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Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

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Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#71

Post by gopi »

clamprecht wrote: post #23
philiphodgen wrote: post #2

I was quoted in this article. I do lots and lots of this work -- helping people log out of the USA cleanly and permanently. AMA.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

In this case Bob would pay IRS 20% tax for the price appreciation happened when he lived in CA. The 4% tax applies only to the price gain during his stay in Puerto rico.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#72

Post by [deleted] »

clamprecht wrote: post #35
scrumper wrote: post #31

Earlier quoted context omitted.

US citizens overseas are required to declare all income (and capital gains) to the IRS regardless of source. They still have to file returns in the US. Bob will owe tax as a result, but he can probably write off the 4% he payed in PR against his US taxes. He's not a resident of California, so he likely avoids the state tax. (Note: I don't know specifically about Puerto Rico, but generally the above is the case for US…

That's why I asked about Puerto Rico. Puerto Rico is a territory of the US, so it isn't considered "overseas". If you google it, you'll see what I'm talking about. Here's a link: http://www.marketwatch.com/story/puerto-rico-woos-rich-with-...

[deleted]

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#73

Post by scrumper »

clamprecht wrote: post #35
scrumper wrote: post #31

Earlier quoted context omitted.

US citizens overseas are required to declare all income (and capital gains) to the IRS regardless of source. They still have to file returns in the US. Bob will owe tax as a result, but he can probably write off the 4% he payed in PR against his US taxes. He's not a resident of California, so he likely avoids the state tax. (Note: I don't know specifically about Puerto Rico, but generally the above is the case for US…

That's why I asked about Puerto Rico. Puerto Rico is a territory of the US, so it isn't considered "overseas". If you google it, you'll see what I'm talking about. Here's a link: http://www.marketwatch.com/story/puerto-rico-woos-rich-with-...

I did Google it, and I found this http://premieroffshore.com/move-puerto-rico-pay-zero-capital...

Which seems to support your idea! "Capital gains are sourced to your place of residence."

Any dividend income would be taxable, since you have to file an IRS return for all ex-PR income, but it looks like not the CG.

Quite a loophole - thanks for prompting the research.

EDIT: There are some quite long-term residency requirements to avoid CG on things you owned before moving to PR though. I don't think it'd work in the year timeframe you asked about.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#74

Post by toomuchtodo »

philiphodgen wrote: post #59
toomuchtodo wrote: post #43

Earlier quoted context omitted.

Any places cheaper than St Kitts/Nevis ($400K)?

Look at Dominica. Scam artists have been known to exist in selling citizenship in Central America. Be wary. Don't try clever stunts.

Thanks. Dominica looks fairly reasonable at $100K for an individual, and $175K for a couple.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#75

Post by jessriedel »

deciplex wrote: post #69
jessriedel wrote: post #63

Earlier quoted context omitted.

It sounds like you're talking about the usefulness of citizenship for traveling . But the quotation discussed by deciplex, and his statements, are not qualified in this way. Extensive nation-hopping is not something most folks in the world can do. (The "onerous tax filing" being even more of a rich-person's problem.) I'd guess that the US citizenship is in fact the most coveted worldwide, all things considered.

Well, at least you admit you're just guessing... And, did you bother to read the article? I'm surprised you write off these regulations for expats as 'rich-people problems'.

The typical American moving abroad is richer than the median American, and the median American is much, much richer than the vast majority of humans on Earth. The middle-class person being discussed in the article had $100k in the bank, which is more than most humans earn in a lifetime.

So yes, rich-people's problems.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#76

Post by throwawayyyy »

philiphodgen wrote: post #2

I was quoted in this article. I do lots and lots of this work -- helping people log out of the USA cleanly and permanently. AMA.

This is probably not the right forum to approach you in, but is there any chance you would be able to take a few questions from me either here or by e-mail? I am a dual citizen (but I have never lived in the country) and am so afraid of doing something wrong with regards to US tax obligations. I am especially worried that I would accidentally make myself liable by simply owning my home or having a savings account in my native country.

I realize your job is to handle these things, and I am not in any way trying to say "can you please answer some questions for free so I don't have to hire you later on" - I'm just a regular guy with a regular income and a regular life in another country who happens to have been born to a US citizen a long time ago. I cannot in any way afford to consult with an international tax attorney.

Feel free to ignore this random stranger asking for advice using a throwaway account :-)

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#77

Post by clamprecht »

gopi wrote: post #71
clamprecht wrote: post #23

Earlier quoted context omitted.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

In this case Bob would pay IRS 20% tax for the price appreciation happened when he lived in CA. The 4% tax applies only to the price gain during his stay in Puerto rico.

This sounds reasonable - but can you provide a source?

Also, are you talking about federal taxes or california taxes?

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#78

Post by rincon0404 »

clamprecht wrote: post #23
philiphodgen wrote: post #2

I was quoted in this article. I do lots and lots of this work -- helping people log out of the USA cleanly and permanently. AMA.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

Yes, the flaw in the above scenario is that for capital gains that have a cost basis that began prior to becoming resident in Puerto Rico ("built in gains"), you will owe taxes at both the US federal and Puerto Rican levels.

3 scenarios:

If the business was started and sold prior to becoming a Puerto Rican resident, then taxes would be owed at US federal and state levels like normal.

If the business was started while resident on US mainland and then you moved and became resident in Puerto Rico (the OP's scenario), it gets a lot more complicated. Just considering capital gains from a sale of the business to keep it easier, you will owe taxes to both the US and Puerto Rico. These are called "built in" capital gains. You can look up details on this, but taxes are owed to the US and to Puerto Rico at rates that change over time depending on how many years you are resident in Puerto Rico before selling the business. This is the most complicated scenario.

If you start a qualifying Puerto Rican business after becoming resident in Puerto Rico and after having been accepted into Act 22, then you would start with a zero cost basis. This is the best case scenario. When you sell this business, you could owe 0% capital gains. However, during the lifetime of this business, you will still pay FICA taxes (15.3%) on earned income to the US Federal government up to the regular cut off levels, personal Puerto Rican earned income taxes on a portion of your income, and 4% corporate tax on business income. This is the easiest scenario since it starts with a zero cost basis.

Btw, IANAL.

TLDR 1.) Started & sold business in Cali, no capital gains tax benefit. 2.) Started business in Cali and sold after becoming resident in PR, crazy complicated, but taxes do apply at both federal and puerto rican level. 3.) Built and sold business in PR after acceptance into Act 22, and after becoming resident in PR, 0% capital gains tax, but other taxes apply during the lifetime of the business.

For those interested, residency is 183 days per year.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#79

Post by rincon0404 »

gopi wrote: post #71
clamprecht wrote: post #23

Earlier quoted context omitted.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

In this case Bob would pay IRS 20% tax for the price appreciation happened when he lived in CA. The 4% tax applies only to the price gain during his stay in Puerto rico.

This is inaccurate. The 4% number is a figure that applies to businesses that are export related and that apply and receive approval for Act 20. It's a 4% tax on the inc's business income and is unrelated to capital gains.

Re: Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules

#80

Post by rincon0404 »

scrumper wrote: post #31
clamprecht wrote: post #23

Earlier quoted context omitted.

Here's something I've been wondering, totally hypothetical but could be real for someone else: Puerto Rico has this new tax law that basically limits taxes to like 4% or less, if you are a resident of PR. Let's say Bob is an American who expects to have a big exit in 2015 (or he has lots of GOOG stock and wants to sell it). Normally Bob would pay US capital gains taxes (15-20%, maybe 23.8%), plus California taxes (as…

US citizens overseas are required to declare all income (and capital gains) to the IRS regardless of source. They still have to file returns in the US. Bob will owe tax as a result, but he can probably write off the 4% he payed in PR against his US taxes. He's not a resident of California, so he likely avoids the state tax. (Note: I don't know specifically about Puerto Rico, but generally the above is the case for US…

PR is a US Territory. Technically, you never left the country.

"In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are not required to file a U.S. federal income tax return if they have income only from sources within Puerto Rico." www.irs.gov/taxtopics/tc901.html

There are caveats. One that I know for sure is that if you are self-employed, you still must file & pay FICA taxes to the US federal government.

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