Blog Site: June 2015

Most people agree that two things are certain in life... death and taxes. If you live in the USA right now as a citizen or permanent resident, then you will have noticed that your tax liability has gradually been increasing on a yearly basis. We hear that some people live offshore and do not pay tax, or they are receiving income tax free e.g. municipal bond portfolios, or growing their investment portfolio in a tax deferred manner. However, if you are a resident in Charleston SC, Charlotte NC, Miami FL or Atlanta GA, then the chances that you still pay some tax are pretty high. So how do some people completely evade tax (notice that it's "evade", not "avoid", that is illegal!), and live 100% tax free?

Taxes are based on several items, namely your amount and type of income, but also your immigration status such as your citizenship, including your permanent residence. The laws and rules of becoming an offshore resident and living 100% tax free have historically been somewhat complicated for most people to comprehend, until now.

In 2012, Puerto Rico made this subject extremely clear to US Citizens and Residents who move to the sunny warm climes of the island. Both Act 20 and Act 22 provide significant tax benefits to new bona fide residents living on the island for at least 183 days per annum (by the way, you cannot benefit if you lived there in the previous 15 years!):

Act 20 offers:

4% corporate tax rate
100% tax-exempt dividends
60% exemption on municipal taxes
20-year decree guaranteeing these rates
No federal taxes on Puerto Rico source income

Act 22 offers:

0% tax on dividend and interest income for new Puerto Rico residents
0% tax on short-and-long term capital gains for new Puerto Rico residents
0% federal taxes on Puerto Rico source income
Incredible tax savings on your investment portfolio returns
82°F weather all-year round and 300 miles of paradise beaches

Source: Business Development Office of Puerto Rico
http://bdopr.com/prkeyessentials/incentives.html

Consider the longevity of your assets if they were taxed at the highest ordinary income tax bracket of 39.6% in the USA versus 0% in Puerto Rico? Or, even more so, consider the situation where you may have a large taxable capital gain coming up. By remaining in the USA, the long term capital gains rate is 15% - 20%, and even as high as 25% on investment real estate. A move to Puerto Rico would allow it to be 100% tax free, with both long and short term capital gains taxed at 0%.

Puerto Rico has had a rough financial climate in recent years, but things are gradually improving. The territory has made substantial efforts to attract wealth to the area, and this in turn has started to create great restaurants, high calibre schools and good healthcare. The beaches, fishing, warm weather and tropical relaxed nature of the island have been pretty consistent too...

If you are considering mitigating your tax situation, then take a close look at Puerto Rico, and other islands around the Caribbean. Weigh up your options carefully. If you want objective advice on the subject of tax mitigation and tax efficient investment portfolios based on your individual circumstances, get in touch with Hedges Wealth Management, based in Charleston, South Carolina.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.

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