A lot of people are talking about moving to Puerto Rico to avoid having to pay taxes to the IRS. But it’s not that simple. In this episode, we discuss the considerations that need to be thought through before making this decision.
A lot of people are talking about moving to Puerto Rico to avoid having to pay taxes to the IRS. But it’s not that simple. In this episode, we discuss the considerations that need to be thought through before making this decision.
this is Texas made simple. The only podcast that gives you the tax information you need without going too far into the weeds. I am chase Berkey, CEO and co-founder of dark CPAs. And you are curious about this whole idea of moving to Puerto Rico to avoid federal income tax. Notice how I did not use the word E-bay. It is illegal to evade taxes in the United States. As it is most countries. And this is precisely what the IRS believes is happening with those who have falsely claimed residency in Puerto Rico in order to not pay income taxes to the IRS. Puerto Rico, as many folks know is a tax Haven for those Americans willing to give up their right to vote and move to the island nation for more than half of the year. But unfortunately for those who have done this, they're about to find out that it's not that simple. You can't just park yourself there for 183 days. A year in call it good. There's more to it. And folks are about to find out the hard way that the IRS has launched a coordinated campaign with Puerto Rico to audit those us companies and individuals who relocated to Puerto Rico over the past decade. So if you're thinking about moving to Puerto Rico, it would be unwise in this regulatory environment to try to do just the bare minimum to qualify for residency. It's not simply a matter of paying back taxes. If the IRS audits you and assesses tax for previous years, there would be substantial penalties and interest on top of potential criminal charges. If the IRS believes that you are knowingly evading taxes. So a question we get a lot here at dark horse is how do I build a case for residency? Admittedly, this question arises due to the fact that the person usually doesn't want to live full-time in the tax Haven jurisdiction, whether that is another state or country. So they're usually trying to do the bare minimum to qualify and minimize disruption to their life in their preferred higher tax jurisdiction. Thus, my blanket advice to people is to live like you would live if you live there full time. Auditors will look at everything, literally everything to make the assertion that the competing tax jurisdiction is not truly your main residence. Does your family live in the United States while you're in Puerto Rico? Is your home bigger and better with your prize possessions in the U S are you registered to vote in the U S still does your bank and credit card statements show purchases during the time period that you claim to be in Puerto Rico? Does your electric bill suggest that the home in Puerto Rico was unoccupied for periods of time that you claim to be in Puerto Rico? These are just some of the questions that if you answered yes to, you're going to find yourself on the wrong end of an audit. You see, there's not a predefined set of criteria that you can check off and then be able to rest easy that you're in the clear. The determination is based on the facts and circumstances. And auditors will weigh the evidence as a whole with an implicit bend towards proving you wrong. Otherwise they wouldn't be spending their time auditing you. It's almost impossible to plan for an execute, everything you would need to in order to bolster your case, if it's not truly your residence. So if you're going to live there to take advantage of the tax breaks, really embrace living there for the years that you're trying to take advantage of the tax Haven. If you try to live the best of both worlds, you're likely going to find yourself in hot water. And no, I'm not referring to the warm ocean water in Puerto Rico. Let's say you do actually live in Puerto Rico. It's not like you just don't have to file a U S income tax return for the years that you live there. On the contrary, if you have us source income, you're still gonna owe taxes on it. Just like any other foreign national who earns money in or from the U S. Not filing a return when you have us sourced income is going to put you in hot water too. Even if the IRS agrees that you're a resident of Puerto Rico or any other country for that matter. So, um, a big part of the determination as to whether moving to Puerto Rico is going to save you a meaningful amount of taxes is to understand whether the income you're generating while living there can actually be sourced to Puerto Rico or whether by nature, it has a us source. A simple example would be owning a McDonald's franchise in Florida, even though you might manage it from afar, the income is earned in the good old us of a, and you cannot make a defensible argument. Otherwise. The central point I'm trying to drive home here is that you've got to understand how much of your income you can legally source to Puerto Rico or any other foreign country. For that matter in the inherent lifestyle sacrifices, you'd have to make, to uproot your life, to determine at the end of the day, if it's truly worth it. My suspicion is that a less rose colored analysis of this trade-off would lead to less people leaving the U S anyway, that's it for now? Thanks for tuning into TMS or taxes made simple. If you're not into the whole brevity thing, because there's TMI and then there's TMS. And if you like the show or you just like the sound of my voice, please give us a review on whatever podcast or know, listening to us though. See you next week.