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Where in the world can I live free of taxes?

Sat, 28 Oct 2023 14:50:28 GMT

With so many countries to choose from, where on Earth do you start?

Choosing a Home Base in a Foreign Country

For expats looking to set up a “home” base overseas—and therefore avoid the need to live out of a suitcase or backpack—we’ve listed the top thirty-three tax-advantaged countries in the world below. Acquiring a new residency in a foreign country is also a must for anyone seeking to spend more than about 30 days back in the USA in any one year period. Note: “residency” is essentially legal permission to reside within a country's borders beyond that of a short-term tourist.

Where Can I Live Free of Foreign Taxes?

While these thirty-three tax-haven foreign countries are excellent locations for tax purposes, some are more suited than others for American expats' entry for legal residency.

When choosing a tax-advantaged country, there are several essential considerations:

1. A country with rich and diverse locations; 

2. Excellent technology infrastructure, including fast, dependable internet; 

3. Time zones that allow for accessible communication or fast commutes back to the United States (for work, vacation, etc.);

4. Established expat base; 

5. Low operating costs; 

6. A country that grants you residency status easier; and 

7. Avoiding a substantial investment to obtain residency (e.g., a legal residence permit in Monaco requires depositing approximately half a million dollars in a Monaco bank).

What is the difference between “Tax-Friendly” and “Tax-Free”?

1. Tax-Friendly : No foreign income tax on wages and income coming from outside of the country—which is excellent for remote-working expats (note: any income coming from within the country could be taxable); 

2. Tax-Free : No foreign income tax on wages and income coming from inside or outside the country—even better for remote-working expats, as they can also work for local clients in the country (but check the local work requirements first). If you are looking to set up a ‘home base’ in a foreign country, choosing which country to live in is critical to your tax-free strategy.

To become a true tax-free expat, you cannot just move from one high-tax country to another high-tax country.

For example, suppose you were to move to Mexico and make it your full-time home. In that case, you’d could end up owing progressive Mexican Federal and Mexican state income tax rates that go as high as 33% in total (no Bueno!).

If you enjoy spending time in Mexico, France, Spain, or other countries that are not tax-free, the first tax-free option is to become a perpetual traveler abroad and then spend part of the year living there.

The second option is to become a resident in a tax-friendly or tax-free country—paying $0 taxes—and then taking one or more extended vacations to Mexico (or France, Spain, etc.). Arranged properly, you’ll be traveling to a high-tax vacation country as a tax-free tourist with a lot more money in your pocket!

Our general advice to our clients is to ‘start easy.’ This includes considering the most popular nearby ‘tax-friendly’ locations.

Securing a close-by foreign ‘home’ base allows you to be more organized and be within easy reach of the US. Please consult with us regarding your specific foreign country requirements (and tax situation), as residency and visa programs change frequently.

So, the next question is – where in the world is the best place to set up legal residency in a tax-favored country?

The most popular nearby tax-friendly ‘residency’ countries include: •Panama; •Costa Rica; •Bahamas; •Guatemala; and •Belize.

And remember, once you've set up a foreign ‘home base’, you can always travel for part of the year. Tango lessons in Argentina?

The Essential Guide On Avoiding Foreign Reporting Penalties.

Wed, 04 Oct 2023 16:36:16 GMT

U.S. expats face a complex web of government reporting obligations

Ask yourself: Did you get any money or other assets from a country outside the U.S.? Do you own any assets outside the U.S.? Did you move any assets outside the U.S.? Did you have an ownership or management interest in an entity in a foreign country? Suppose you answered yes to any of these questions. In that case, you likely need to file additional reporting forms with the IRS (or risk hefty penalties of $10,000 or more).

Overview: In addition to filing your U.S. 1040 Tax Return each year, you may also need to report your foreign financial activities to the U.S. Government. This includes everyday Americans with real estate owned via a foreign entity instead of personally (common in Latin America) or Americans who run small businesses through foreign corporations or foreign LLCs.

What's contained in the Guide? This tax guide illuminates the often-overlooked U.S. Government reporting obligations arising from:

Foreign financial accounts
Foreign income
Foreign gifts and inheritances, and
Interests in entities abroad, like foreign LLCs, corporations, trusts, and insurance policies.

While not exhaustive, this information provides a starting point for discussions with your international tax professional.

If you want to know more about ways to avoid fees and penalties, download the TaxStrategyOne guide "US Expat Tax and Foreign Asset Reporting."

Being a U.S. expat or digital nomad is exhilarating, but with great adventures come responsibilities. While the obligation might seem overwhelming, remember knowledge is power. So, download and read this essential expat/digital nomad tax guide.

DOWNLOAD your FREE copy now to save on taxes and penalties

Special December 15 Expat Tax Filing Extension

Tue, 03 Oct 2023 22:40:20 GMT

U.S. expats get an automatic extension until June 15. They can also file for an extension into October.

But what if you need even more time after the October extension? Don't worry; you can ask for another extension until December 15 but you must make the request on, or before, October 15th (Oct. 16th in 2023)

Here's how to do it, step by step:

1. Know the Basics First off, this (or any) extension only gives you more time to file your tax return. It doesn't delay any payments you owe. So, if you don't pay on time, you'll get charged interest on what you owe.

Your Tax Timeline: Know Your Dates! ��

Apr. 15 : For those residing in the U.S., this is your tax D-day.

Jun. 15 : Settled abroad? Your tax deadline is automatically June 15.

Oct. 15 : Want some wiggle room? File Form 4868 and push it to October 15.

Dec. 15 : For Americans overseas, you can request an extended grace till December 15. Unlike the extension listed above, the IRS retains control over whether to grant this additional two-month extension, so be sure to outline the reasons for the necessity of the additional two months--we've provided a helpful temple below.

2. Did you Previously File Form 4868? You probably used Form 4868 earlier this year to get your October extension. That one didn't need a reason. But for the December 15 extension, you'll have to explain why you need more time. And remember, the December extension is only for folks who got the October extension.

3. Write to the IRS For the December extension, you'll need to tell the IRS why you need more time.

Important: the IRS retains control over whether to grant this special two-month extra extension, so be sure to outline the reasons for the necessity of the additional two months. We're prepared a helpful extension template letter with 19 detailed reasons to choose from to make your request more powerful.

DOWNLOAD EXTENSION TEMPLATE LETTER

4. Send Your Letter Express mail your letter on or before October 15th (Oct. 16th in 2023) to the IRS address shown below. Keep a copy of your letter and the tracking number from FedEx/DHL.

Internal Revenue Submission Processing Center

3651 South Interregional Highway 35

Austin, TX 78741

USA. 1-800-829-1040

5. Wait The IRS will only respond to your request if it is denied, so keep an eye on your mail just in case.

6. Attached a Copy to Your Final Return The final step is attaching a copy of the extension request (and proof of mailing) to your final 1040 tax return.

To wrap it up, doing taxes as a U.S. expat can be a bit of a puzzle. But knowing about the special December 15 extension and how to ask for them can help you save big on late filing fees. Questions? Contact us below.

New Expat Tax Bill in Congress

Mon, 25 Sep 2023 22:10:22 GMT

New Bill Requires IRS to Give More Tax Breaks to US Taxpayers Living Abroad!

The Tax Simplification for Americans Abroad Act (H.R. 5432) is a new legislative proposal introduced by Reps. Don Beyer and Dina Titus. Here's a summary of the key points related to this bill:

Expansion of Foreign Earned Income Exclusion: The legislation aims to expand the Foreign Earned Income Exclusion to include additional types of income earned overseas, such as pensions and distributions from retirement funds. This would provide additional tax relief for Americans living abroad.

Short-Form Certification: The bill would require the IRS to create a simplified short-form certification for U.S. taxpayers living abroad who meet specific criteria. Taxpayers eligible for this form are those who owe no U.S. tax and earn less than $400,000 annually.

Consolidation of Forms: The bill seeks to consolidate and eliminate duplicative and burdensome forms that taxpayers are required to file under the Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act. This streamlining of forms would reduce administrative complexities for Americans living abroad.

Simplified Form Similar to 2017's Form 1040-EZ: The short-form certification that the IRS is required to create would be designed to be similar to the simplified Form 1040-EZ as it existed in 2017. This would make it easier for eligible taxpayers to fulfill their obligations.

Enhancing Accessibility: The bill's sponsors argue that this legislation would make it easier and more affordable for ordinary Americans living abroad to comply with U.S. tax requirements, reducing the need for expensive accountants to certify that they owe no U.S. taxes.

Overall, the Tax Simplification for Americans Abroad Act aims to simplify the tax filing process for U.S. citizens living overseas, reduce their tax burdens, and eliminate redundant paperwork associated with certain tax regulations. It seeks to address the unique challenges faced by Americans abroad in navigating the U.S. tax system.

“Ordinary Americans living abroad are often overlooked when U.S. tax policy is written, which can make it extremely difficult and expensive for them to navigate the tax system,” Beyer said in a statement.

The bill, Beyer said, “would help ordinary Americans fulfill their obligations without having to retain an expensive accountant to certify that they owe no U.S. taxes, and remove some of the frustrations faced by Americans living abroad who just want to follow the law.”

Sign-up for our tax newsletter below, and we'll keep you up-to-date as this bill progresses through Congress.

Case Study: Andrew Before and After His Tax-Reduction Plan

Sun, 24 Sep 2023 16:03:06 GMT

$100,000 of investable money every year—on the same base salary.

Meet Andrew. Two years ago when living in the U.S., Andrew was 'Income Rich but Cash Poor ' . High taxes and the high cost of living in the U.S. left him little for savings or investments back then. Andrew’s life changed when he called us for a personalized tax-reduction plan . He calls it his “Plan B,” and our 'go international' tax plan provides him with over $100,000 of extra investable money every year—on the same base salary:

“ It's not about what you make; it's about what you keep. ”

Using our tax-smart plan, Andrew keeps more of his hard-earned dollars:

• Federal Income Tax: $ 27,000 saved

• Self-employment Tax: $ 22,500 saved (optional)

• State Income Tax: $ 8,500 saved

• Local Income Tax: $ 5,300 saved 

• Cost of Living Savings: $ 47,000 saved

By following our international plan, Andrew's annual take-home pay increased by over $63,000 by working remotely from abroad. Andrew also reduced his annual cost of living by over $47,000. So all-in, he's boosted his personal economy by over $100,000 every year.

Think about that. What would you do with all that extra money?

There are also significant non -tax reasons to work and live abroad-- including enhancing your career skills (e.g., new languages), lowering your personal cost of living, finding great healthcare at an affordable cost (many of the recommend countries are centers for medical tourism with US trained doctors); or for other family reasons (e.g., more free time and a better quality of life). Therefore, a lower effective tax rate can be one of the many reasons for moving abroad.

In addition, Andrew can now afford to hire low cost local assistants, which frees him to focus on securing new income-generating clients, while also gaining more free time. Good for Andrew and good for his business.

What's your next move?

Income Rich/Savings Rich
Income Rich/Savings Poor

If you’d like to learn more about creating your own tax plan, contact us, and one of our tax strategists will be happy to help.

Note-1: your savings can be even higher when your spouse also qualifies for their own expat tax breaks.

Note-2: Your location choices abroad include nearby tax-advantaged tropical paradises located only a short plane ride from the USA.

Thailand to tax foreign-sourced income starting in 2024

Fri, 22 Sep 2023 17:49:25 GMT

Thailand moving towards taxing Worldwide income

Thailand's revenue authorities have recently introduced new guidelines with significant implications for US expats and digital nomads earning income from abroad. Under these guidelines, all income originating from foreign sources will now be subject to personal income tax in Thailand.

A high-ranking official from the Ministry of Finance has officially confirmed the accuracy of a document released by the revenue department over the weekend.

According to this document, individuals who receive income from foreign employment or business activities, or those who possess assets located abroad and subsequently bring these assets into Thailand, are now required to include these earnings and assets when computing their annual personal income tax obligations.

The implementation of this program is scheduled to commence on January 1, 2024, and it will exclusively affect individuals classified as tax residents in Thailand. It's essential to note that tourists and short-term workers in the country will be exempt from these tax changes.

Currently, there is some uncertainty regarding how these changes will impact foreign individuals residing in Thailand under a retirement visa. This is an evolving situation, and we anticipate further updates as more information becomes available.

Right Now is a Good Time to Fix 'Failure to Report' Problems (IRS requires disclosure of your Foreign Corporations and Assets)

Fri, 22 Sep 2023 15:59:31 GMT

U.S. Tax Court Ruled that the IRS Lacks Authority to Assess Penalties for Willful Failure to File Form 5471 - So it's a good time to catch-up on your missing foreign reports

Background:

In addition to filing your US 1040 Tax Return each year, you may—if you meet certain thresholds—also need to report your foreign financial activities (e.g., owning (and operating) foreign companies, foreign assets, or foreign financial accounts) to the IRS (or risk hefty penalties). This includes normal Americans living normal lives abroad who own and operate boring mom and pop businesses as corporations.

Introduction:

In a recent decision with strong implications and opportunities for U.S. expats and digital nomads, the U.S. Tax Court ruled in the case of Alon Farhy v. Commissioner that the IRS lacked statutory authority to assess penalties under section 6038(b). This section pertains to the willful failure to file Form 5471, an information return for U.S. persons with ownership and/or management interest in foreign corporations. Here's a breakdown of the case and its implications and opportunities.

The Case:

Alon Farhy, the taxpayer in question, owned 100% of a foreign corporation incorporated in Belize during his 2003 to 2010 tax years. He also held 100% ownership in another foreign corporation in Belize from at least 2005 through 2010.

Under section 6038(a), Farhy was legally required to file Form 5471 for each of these years. However, he willfully failed to do so, and his failure was not due to reasonable cause. Section 6038(b)(1) imposes a penalty of $10,000 for each annual accounting period during which a failure to provide required information persists. Section 6038(b)(2) adds a continuation penalty of $10,000 for each 30-day period (or part thereof) in which the failure persists after an initial 90-day notice period, up to a maximum of $50,000. Importantly, there is no specific statutory provision in the U.S. tax code authorizing the assessment of these penalties.

The Argument:

Farhy argued that section 6038(b) differs from numerous other penalty sections in the tax code in that it lacks a provision authorizing the assessment of penalties. Therefore, he contended that section 6038(b) penalties are not "assessable penalties," although they may still be collected through a civil action. The IRS, however, argued that the term "assessable penalties" encompasses all penalties in the tax code not subject to deficiency procedures.

The Tax Court Decision:

The U.S. Tax Court sided with Farhy's interpretation of the tax code. The court found that the IRS had assessed section 6038(b) penalties against Farhy without the statutory authority to do so. Consequently, the IRS could not proceed with collecting these penalties from Farhy via the proposed levy.

The court pointed out that Congress had explicitly granted the authority to assess penalties in various other sections of the tax code but had not done so for section 6038(b) penalties.

NEWS YOU CAN USE:

This means the IRS cannot just say you owe failure to report penalties and make you pay — just on their say-so. So if you've failed to report items like your ownership or management in foreign corporations, here’s your chance to fix it before the penalties return.

New Steps : Take advantage of the opportunity (as Congress will sooner or later put the costly penalties back in place and the IRS will spend new billions on new people armed with new weapons to collect taxes from you).

Ask yourself:

Did you have an ownership or management interest in an entity in a foreign country?
Did you get any money or other assets from a country outside the US?
Do you own any assets outside the US?

If you answered yes to any of these questions, you likely need to file additional ‘reporting’ forms with the IRS. NOW is the time to catch-up. To solve missing IRS disclosure report problems, contact us:

Why Moving to a No-Tax State, like Nevada, Florida, or Texas in Not Enough

Sat, 02 Sep 2023 11:18:59 GMT

You Can Achieve Far More Savings by Taking One More Step and ‘ Going International’

Moving to a state like Florida, Nevada, or Texas with no state income tax may seem a tempting prospect for residents in high-tax states such as New York, New Jersey, and California – and many do.

Unfortunately, the savings achieved by those moving to a state with no income tax averages less than $2,000 [Lending Tree].

While you could certainly see higher savings in some cases, you also could end up paying more in total taxes by moving to a state with no state income tax. Your objective is a lower ‘total’ tax burden, so consider all applicable taxes, including income, employment, and property taxes.

For example, Texas is “famous” for having no personal state income tax. In contrast, Colorado has a flat 4.63% individual state income tax rate. So, a person can reasonably deduce Texas is cheaper tax-wise to live in than Colorado. But not so fast!

The most crucial tax principle to realize is that each state must pay its bills one way or another. For example, while Texas has no state income tax, they “pay their bills” with some of the highest property tax rates in the country . Some areas in Texas charge as high as 4% of a home’s value every year.

Here’s an example from the Dallas Central Appraisal District's online property tax estimator showing the high property taxes in Texas:

Analyzing the ‘total’ tax burden in three locations

Consider the following client example: A Colorado-based solopreneur with the ability to ‘work from anywhere’ was deciding between moving to Texas or ‘going international.’

The following table analyzes the total taxes at each location—Colorado, Texas, and abroad. This includes federal income tax, state income tax, self-employment tax, and property tax. Then these separate taxes are combined to give the “total tax burden” for each of the three options.

Note: Annual earnings are the same in all three locations ($100K), and each area includes a home (valued at $500K). The ‘total’ tax burden comparison is shown below:

So, are you really saving by moving to a US state with no income tax?

Considering the total tax burdens above, you’d end up paying more in annual taxes by moving to Texas [a state with no state tax]. How much more? About $13,000 higher in Texas each year than in Colorado ($35,000 yearly in Colorado vs. $48,000 annually in Texas).

In Texas, this equates to nearly a 50% combined tax rate! Conversely, ‘go international,’ and you’ll crush your total tax bill to under $2,000! That’s almost $50,000 lower than Texas.

Which is a better ‘financial’ move?

Only one of the three locations above provides a take-home pay that closely matches income—and that’s living abroad. Income at $100K, and take-home pay coming in at $98K. That’s only a 2% tax burden abroad. Conversely, choose Texas, and your take-home pay would only be $51K — a nearly 50% tax burden! ($100K in income, $48K in taxes)—requiring you to work every January to June just to pay your taxes in Texas.

Thus, living and working remotely from abroad can be a financially freeing move.

The recent pandemic changed our perspective on life, leading many to rethink even their best-laid plans. As a direct result, people are moving or considering moving. So, why not move just a little farther to gain financial freedom? If you were to ‘go international’ for only a few years before returning to the US, your family savings account could grow by a quarter of a million dollars or more. That’s big stuff.

U.S. Supreme Court Takes On Major Case: Constitutionality of Taxing the Shareholders for the Foreign Corporation’s Income.

Wed, 30 Aug 2023 22:15:21 GMT

A significant legal showdown is on the horizon as the U.S. Supreme Court prepares to address whether Congress has the right to personally tax shareholders on the "undistributed" earnings of a foreign corporation. This pivotal tax case will determine whether such taxation measures comply with the Constitution.

The upcoming case before the U.S. Supreme Court, known as Moore v. United States, centers around the personal taxation of unrealized gains (profits) in a foreign company and has the potential to reshape the way wealth is taxed in the United States for both US expats and residents. The key issue in this case is whether a one-time repatriation tax, introduced through the 2017 Tax Cuts and Jobs Act (TCJA), is constitutional.

Here are the key points:

The Repatriation Tax : The one-time tax in question is imposed on U.S. taxpayers who have a specified level of ownership in certain foreign corporations. This tax was introduced as part of the TCJA.

The Argument : The plaintiffs in this case, Charles and Kathleen Moore, assert that the repatriation tax is unconstitutional. They argue that because they did not receive dividends or what is traditionally defined as "income" from their ownership stake in a foreign company, the tax on their unrealized gains violates the 16th Amendment to the U.S. Constitution. In essence, they contend that only income that has been realized (received) should be subject to taxation.

The Counter-Argument : On the other side, the Ninth Circuit Court of Appeals rejected the Moores' argument. They held that the realization of income is not a constitutional requirement for income tax. In other words, the government can tax gains even if they haven't been cashed in or "realized."

Upcoming Supreme Court Hearing : The U.S. Supreme Court is set to hear the Moores' case in its next term, beginning in October. This hearing will determine whether the repatriation tax, which taxes unrealized gains, complies with the U.S. Constitution.

In essence, this case revolves around the fundamental question of whether the government has the authority to tax gains that have not been actually received or realized as income. The outcome of this Supreme Court case could have significant implications for the way wealth and income are taxed in the United States, potentially setting new legal precedents.

Sign-up for our tax newsletter below, and we'll keep you up-to-date as this key tax case progresses.

Live Better [for less] Abroad

Thu, 02 Feb 2023 16:16:57 GMT

American Expats Can Live Large For About Half the Price Abroad (or less)

Americans, including many of our clients, are increasingly concerned about the affordability of American life. While incomes are up, so are taxes and living costs in America. With housing, college, and living costs constantly going up, how do you afford it all?

Unfortunately, rising costs also make it harder for Americans to save money. Taxes and the rising cost of living are the greatest threats to your financial security. Many Americans spend nearly every dime they earn on taxes and essential living expenses.

Cost of Living Savings Reaching $20-40K yearly.

There are more savings beyond taxes to be had, as American expats can substantially lower their everyday ‘cost of living.’ Your daily living expenses abroad can often be one-half or less of what you paid back in the US.

Depending on your current US location, you can reduce your annual cost of living by tens of thousands more each year by going international. Also, in many places abroad, the price of homes is substantially lower than in the USA.

The combination of higher ‘take-home pay’ (lower taxes) and a reduced cost of living is a powerful investment. This money-smart and lifestyle-enhancing strategy can create hundreds of thousands of additional dollars in only a few short years abroad.

Receive Lucrative Expat Tax-Breaks and Still Keep Your US Citizenship

Mon, 16 Jan 2023 23:06:52 GMT

There are many of the tax misconceptions that exist regarding expat life

There are many of the tax misconceptions that exist regarding expat life, but you really can pay little to no taxes and keep your US citizenship--while staying in good standing with the US Government.

US expats have enjoyed special tax treatment for more than 80-years now. The US government’s expat tax breaks are crucial in keeping Americans working abroad competitive with expat workers from other countries. Why? The US is the only major country in the world to tax its citizens and green card holders no matter how long they live and work outside the United States.

So, without the expat tax breaks in place, US expats working overseas would be at a substantial competitive disadvantage versus expats from other countries—as expats from other countries enjoy far more favorable tax-free laws.