Tax lawyer David Hryck, who services high net worth individuals and billionaire business owners, sees some positives in the fiscal cliff deal. Even though it raised taxes on some of his clients, there are still some tax breaks that can be used to advantage, particularly on capital gains, dividend and gift taxes. Plus it could have been much worse if there had been no deal between congressional Republicans and the Obama administration.

“I actually thought the rate on dividends was a pretty good compromise,” said Hryck, who is U.S. head of international tax at the law firm SNR Denton. “Dividends are taxed at 15 percent, as capital gains were at the time, but the legislation was expiring. It could have gone to the highest individual rates, which went up to 39.6, plus the ObamaCare tax of 3.8 percent or so on top of that, so we could have been talking 40+ percent on dividends. Settling in at 20 [percent], which stayed consistent with where capital gains went, was a good compromise, I think. You still have the ObamaCare tax of 3.8 percent on top of that, but you have that with capital gains as well. I think there’s still a significant amount of planning that can be done, and I feel pretty positive about where they came out on that issue.”

Some wealthy taxpayers, such as Facebook co-founder Eduardo Saverin, have been renouncing their U.S. citizenship and leaving the country, in part to avoid the tax hikes. “We’ve been seeing a significant increase in the number of people at least considering that since 2008, when the market went down,” said Hryck. “Their facts might not be appropriate to do it, but they don’t know that until they come to their competent advisor and they understand the impacts and the consequences of doing it.”

One of the factors may be the exit tax that taxpayers are required to pay if they renounce their citizenship. “The reason we started seeing this in 2008 and those years was because the market was way down, so the exit tax is a lower number and there is significant room for material appreciation of those assets once the exit occurs,” Hryck pointed out. “So you pay a tax on the value of your assets as if you had sold them. You pay a tax on the gain. So if the value is low, that’s the time to do it. The market has gone up, but arguably there is probably more room for growth in real estate and other places, and hopefully the economy is going to improve and we’re all going to do better. You’re sort of seeing with values not where people think they’re ultimately going to end up, there is room to incur the cost today and still have significant upside once they’re gone, and that upside is what escapes U.S. tax.”

In some high-tax states like New York, the ordinary income rates can be over 50 percent and the capital gains rates over 30 percent after taking into account federal, state and local income tax rates on upper-income taxpayers, along with the 3.8 percent Net Investment Income Tax and the Additional Medicare Tax of 0.9 percent from the Affordable Care Act.

“That’s one of the reasons why now we’re seeing it again,” said Hryck. “In 2008 to 2010, one of the principal reasons we saw it was that values on assets were very low. The Facebook co-founder, Eduardo Saverin, his whole plan was that Facebook was going to go public and he paid about $100 million in tax on the way out, but he thought the value was going to be so significant in the IPO that it was worth $100 million to save whatever amount it was, say, $300 million. I’m just making up numbers, but that was the mindset. I think that ultimately it didn’t work in his favor.”

Hryck also believes that changes in the gift tax exemption represented a positive for taxpayers. “I think it was in many senses a victory for taxpayers,” he said. “I would say last December was probably the busiest December for me in my career, and I think for a lot of other practitioners, just dealing with not only the gift tax and estate tax exemption and planning, transferring assets and so forth, but also the qualified dividend that we thought was going away.”

He believes that the movement of funds in December must have totaled a tremendous amount as practitioners tried to do their best guesses for clients on how the rates would end up once Congress agreed on a deal.

“I imagine if you added it all up, it was a very big number around the country,” said Hryck. “The fact that it was made permanent was a really positive thing, and I think it will certainly encourage wealth transfers among family units in many cases, friends and close relatives, and from my experience it’s caused people to focus on their estate plan and their trusts and planning for the next generation probably more than they would have in the past.”

Hryck has also been helping clients this year with planning for qualified dividends, including dividends from non-U.S. companies. “One of the biggest planning tips for clients that have their own businesses—and they’re closely held or private companies, and they’re doing business overseas—is to capture the income that they’re earning overseas in that particular jurisdiction,” he explained. “If they’re doing business in China, Hong Kong, France, Italy, Germany, the U.K., and it’s material enough, instead of having those profits come directly into the U.S., you plan to create local subsidiaries and defer those profits from U.S. tax and then ultimately bring them back as a qualified dividend, as opposed to bringing them back as if they were earned in the U.S. where they’re taxed at ordinary income rates. So you’re effectively converting operating income into what is a capital gain in a very legitimate structure that is probably also contemplating legal issues and intellectual property issues in many cases. That’s something we’ve always done, and we’re quite pleased that we’re able to continue.”