Is less actually more? The answer—every April, at least—is yes.
As the wealthiest Americans file their income tax returns this month, many probably wish they could report just a bit less: a smaller income, a more modest bonus, less impressive stock portfolio returns.
Unless they're fudging the numbers, that's not likely; 2005 was a very good year for the rich. ' personal net worth alone increased $3.5 billion last year, as reported in Forbes' list of the World's Billionaires. Investment banks such as Goldman Sachs (nyse: GS - news - people ) reported record-breaking annual profits, leading to a bonus season that would make Midas blush.
The strong economy affected ordinary Americans, too. According to the Bureau of Economic Analysis, per capita disposable personal income nudged up $89 from November 2005 to December 2005.
Of course, the more you make, the more you generally give back to Uncle Sam. And with tax havens things of the past and offshore accounts coming under international scrutiny, there are fewer ways to avoid it.
"No matter where you live, if you're a U.S. citizen, you're taxable on all income from all sources," says Robert McKenzie, a lawyer with Arnstein & Lehr in Chicago. Even if you renounce your U.S. citizenship—an extreme alternative to paying income tax, but perhaps a financially sound one—that, too, is now "a taxable event," says McKenzie. "There is a tax imposed on assets you seek to take out of the country."
International tax havens, fabled places where income taxes are low or nonexistent, are being looked at closely by the U.S. government; the Organization for Economic Cooperation and Development, a Paris-based council that facilitates cooperation between market-economy countries; and the related Financial Action Task Force, also based in Paris.
"Pressure is being imposed on all tax havens, since there are still some left for those living outside the U.S.," Gideon Rothschild, an asset-protection attorney with Moses & Singer in New York City, writes in an e-mail. "The OECD and FATF are concerned about money-laundering and terrorist financing, as well as tax transparency. Most jurisdictions have succumbed to the pressures of these bodies," says Rothschild, adding that Switzerland and Monaco are among those who have made concessions without guaranteeing total transparency.
That doesn't deter some people, nor do other risks. McKenzie became a tax lawyer in 1978, the year he left his former employer—the IRS—to "protect" victims of tax law. In the intervening years, McKenzie has learned a thing or two about income taxes; namely, that people will try anything to avoid paying them. "There are a lot of tax havens I've had clients use over the years," says McKenzie, citing a client who placed a "substantial amount" of money in a Bahamian bank account, only to lose it when the bank closed.
"The one thing that people don't recognize is that U.S. banks are stable entities, ensured by the Federal Deposit Insurance Corp.," McKenzie cautions. "When you start using foreign banks, they may not have the same standards of integrity, which is why I have severe reservations about a place like Panama, or Cyprus, which can't even get its government together. Do you want to have your money in a place like that?"
What's a U.S. citizen to do as April 15 approaches? That's where Rothschild comes in. "There are not laws that make transfers to offshore trusts for asset-protection purposes illegal, provided the transfers are made when there are no clouds, or creditors, on the horizon, and that the trusts and the U.S. taxpayers creating such trusts comply with all the IRS reporting requirements," Rothschild explains.
While he's quick to point out that asset protection does not involve minimizing income taxes, Rothschild says there are strategies that can help save estate taxes and offshore trusts. Using private-placement life insurance products is one such strategy. Curious? You still have time to call Rothschild, at least before next year.
In the spirit of fiscal strategizing, Forbes.com has compiled our annual list of Tax Haven Getaways again this year. We've selected ten sunny destinations, once famous for their very friendly tax laws. Of course, you won't be able to do much more than get a tan here these days, but filing your returns on the beach of a luxury resort might just mitigate the pain.