Tax day
For US expats, there are many benefits for living abroad.
Last week was the dreaded tax day in the US. How many of you procrastinated until the last minute to finish your tax return? I suppose living outside of the US has given me somewhat of a disconnect when it comes to all things America. For all of you non-US readers, April 15th is the due date for filing your tax returns in the US. I had planned to discuss the different levels of asset protection planning, but considering last week was tax day, this seemed appropriate.
For US expats, there are many benefits for living abroad. While I could debate the complete idiocy of a country that taxes its citizens on worldwide income regardless of residency, it is what it is, so we must make the most of the situation. (As a side note, the US and North Korea are the only countries in the world that tax their citizens this way.)
For starters, we don’t need to file our tax returns until June 15th. We get an automatic extension. No need to request it, nothing extra to file. And being a natural born procrastinator, this is almost reason enough to move overseas. Of course the biggie is the $91,400 income exclusion. That’s right; your first $91,400 (for 2009) is tax free.
If you are a family of four running a small business, that is a significant tax savings. If you pay your spouse $91,400 and pay each kid $5700 (the max allowed for children for tax free income), your family can bring in $194,200 tax free! Not a bad deal.
If you are at a 30% tax bracket, this saves you over $60,000. From an asset protection standpoint, you can’t really argue the tax savings. Taxes are the number one destroyer of your wealth. Imagine if you could save $60,000 per year for the next five years and reinvest your savings at a rate of 10% compounded annually.
After five years, you have over $366,000. In ten years you would have over $956,000. Living in the US, you would have zero. Does that hit home for anyone? In addition, you can get a housing allowance of about $11,000 if you are an employee, or if self-employed, you can reduce your taxable income by the amount of your housing expense while living abroad.
Now imagine if you could invest that tax savings into an offshore investment vehicle that can compound growth tax deferred or even tax free and allow you to receive tax free income. With our assistance, this can be accomplished.
For many, moving abroad may seem like an extreme maneuver. The idea of leaving family, friends and the comfort of your existing surroundings for a new, unfamiliar place can seem daunting. But I can tell you from personal experience, it can also be quite rewarding for the entire family. And it is not nearly as difficult as you may think.
When you couple that with living in a low cost country, the financial benefits are tremendous. Just this week we took our daughter to the orthodontist for braces. Total bill, $1300. Just for amusement, we called the orthodontist where we would have taken her had we been in the US, total bill $5500.
Granted, money is not everything. We all want a great quality of life. But don’t be fooled into thinking the US is the only place in the world that offers a great lifestyle. Here in Estonia, there is everything I could want. We have grocery stores, malls, restaurants and bars all within a five minute walk. We can sit in the town square having coffee and surfing the internet on the free wifi connection that runs throughout the entire city.
The schools and universities are great as is the healthcare. In addition to my daughter’s braces, I had to see a chiropractor last year for some back pain. My visits cost less than $10. All is not perfect here though. With VAT, prices of items like clothes and electronics are very high. I can buy a computer in the US for about 1/2 – 2/3 the price here. But housing and food costs are much, much lower. Overall though, we are very happy living here.
I have personally been in dozens of other countries on four continents, and many of them offer great opportunities and an amazing quality of life. And many have a much lower cost of living to boot, including Estonia. Living overseas is part of my asset protection planning strategy, and can be yours as well. By having your business in one country, investments in another, citizenship in another, and residency in yet another, this creates a multi-flag strategy that gives you freedom and privacy you may have otherwise not known.
Our job is to provide you with practical knowledge to improve your quality of life while assisting with your asset protection needs. We can advise you on proper planning techniques, establishing business entities, offshore trusts, develop banking relationships, private placement life insurance, or even connect you with family office wealth management. We highly recommend you develop your own asset protection plan which implements your own multi-flag strategy.
So while you were slaving away trying to finish those last minute tax return details, I was procrastinating on mine while enjoying a $2 beer at the café in the square thinking about the $60,000 check I don’t have to write to the IRS. If you would like to schedule your free 30 minute consultation, please contact me today.
With all due respect, Canada also taxes on worldwide income, not just US and N. Korea.