Avoiding Taxes - Assignment Example

Avoiding Taxes Individuals residing in the U.S. are obliged to pay their income taxes (Hoffman, Maloney, Raabe, & Young, . The government uses the income tax to obtain funds for the building of public infrastructure and services. However, not all taxpayers are in favor of paying income taxes. Despite these contradictions is the reality that the government will never get rid of income tax but insist on implementing tax reforms that will sustain income taxation policies (Pechman, 1990, p. 1). U.S. taxpayers are considering ways to be exempt from income tax, and these are discussed, as follows: 1.

Renouncing citizenship The determination of some citizens to avoid the payment of income taxes has led them to the idea renouncing their US citizenship. As per s 349(a) (5) of the Immigration and Nationality Act (INA) (8 U.S.C. 1481(a) (5)), a US citizen is given the right to voluntarily renounce US citizenship. Expatriated citizens are bound to adhere to the expatriation tax provisions depending on their net worth. Since the government has found a way to oblige US citizens to pay taxes even when they are overseas, giving up US citizenship has become the last resort for some, who view tax liabilities as burdensome and inequitable.

The aim of renunciation is to be exempted from tax liabilities, not only when residing in the country, but also when considering going out of the country for whatever personal reasons. Once a U.S. citizenship is relinquished, the income tax duties of an individual diminish. 2. Establishing dual citizenship The US government is not in full of dual citizenship as it may bring confusion on the part of a dual-national U.S citizen. Nevertheless, individuals, who have the chance to acquire dual citizenship, make use of this opportunity to lessen their tax obligations.

Acquiring a dual status does not totally eliminate tax liability but only limits the obligation depending on the part of the year when an individual is deemed a resident alien or a non resident alien. Notwithstanding, the income, which is not in any way associated with business transactions, in the country, will not make an individual accountable to a tax liability. 3. Renouncing citizenship vs. establishing dual citizenship Renouncing citizenship or establishing dual citizenship shares the similar goal and that is to mitigate the impact of tax liability on individuals.

However, the variation lies on the fact that renouncing citizenship may eliminate tax liabilities of an individual even when they are outside of the country while establishing dual citizenship only limits a tax liability and adds tax liabilities on the other country, where the individual is also a citizen. Apparently, a decision to relinquish citizenship or to grab the opportunity of having dual citizenship (if applicable) is driven by the desire to no longer deal with increasing tax obligations in the country.

Either way, because of tax increases, U.S. citizens are enticed to renounce their citizenship because of stringent taxation policies that oblige them to still pay income taxes even outside its territories or to apply for dual citizenship to ease the burden of paying income taxes, which is an individual obligation for being a resident in the land of uncle Sam. 4. Preferred measure in dealing with tax liability The renunciation of U.S. citizenship is seen as an acceptable action not to make one burdened with tax liabilities.

As mentioned earlier, U.S. citizens may choose to formally renunciate U.S. citizenship, or may do expatriating acts that lead the government to take measures to relinquish such citizenship (Kirsch, 2006). In either way, once U.S. citizenship is renunciated without a tax purpose for expatriation, the individual will not be bound to tax as “U.S. citizen for U.S. citizen tax purposes” (Cantley, 2003, p. 223). Thence, this would be a convenient choice to lessen tax liabilities, especially when feeling overly burdened with the responsibility. 5. Alternatives to reduce tax liability without renouncing citizenship Renunciation is an option for individuals, who are fed up with the taxation system of the country.

Nevertheless, this may not become an option if one meets the criteria to be exempt from paying income taxes. Lowering the taxable income means that an individual will not owe any income tax liabilities to the government since the income falls below taxable income. The idea is to move income out from an amount that is taxable based on the classification of the Internal Revenue Service (IRS). Qualifying for tax credits is also a means used to reduce tax liability. Tax credits lessen tax liabilities by way of deducting the credits directly from the tax thereby lessening the tax liability.

References Cantley, B. (2003). Taxation expatriation: Will the fast act stop wealthy Americans from leaving the United States? Akron Law Review, 36, 221-243. Hoffman, W. H., Maloney, D., Raabe, W., & Young, J. (2013). South-western federal taxation 2013: 2013 custom edition (36th ed.). Mason, OH: Cengage Learning. Kirsch, M. (2006). The tax code as nationality law. Harvard Journal of Legislation, 43(2), 375-436. Pechman, J. (1990). The future of income tax. The American Economic Review, 80(1), 1- 20.

Legislation Immigration and Nationality Act HYPERLINK "http://en.wikipedia.org/wiki/Immigration_and_Nationality_Act_of_1952"of 1952