What's the big deal about offshore banks?

“But when you factor in postage and bank fees, the tax savings may not do much more than buy you two six-packs instead of one.”

Pfft, the ten G’s in my savings account haven’t earned enough interest to buy a candy bar, let alone cost me a six-pack’s worth of tax liability. Cuban banks are said to pay 3% interest, but do any of these other off-shore banks pay better than the zero-point-zero-something we get here?

And, as for the question of money-laundering, I’ve always wondered how that works. How does, say, a cartel boss get his dough over there? Put pallets of greenbacks on a boat or plane, and then wheel 'em into the lobby? Do they take any money, no questions asked?

Here’s the article is question: What’s the big deal about offshore banks?.

Let’s make widgets:

CASE A: We take $50,000 of raw materials and make our widgets, then sell them for $150,000 thus earning $100,000 taxable profit. We pay 17% income tax and 15% self-employment tax, or $32,000 total.

CASE B: We take $50,000 of raw materials and make our widgets, then sell them for $50,000 to our Bermuda corporation, this earning $0 taxable profit here, no taxes. Our Bermuda corporation then sells the widgets for $150,000 and pays income taxes in Bermuda of 1%, or $1,000. Now our Bermuda corporation sends us a dividend check for $99,000 which is taxed at 23% in the USA, for a total of $24,000 in taxes.

That tax savings buys 2 six-packs of beer every day for a year, and I ain’t talking Keystone Light either.

Certain onshore US domiciled internet banks currently pay in excess of 1%.

I wouldn’t be too eager to go abroad to get 3% or more in a bank account. Such advantages can easily be toppled by exchange rate fluctuations. International diversification can be a good idea, but you ignore currency risk at your peril.

Well, okay, not so much a bank as a shell corporation…

If you’re patient, you might be able to turn them into qualified dividends. You probably run into an AMT situation, though (no way I’m doing the paperwork to figure it out) or some other weirdness.

Or not. I knew a guy who invested heavily in pounds back when they were exchanging for about a buck. He did pretty well, even after paying some pretty hefty fees.

The market giveth and the market taketh away.

The important part is paying your taxes using the Upper Class systems, and not get ripped off blind paying like the Middle Class does.

<nitpick> That 15% self-employment tax actually ends at $100,000, any income above that level is free of that particular tax … but typical you’ll be bumped up into the 34% earned income tax bracket or worster into AMT territory … if it gets too bad, then just simply lie. </nitpick>