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Tax Strategies For Retirement of U.S. Citizens

Why is PR taking a retirement option for U.S. citizens?

I think in 2012 PR created a law with the objective of encouraging investments to the island within that law they created a very particular taxation system to attract all kinds of us citizens and foreign citizens to PR. One of those incentives is the exemption of taxation for US citizens who move to PR and they stay in PR and become residents and this for people who retire there or for people who actually go and live there meaning that they open a business, they buy property and they rent it out, in addition to that they also retire the. The virtue of this is that if you move to PR and the source of your income is PR you will be exempt of taxes with the IRS. But many who work here in the US they receive retirement benefits from the Social Security, mostly they are not taxable if that are the only source of income for the person that retirement income is not taxable. Perhaps, a portion of 15% of the income will be taxable but is very rare because that require a lot of other income that goes with the retirement social security income. Now there are other cases where the retirees receive in addition to Social Security income, they receive pension meaning that teachers in the US they have a pension system when they retire, they receive a pension for the rest of their lives. If they move to PR it will not make any difference because their Social Security income is the US continent even though the sources of the income is in the USA. Is different por example if the retiree goes to PR and they receive income only from the Social Security and set up a business there and have PR clients, they will be free from taxes for that income from the IRS. That is the virtue of this law, I think that for the first 10 years they will exempt from taxes, income tax and capital gains will be only 2%, capital gains means that they own property in PR or shares, and they sell it and if there is any profit it will be taxable at 2% in the US is up to 20%. After 10 years it will be the same things as in the US like a bracket system but is lower than in the US, brackets in the U.S. are up to 35% depending of the level of the income but in PR is lower after 10 years. That’s the virtue of retirement if anyone wants to retire there. But this is not only for retirees this is for anyone who wants to go to PR to pay less taxes, but you always need to remember that this only applies to any income that is created in PR and it’s created when you work in the state and that income is exempt. Profits made in the continental remain taxable.

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Can you enjoy the tax benefits of PR while living in the U.S.?

No, you have to live in PR. The condition for the tax exemption from the IRS and the benefit in PR is that you live in PR and you have to prove the IRS in PR that you live there by the bank statements by showing you are spending money in PR, that you have kids registered in school in PR, your utility bills are in PR and are affiliated to an institution, that you have actual roots in PR.

If I sell a property abroad but the money enters my account in the U.S. what are the tax procedures that I must follow to dispose of my money without problems?

If you’re a US citizen and sell this property and you make money selling that property you have to pay capital gains, for capital gains depending on the income can go from 0 to 20% unless you have a large income and people may pay 10 or 12% you can dispose without any problem providing that you file a tax return and report the profit of the sale to the IRS once you do that you’re free to use your money as you please.

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What investment option offer the greatest tax benefits for retirees in the U.S.?

It will be to move to PR because if you invest in PR you will not be subject to the tax rates of the IRS instead you will be subject to the tax rates with the IRS in PR that is Departamento de Hacienda and those rates are lower than in the US. And if you live outside of the US obviously you would have to invest there if you have capital and move the money to PR and hire people and invest there you buy shares in the PR stock market or bonds from the PR debts which are riskier but the most important thing you have to consider whenever you are planning is that if you are a US citizen is that wherever you go except PR there is the obligation for paying taxes for the income created in the foreign jurisdiction because that is also reportable in the US and pay taxes in the US and the taxes you pay in the foreign jurisdiction you take it as a credit. So, the greatest tax benefits for retirees in the Us is to move to PR and retire there.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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