax liability every year for the next 10 years.

What this all means is that you can pay 3 grand less in tax, every year. But the same underlying techniques are often used by companies and small businesses , quite often the technique is used to intentionally kill businesses in a lot of debt (The troubled business invests and ‘loses’ everything they invest in the stock market), then files bankruptcy and no one can touch it. In so doing the business owners have been able to take the money out in a stealth way, without worrying about the creditor banks ever touching them over unpaid business loans .

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Investors Strategy For Tax Avoidance

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