RPF0636-The_Case_for_Moving_to_Puerto_Rico
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00:00:15.200 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:18.880 | skills, insight, and encouragement you need to live a rich and meaningful life now,
00:00:23.200 | while building a plan for financial freedom in 10 years or less. Today, I'm going to round out
00:00:27.440 | my three-part tax series here by presenting to you the case for moving to Puerto Rico,
00:00:34.400 | or as of course the Puerto Ricans would say, Puerto Rico, the case for moving to Puerto Rico.
00:00:40.160 | And I want to do two things in today's show. Number one, I'm going to expose many listeners
00:00:45.760 | to a brand new idea of something that you've never thought of. And this very well could be
00:00:50.000 | a magic key that will save you hundreds of thousands of perhaps millions of dollars of tax
00:00:56.320 | legally. And I am not kidding with that number. This is a powerful tool. But number two, I also
00:01:02.880 | hope to bring a little bit more clarity to those listeners who have heard of the idea of moving to
00:01:08.880 | Puerto Rico, but who have perhaps received some erroneous information. So let me start by
00:01:15.040 | explaining the problem. For US citizens or US persons, defined again as a US citizen or a green
00:01:23.520 | card holder, for US persons, the US tax net is inescapable. It's very frustrating because no
00:01:30.480 | matter where you go in the world, the US federal government and the IRS will follow you. They will
00:01:37.760 | follow you and they will tax you. And what's very difficult about this is as the world's police
00:01:44.240 | power, the US government has powers that simply do not exist. They're not held by other nations.
00:01:51.040 | For example, the country of Eritrea is the only other country in the world that I'm aware of that
00:01:55.760 | has what's called citizenship-based taxation, which means they tax all of their citizens no
00:02:00.480 | matter where in the world they live. They're doing it to pay for a civil war that they either had or
00:02:04.880 | having. And I think the tax rate that they impose on Eritrean citizens is about 2%.
00:02:08.880 | I don't know any Eritrean citizens, but I doubt that there is a single Eritrean citizen anywhere
00:02:17.120 | in the world that is not living in Eritrea that is particularly worried about the tax being imposed
00:02:23.280 | upon them by the nation of Eritrea. You could be an Eritrean citizen living in Canada or in the
00:02:30.400 | United States or Germany, living your life, and you could pretty much safely ignore the Eritrean
00:02:36.080 | government for your entire lifetime and never even care what they have to say because they are
00:02:42.160 | impotent. They are poor. The government doesn't have the money. And so there's no fear of the
00:02:47.360 | sanction unless you're actually going to go to Eritrea and in some way they're going to prove
00:02:51.120 | their case. But how do they prove what money you've made, et cetera? If you compare that
00:02:55.600 | with the problem faced by US citizens, you can see the stark contrast. Unlike the Eritrean
00:03:02.560 | government, the US government has the money to follow you all around the world. They have global
00:03:08.560 | police spy powers where they understand and try to find out basically where every person in the
00:03:13.440 | world is. The US government reads every email that's sent by anybody in the world and catalogs
00:03:18.400 | it. The US government monitors every phone call that they can keep their hands on. The US government
00:03:23.200 | employs these spy powers on a global basis, trying to basically track anyone anywhere in the world.
00:03:28.320 | And so if you're trying to hide from the US government, it's not particularly easy.
00:03:34.160 | Now, what's even worse is due to the massive power, economic power of the United States,
00:03:40.960 | as the US government has imposed more and more laws basically on the world, the whole world just
00:03:47.760 | steps up and, as the saying goes, step to fetch it. They just say, "Okay, yes, we'll do it."
00:03:53.360 | The most onerous of these are the Foreign Account Tax Compliance Act passed in about 2010 that
00:03:59.120 | requires any bank anywhere in the world that does business with US persons, people who have indicia
00:04:05.920 | of US personhood, US citizenship, etc., to report all of the account information for those persons
00:04:11.680 | to the US government. Now, if the Eritrean government tried to impose that on a Swiss
00:04:16.880 | bank, for example, or a Cayman Bank, if the Eritrean government passed a law, the Swiss
00:04:21.200 | bankers would just laugh. They would say, "You can't tell us what to do with Eritrean citizens."
00:04:26.720 | But the US government imposed such onerous sanctions on banking institutions that don't
00:04:32.560 | certify their compliance with FATCA that basically all of these giant institutions face the risk of,
00:04:39.200 | I think it's a 40% penalty tax or 30% to 50%, something in that range, of any assets that they
00:04:44.320 | have in the United States. So if you're a large German bank or you're a large Panamanian bank or
00:04:50.160 | you're a large Cayman Bank, etc., it's a massive risk to you not to certify your compliance with
00:04:56.480 | the Foreign Account Tax Compliance Act. So when this law was passed, it imposed literally tens of
00:05:03.040 | millions of dollars of costs on global banks to be able to certify their compliance. But because
00:05:09.680 | those global banks wanted to not face the penalties of business with the United States,
00:05:14.560 | of losing their assets in the United States, facing those harsh sanctions by the US government,
00:05:21.360 | because those banks didn't want to face that, they put themselves in a situation where they said,
00:05:25.440 | "Okay, we'll do it. We'll pay the tens of millions of dollars to bring ourselves into
00:05:28.640 | compliance with FATCA." Now, not all did. The solution that many banks chose was to not do
00:05:35.600 | business with US persons. And so, for example, if you have a passport that lists on it the fact that
00:05:40.720 | you were born in the United States, in a city in the United States, and if you have an offshore
00:05:45.280 | bank account, and if your bank chose to just simply say, "We're going to not do business with
00:05:48.400 | US persons," then you probably got a letter from the bank saying, "Thanks for the business, but
00:05:53.280 | we're terminating your account." And this happened to many US citizens living all around the world,
00:05:58.560 | even citizens who hadn't been back in the United States in decades. Maybe somebody was living in
00:06:03.120 | Switzerland. Well, for a Swiss citizen living in Switzerland, a Swiss bank account is just as
00:06:10.320 | normal as it is for a US citizen to have a Bank of America account. It's not a fancy, somehow
00:06:16.720 | super sexy, secret offshore bank account. It's just the bank, the bank account they do business
00:06:21.360 | with. And so, this affected many US citizens living in Switzerland, banking at a Swiss bank,
00:06:28.960 | because now the Swiss bank dropped all US citizens because that person had retained their
00:06:32.160 | citizenship. Now, there was a modest tick up of US citizens renouncing their citizenship, etc.
00:06:38.400 | And I think that trend will probably continue, especially as FATCA has been more and more
00:06:43.760 | integrated. And now, of course, many of the European countries are coming together.
00:06:47.360 | And after seeing the US impose their spy empire on the world, and after seeing the whole world
00:06:52.480 | step up and say, "Yes, master," to the US government, then they put themselves in a
00:06:57.920 | position where they could, where everyone says, "Yeah, we'll just do the same thing." So, you
00:07:02.000 | have the CRS standards coming out through Europe, etc., everyone following suit.
00:07:05.200 | So, the point of that discussion is just simply to say that unlike the fairly empty threats that
00:07:11.120 | the Eritrean government might make against its citizens, the threats that the US government
00:07:16.320 | makes against its citizens are not empty. They're backed up with massive military
00:07:21.200 | power spread across the globe. They're backed up with massive informational powers, etc.
00:07:26.240 | Now, could you evade that tax net? Could you as a US citizen leave the United States
00:07:31.520 | and live your entire life without ever actually facing any of the legal risks without the US
00:07:39.440 | president ordering a predator drone to drop a missile on your head? Yeah, you probably could.
00:07:44.320 | I don't know what the percentages are, but most taxing authorities gain most of their power
00:07:50.400 | through their bluster. That's why at this time of year, I haven't looked for them, but you will see
00:07:55.520 | at this time in March and April, every single year, that is when the IRS will start releasing
00:08:00.240 | their press releases of the high-profile tax evaders that they are prosecuting.
00:08:05.040 | Most of the enforcement doesn't happen through actual enforcement. It happens through intimidation,
00:08:09.920 | through threats that keeps people saying, "You know what? I'm not going to tangle with the US
00:08:13.040 | government." And it works. Even if I were not guided by a desire to decide based upon what's
00:08:20.400 | ethically and morally right or wrong, I am swayed by the power and the bluster and the threats of
00:08:27.280 | the US government. I don't particularly want to spend time in prison. Ever since the US government
00:08:32.880 | changed tax evasion to become a felony offense, which in and of itself was a scandal that nobody
00:08:37.120 | paid attention to, I don't have any desire to spend time in prison and I don't want a predator
00:08:41.040 | drone dropping a missile on my house. So not that that's ever happened yet that we know of,
00:08:47.840 | of course, you know how these things go. Point is, I am intimidated by that. And so this is the
00:08:55.040 | problem I think that many US citizens face. Well, I don't really love doing business in the United
00:09:00.560 | States. I don't love this heavy-handed regulatory environment. I don't love these heavy taxes.
00:09:06.640 | I look forward at the future and I don't like the direction that the taxation can go.
00:09:10.880 | I don't like where the fiscal situation is. So how do I escape? Well, for everybody else in the
00:09:16.560 | world except Eritrean and US citizens, you can leave. Even the USSR used to tax people on their
00:09:22.880 | citizenship, but Russia doesn't anymore. If you don't like Russian taxation, you can just leave
00:09:26.480 | Russia. You know, the other nations, every other nation except the United States has scrapped
00:09:31.040 | citizenship-based taxation, the ones that used to have it, but the United States has not, and
00:09:37.440 | as best I can guess, will not, because the US uniquely has this giant police state that can
00:09:44.640 | follow US citizens around the world. So that was what I laid out in yesterday's show. And forgive
00:09:49.760 | me if I get too political. I was really, I realized after I recorded the previous show that I got too,
00:09:56.720 | I didn't stay as close to the facts as I could. And I thought about re-recording it, but
00:10:02.960 | if you have to listen past that stuff to get to the meat of it, fine. It just, I find it
00:10:06.480 | frustrating. I find it wrong. And I guess it's hard for me to filter that as you can tell,
00:10:10.240 | I can't talk on a microphone for hours and filter all that stuff out. So now the problem is what do
00:10:15.520 | US citizens do? Well, US citizens can, of course, renounce their citizenship and go elsewhere.
00:10:21.920 | So you can always just simply, you can qualify for the foreign income exclusions I mentioned
00:10:27.360 | yesterday. But if you really want out of the system, you can formally renounce the system,
00:10:31.760 | the citizenship. It'll cost you several thousand dollars at least to renounce.
00:10:35.520 | If you have more than $2 million of net worth, you'll pay significant exit taxes,
00:10:40.160 | but you can in time renounce. In order to successfully renounce, you have to have your,
00:10:44.880 | you have to certify your tax compliance, have all your paperwork in order, etc.
00:10:48.400 | But you can renounce. But that's really, really hard for US citizens, because most Americans
00:10:54.720 | appreciate at least to some degree, the country of their birth. Most Americans, no matter how long
00:11:01.120 | the list of complaints, at least if when push comes to shove, actually do appreciate a lot of
00:11:06.320 | things about the United States of America. I'm a pretty decent example of this. I have a long
00:11:12.800 | litany of complaints. I have a long list of frustrations, as I'm sure every person in every
00:11:17.040 | country in the world does. But when you consider the world and you look out around the world and
00:11:21.680 | you say, well, where is it better? It's hard to find any one particular place where it's better.
00:11:28.400 | If I could identify one country where I said, in every measure, this country is better,
00:11:34.160 | as I subjectively define better, better than the United States, I would go there. I really would.
00:11:40.480 | The problem is, where's that country? What country is it? I can on any individual factor,
00:11:49.440 | I can find other countries that will be superior on that one individual factor.
00:11:54.800 | But when you put together the comprehensive list of factors, it's very hard to find a country that
00:12:00.880 | many Americans would say is better for all of the problems in the United States. Even if you just go
00:12:06.720 | through the list of the big Western countries, especially the big English-speaking countries
00:12:11.200 | that most Americans are familiar with. Canada? You're going to go to Canada? I mean,
00:12:16.160 | the Canadian government has increasingly little respect for the freedom of speech.
00:12:21.360 | Just think, the court case last month in British Columbia, where the court has ordered a 14-year-old
00:12:27.680 | girl to receive testosterone injections to treat her gender dysphoria without parental consent.
00:12:34.480 | And the court has mandated that if the father of that girl who rejects that particular treatment
00:12:40.800 | as being right for his daughter, if the father of that girl refers to his daughter directly
00:12:47.520 | as a female, or if the father of that daughter refers to his daughter as a biological female,
00:12:55.040 | as a female, to anybody, even in casual conversation, that father can be held in
00:12:59.040 | contempt of court. That's one of the most appalling things I can think of.
00:13:06.000 | There's not a chance in the world I want to go to Canada if that's the direction that the Canadian
00:13:09.760 | legal system is going. You brought in all the other issues, euthanasia, et cetera, it just goes on.
00:13:13.360 | Britain, United Kingdom, I like the UK, but the UK has become a farce. The surveillance state in
00:13:20.960 | London, not only do they ban guns, they ban knives, they ban screwdrivers now. Freedom of speech,
00:13:27.280 | gone. It's laughable to think that there's any freedom in Britain. The government can't even
00:13:32.880 | extricate itself from the European Union after the first vote, basically, that the UK citizenry ever
00:13:40.640 | had on their membership in the European Union, and even still that vote can't be followed.
00:13:46.640 | Australia, Australia is a neat place, but they recently passed laws banning encryption. I think
00:13:52.560 | that's basically a kind of a flag in the same way that the five nations work together to see where
00:14:00.400 | can this work. Australia's banned encryption. Not a chance in the world I would want to put in my
00:14:05.920 | lot with a government that thinks that they're going to ban encryption. New Zealand, after the
00:14:10.560 | recent killing in New Zealand, the New Zealand government is arresting people who are committing
00:14:16.000 | the crime, the newly established crime of possessing the shooter's manifesto, which
00:14:20.800 | ironically proves the killer's argument written in that manifesto. Outside of the English-speaking
00:14:26.400 | world, where are you going to go? Germany, economic powerhouse of Europe, no homeschooling.
00:14:31.520 | Brazil, economic powerhouse of South America, no privacy. So you can go to almost any country
00:14:40.080 | on any individual issue, you can say, "Here's where this country shines," but on the whole,
00:14:45.840 | it's hard to do that. So I think there's a very strong argument to be made in terms of the PT
00:14:52.400 | theory, the PT philosophy as being the best solution for freedom. But it's very hard for
00:14:57.680 | US Americans to come to the point where they're ready to actually renounce US citizenship.
00:15:02.480 | Now, there are a lot of misconceptions about that. Just because you renounce citizenship
00:15:06.080 | doesn't mean you can't come back to the United States. You can come back and you can visit.
00:15:09.680 | You just can't live there. But most of us appreciate a lot of things about the US government.
00:15:15.200 | And I think even those of us like me who find a lot to be pessimistic about, I also sometimes
00:15:22.240 | have glimmers of hope. And I think, well, maybe this could change. Maybe federalism could work.
00:15:26.720 | Maybe the 10th Amendment could be a successful solution. Maybe although the public show is
00:15:32.960 | absurd, maybe at the core, there are changes happening that are good. And so you kind of
00:15:38.080 | don't want to just turn it off. And then ultimately, there are enough basic things
00:15:42.880 | that you can do in the US that for all of my complaints about the high taxes, as long as you
00:15:49.680 | are not earning a high income in the United States, you can structure your affairs to pay a modest
00:15:56.800 | tax rate. It's not 10%, a flat 10%, which I would love, but it can be modest. As long as you're not
00:16:04.720 | an income earner, you can structure things decently enough, even if you have millions of dollars of
00:16:10.320 | income. But the problem is, what does a big earner do to save taxes, who is not willing to renounce
00:16:17.840 | citizenship and who is determined to stay legal? What can that person do? And that's where the
00:16:25.280 | foreign earned income exclusion falls short. If you have a hundred, a couple hundred thousand
00:16:29.920 | dollars of income, the foreign earned income exclusion is a powerful tool. The ability to
00:16:34.880 | defer $105,000 for an individual, $210,000-ish for a couple, if they're both working in a business,
00:16:41.920 | that's really powerful. To set it up in a foreign corporation, thus eliminating your employment
00:16:47.360 | taxes, that's really powerful. That's a savings of, let's call it 30 grand on each $100,000. So
00:16:52.640 | that couple can potentially save $60,000. The problem with the foreign earned income exclusion
00:16:58.400 | is, what if you make more? Because the way that exclusion works is, it will exclude your first
00:17:05.600 | $100,000 of income from taxation. But the next $100,000 faces the taxes exactly the same as if
00:17:16.880 | you were in the United States. And the next $100,000 does not start off at the zero tax bracket.
00:17:22.720 | It starts off at the $100,000 tax bracket. So you basically automatically go into a much higher
00:17:28.800 | bracket and it just goes up from there. So where does a million dollar income earner go
00:17:34.240 | in order to shelter that money if they're not willing to renounce citizenship?
00:17:40.560 | About the only solution is Puerto Rico. Let me explain why. Puerto Rico lives in an interesting
00:17:52.240 | status, kind of a weird in-between status. Puerto Rico is not a state of the United States. It's not
00:18:00.800 | the 51st state, although there is a very active political movement in Puerto Rico advocating for
00:18:06.320 | their inclusion as the 51st state. Neither is Puerto Rico an independent country, although
00:18:14.240 | there is a modest political movement in Puerto Rico that would advocate for Puerto Rico to
00:18:18.720 | assert its independence from the United States. And this has been a contentious issue in Puerto
00:18:24.320 | Rico for at least a century, where a very... I think there've been four plebiscites,
00:18:28.480 | people saying, letting the people vote, what do you want? Do you want to be a state? Do you want
00:18:32.960 | to be in a country? What do you want? And it goes back and forth. But Puerto Rico continues as a
00:18:38.240 | commonwealth of the United States. And this commonwealth designation is unique because
00:18:44.080 | the residents of Puerto Rico are, by law, US citizens. Everybody who is born in Puerto Rico
00:18:50.880 | is a US citizen. They travel on US passports. They are US citizens by birth. But as a resident
00:19:00.720 | of Puerto Rico, they are subject to Puerto Rican tax laws, not to US federal tax laws,
00:19:10.080 | as long as they're not doing business in the US and engaging activities that bring them subject
00:19:14.320 | to US tax laws. And this is really interesting, especially in light of some of the recent
00:19:21.040 | movements in Puerto Rico. Now, in general, Puerto Rico has very high taxes. And in general,
00:19:26.640 | historically, there's been zero reason why anybody would want to go from the United States to
00:19:32.000 | Puerto Rico with a goal of saving on taxes. But a number of years ago, Puerto Rico passed a couple
00:19:37.680 | of interesting new laws. There are a series of them, but the most well-known and most important
00:19:41.680 | for our discussions are referred to as Act 20 and Act 22. I am not going to go into the details
00:19:49.920 | of Act 20 and Act 22, nor am I going to go through all of the specifics of how to qualify and things
00:19:57.920 | like that, because it's just not well-suited to an audio delivery and because there's a decent
00:20:02.400 | chance it will change. The requirements have changed. I'm going to lay this out for you in
00:20:06.000 | very big picture so that you're aware of the opportunity, so that you can research it to see
00:20:10.560 | where it can work for you. And I'm also going to show you who it doesn't work for. But a number
00:20:15.280 | of years ago, when Puerto Rico established these new laws, they created Act 20 and Act 22.
00:20:21.280 | And basically what Puerto Rico said is, if you will come to Puerto Rico and start a new business
00:20:27.840 | that qualifies under what is called Act 20, Puerto Rico will allow you in your Puerto Rican company
00:20:37.520 | to pay a tax rate of a maximum of 4% on your corporate profits. Again, if you will start a
00:20:46.640 | business that is eligible for certification as an Act 20 business, and there are a variety of
00:20:53.040 | types of businesses that are eligible, many things can fit, but not all businesses. But if you will
00:20:58.000 | go to Puerto Rico, start a company in Puerto Rico that is eligible for Act 20, Puerto Rico will
00:21:02.960 | charge you a maximum corporate tax rate of 4%. If you contrast that with the 21% corporate tax rate
00:21:11.760 | in the United States, and that of course was recently lowered by the Tax Cut and Jobs Act,
00:21:15.920 | you can see the opportunity for substantial savings. And the neat thing is,
00:21:21.040 | Puerto Rico is very open to US citizens. In addition, there's a second part of it, Act 22,
00:21:26.640 | where for eligible individuals who are new residents of Puerto Rico, if you will physically
00:21:32.160 | move to Puerto Rico, buy a home in Puerto Rico and live there, maintaining your tax residency
00:21:38.960 | in Puerto Rico, which means that you have to physically be present in the island for at least
00:21:44.400 | 183 days per 365-day calendar year. If you will do that, then you can qualify for a 0%
00:21:54.320 | capital gains tax rate on your profits and your gains that are sourced from Puerto Rico.
00:22:02.480 | The opportunity here is, if you put these two things together,
00:22:08.320 | you have an incredible money savings opportunity. Let's say that you move to Puerto Rico and you
00:22:17.760 | start a Puerto Rican company that is eligible for Act 20 status, certified by the government,
00:22:24.160 | you get the contract from the government saying this is an Act 20 company, and you live in Puerto
00:22:28.560 | Rico. That company could have a million dollars of profit, and you would pay only 4% of that
00:22:36.720 | profit. You would pay 0% personally when you take that income. This is a tremendous opportunity.
00:22:46.400 | There are actually some really interesting ways that the Act 22 contract can work,
00:22:54.240 | especially for people like investors. The key is, it has to be capital gains that are sourced
00:23:00.240 | during your time in Puerto Rico. The key is, it has to be capital gains that are sourced
00:23:04.800 | during your time in Puerto Rico. For example, there are a number of interesting laws, but you
00:23:08.800 | cannot be a Florida resident and have a $100,000 basis in an investment that has grown to be $1
00:23:17.280 | million and then move to Puerto Rico, live there for two days, and then sell the investment,
00:23:23.600 | take that million dollars tax-free because you were an Act 22 qualified investor. You can't do
00:23:29.200 | that. The clock starts ticking when you move to Puerto Rico. Now, there is an interesting thing
00:23:33.520 | for long-term residency, where even if you did move to Puerto Rico and you stayed there as an
00:23:37.440 | Act 22 resident for a very long time, it's possible you can save some taxes on your prior capital
00:23:44.080 | gains. But the biggest opportunity is if you move to Puerto Rico and then create capital gains there.
00:23:49.360 | So the best example of this, what's happening in Puerto Rico right now, is many members of the
00:23:54.320 | cryptocurrency investor and speculation community are moving to Puerto Rico. The idea is, if you
00:24:00.480 | are investing in Bitcoin, and it's your opinion that Bitcoin is going to go to $1 million per
00:24:05.280 | Bitcoin, and it's going to happen in the next few years, but today it's... I can't remember what it
00:24:09.920 | is today. It's $20,000 per Bitcoin. I can't remember the number right now. If you were
00:24:17.200 | going to go from $20,000 to $1 million, and you've got thousands of Bitcoins, you can see how valuable
00:24:24.720 | it would be if you were a Puerto Rican resident and all of that capital gain were excluded from
00:24:30.240 | taxation as a Puerto Rican resident. So for those people who are very bullish on cryptocurrency
00:24:35.520 | and who are US citizens, it's hard to find a better case for you than moving to Puerto Rico
00:24:43.440 | in terms of sheltering your capital gains. Now, of course, as a US citizen, you're limited on some of
00:24:47.680 | the ICOs that you can participate in. So you might still want to choose or consider expatriating,
00:24:52.400 | renouncing US citizenship and moving abroad so that you can invest in some ICOs that are
00:24:56.160 | restricted for US citizens. But if you expect to have a lot of capital gains income, Puerto Rico
00:25:02.960 | is a really, really compelling solution for you. Likewise, if you're going to start a business,
00:25:08.080 | Puerto Rico is a really, really compelling solution for you, especially those of you who
00:25:14.080 | are related to finance. One of the big things that's happening in Puerto Rico is there's a
00:25:17.840 | couple other act, I can't remember if it's Act 273 or something like that, where you can charter a
00:25:22.880 | bank in Puerto Rico. And there's some interesting ways that you can use some of these company
00:25:26.400 | charters being in Puerto Rico and qualify for an Act 20 business. Now, when this act was first
00:25:32.080 | established, in order to qualify for an Act 20 business, you had to hire a minimum of five
00:25:36.080 | employees there in Puerto Rico, because the whole goal of these tax incentives is that you are
00:25:42.400 | creating jobs and bringing wealth and knowledge and training to Puerto Rico. So you had to create
00:25:48.560 | five jobs there in Puerto Rico in order for your company to be certified as an Act 20 company.
00:25:53.520 | That has since been removed. I believe today it's one job, if you just have one, if you create one
00:25:57.840 | job, and that can be yourself. So you could move to Puerto Rico and live in Puerto Rico, start a
00:26:03.760 | Puerto Rican company and qualify as an Act 20, even if it's just you. So for example, let's say
00:26:09.440 | that I were going to start something like a financial planning firm. I would be very seriously
00:26:15.200 | pursuing Puerto Rico, especially if I were going to do virtual financial planning, as is an
00:26:20.000 | increasingly popular model today. I would very seriously consider moving to Puerto Rico,
00:26:26.080 | building my financial planning firm or my insurance agency or my family office or whatever I
00:26:30.480 | were building in Puerto Rico. If I'm going to work with US citizens, I'm going to keep my US
00:26:36.240 | citizenship. I just want to work from Puerto Rico and I can work with clients all around the
00:26:39.600 | country if I set things up properly and save a huge amount of taxes because I have a maximum
00:26:44.080 | of 4% corporate tax rate. That's the deal. And it's a tremendous deal if it works.
00:26:50.400 | Now, there are a lot of wrinkles to this, but I want to get straight to the heart of the matter
00:26:56.160 | and say, who does this not work for? Well, it's not the first obvious answer to who does it not
00:27:03.520 | work for. It doesn't work for people who've been living in Puerto Rico, who are from Puerto Rico.
00:27:07.040 | One of the things that I don't like about the law that I think is unjust is you have to be a new
00:27:12.480 | resident of Puerto Rico in order to qualify for these incentives. So if you were born and raised
00:27:18.080 | in Puerto Rico, you can't qualify for the Act 22. I think you can qualify for the Act 20 if you start
00:27:23.760 | an Act 20 business, but you can't qualify for Act 22. I don't like that. I don't like any kind of
00:27:29.040 | special treatment of laws. If you're going to have a law, just treat everybody the same in all
00:27:34.560 | circumstances. Don't carve out special loopholes for this person or that person or the other.
00:27:39.440 | I understand why they do it, though. I don't like it, though. I think it's unjust. And if the whole
00:27:45.040 | thing falls apart, I think that particular issue might be one of the things that winds up causing
00:27:52.320 | problems. Because imagine if you're from Puerto Rico, you're a Puerto Rican citizen, and you are
00:27:56.400 | a voter in the politics of Puerto Rico, and all you know about the system is, well, all the other
00:28:02.880 | Americans can move to Puerto Rico and they can qualify for this program, but I can't because
00:28:06.240 | I'm from Puerto Rico. It doesn't seem right to me. But let's talk to what's more relevant for
00:28:11.520 | our discussion. Who is this helpful for? Well, here are some things that astute listeners would
00:28:15.840 | have picked up on, but I want to make very clear to you. Notice I specified corporate tax rates.
00:28:22.880 | I didn't specify income, personal income. And the issue here is if you are an income earner,
00:28:30.800 | Puerto Rican income taxes are very, very heavy. There is a progressive tax bracket that kicks in
00:28:39.120 | at a very low dollar figure in Puerto Rico. And so what happens is you have to earn income in
00:28:45.680 | Puerto Rico and you have to pay Puerto Rican income taxes. Now, you don't have to pay US
00:28:51.600 | federal income taxes if you live in Puerto Rico, but you have to pay Puerto Rican income taxes.
00:28:58.960 | That Puerto Rican tax bracket goes up quickly. I think it's anything above about $62,000 is taxed
00:29:05.360 | at 33%. And so that tax bracket rises very quickly. And so the tax burden can be significant
00:29:12.640 | for Puerto Rican income taxes. In addition, you face the problem that as a Puerto Rican,
00:29:18.640 | you are still required to participate in the employment tax scheme. So if you live in Puerto
00:29:24.400 | Rico and you work, you're still going to, and you own your own company, you're still going to be
00:29:28.720 | paying out the full 15.3% of your wages, 7.65% employee contribution, 7.65% employer contribution
00:29:37.280 | to the Social Security Administration and Medicare and Medicaid because you still
00:29:41.920 | are subject to the employment tax scheme. That's a problem. Now, you can again make that argument
00:29:47.280 | that those taxes are less burdensome because in theory, you might get some benefit from
00:29:51.680 | someday from those social programs, whereas it's harder to see the direct benefit from the income
00:29:57.360 | taxes, but it's still a significant cost. So if you're earning $100,000 per year and you follow
00:30:03.200 | the outline of leaving the United States, which means including leaving Puerto Rico, qualifying
00:30:07.840 | for the foreign earned income exclusion, setting up your business through an offshore corporation,
00:30:12.560 | then you can legally eliminate all taxation, both income taxation and employment taxation
00:30:19.440 | on that first $100,000 of income. For you, $100,000 for your spouse, which is really
00:30:25.120 | significant. But if you go to Puerto Rico, you don't eliminate that. You're going to be paying
00:30:29.440 | Puerto Rican income taxes on that income, and you're going to be paying employment taxes on
00:30:34.960 | that income. And here's where we get into the question of scale. In order for Puerto Rico to
00:30:40.560 | be effective for you, you need to be in a situation where you're going to be making a lot of money
00:30:45.440 | and/or you need to be in a situation where you're going to be making a lot of capital gains.
00:30:49.440 | Now, the corporate tax rates will work very well for you. The Act 20 status will work very well
00:30:54.640 | for you if you're going to create a very profitable business. Let me just simplistically say a million
00:30:59.920 | dollars. If you're going to earn a million dollars from your business, then Puerto Rico could work
00:31:05.440 | very, very well because the heavy 15.3% on employment taxes maxes out on the wage base of
00:31:11.120 | about $118,000. And the Puerto Rican taxes max out on the wage base of about $250,000. But the $750,000
00:31:18.960 | from $250,000 to a million could be taxed at only 4%. That's really, really compelling. Because if
00:31:25.840 | you were abroad, a US citizen living abroad, you would be taxed a massive rate of tax on that
00:31:32.320 | anything from $100,000 to a million. If you were living in the United States, you would be taxed
00:31:36.480 | on a massive amount on zero to a million. So Puerto Rico can save you a huge amount of money if
00:31:41.920 | you're a high income earner and a very, very profitable corporation. But it's less workable
00:31:48.880 | if you earn a lower amount of money. So in short, there is a crossover point, but it's hard to
00:31:55.040 | define exactly where that crossover point is verbally. But basically think about it this way.
00:32:00.400 | If you're earning only a little bit of money, and I don't know exactly what that number is,
00:32:05.200 | because it would depend on are you single, married, filing jointly, etc. What deductions
00:32:10.640 | do you have? But let's just say you're earning less than $50,000 per year. You could save some
00:32:15.680 | money by going abroad. And possibly, you could possibly save some money by going abroad. You
00:32:21.840 | could at least save some money on your taxes by going abroad. But you might or might not save
00:32:26.080 | money on your living expenses. Life in the United States and access to economic opportunity in the
00:32:30.880 | United States is very, very high. And so I would be very slow to counsel somebody making
00:32:34.880 | $50,000 to move outside of the United States. At least I would be slow to do that unless they were
00:32:41.200 | on track to go from 50 to 500 in fairly short order. If you're making 100, 150, $200,000,
00:32:49.600 | maybe 250, 300 in this range of income, this 100 to a couple hundred thousand dollars of income,
00:32:55.520 | your most efficient tax moves would be to fully go offshore, to go physically outside of the
00:33:02.000 | United States, qualify for the foreign earned income exclusion. But if you're making significantly
00:33:07.520 | more than that, let's say 300, 400, 500,000, if you're going up to a situation where you're making
00:33:15.040 | a million, a couple million dollars per year, and if you aren't willing to renounce citizenship,
00:33:20.400 | Puerto Rico is very much worth your time. So if you have the kind of business that you can move
00:33:27.440 | it and yourself to Puerto Rico, you should seriously investigate Act 20. Your taxes will
00:33:33.760 | not be zero. You will be paying significant income taxes on your income that you're earning
00:33:40.880 | from the business, and you'll be paying employment taxes. But for a million dollar earner, employment
00:33:45.520 | taxes are the least important tax to worry about. It's the income taxes that kill you if you're
00:33:51.040 | earning a million bucks. For a hundred thousand dollar earner, the income taxes are the lesser
00:33:57.200 | important taxes to worry about. It's the employment taxes that kill you on $100,000.
00:34:01.040 | And so it's all about a matter of scale of where are you and what works. The other person for whom
00:34:07.840 | Puerto Rico is a perfect fit is somebody who can physically relocate to Puerto Rico,
00:34:13.120 | qualify under Act 22, and can create massive capital gains and wants those capital gains to
00:34:20.000 | be tax free. Now, before you get excited, be clear, it has to be in Puerto Rico. So this doesn't work
00:34:26.560 | for a real estate investor, at least a real estate investor who's not working in Puerto Rico.
00:34:30.720 | This doesn't work for somebody who has businesses outside of Puerto Rico. This only works if you can
00:34:37.360 | reposition and move yourself to Puerto Rico. But if you're trading stocks, if you are an investor
00:34:42.720 | in stocks, and that's a primary solution for you, if you are doing cryptocurrencies, if you're doing
00:34:48.880 | some kind of thing where you're generating capital gains, that Act 22, zero percent capital gains
00:34:54.240 | rate on capital gains is very, very attractive. And you should seriously, seriously consider it.
00:35:02.640 | But remember, those people who can do that are those who are already going to have a significant
00:35:06.960 | portfolio. If you're starting with $100 in your investment portfolio, you're not going to generate
00:35:12.240 | enough capital gains to matter. But if you've got several million dollars already in your investment
00:35:16.880 | portfolio, then you can generate enough capital gains that you can get some really significant
00:35:22.560 | solutions. Now remember, you should always counterbalance Puerto Rico with just full
00:35:28.480 | renunciation of citizenship because there are many jurisdictions in the world that you can live in
00:35:31.600 | that don't tax capital gains at all. So you can go to those jurisdictions live there and pay a zero
00:35:37.280 | percent on an unlimited amount of capital gains and not deal with the US government, not deal with
00:35:42.080 | the Puerto Rican government. But this is really, really powerful. And so I want you to just imagine
00:35:48.000 | some solutions where how this could work. If you're starting a business, imagine that you're
00:35:52.560 | starting a business. Let's use someone like me. Okay, I'm a financial guy. I have there are many
00:35:57.440 | businesses that I could start and use this podcast as a really good marketing platform. I could build
00:36:02.640 | an investment firm, I could establish another insurance agency, I could sell insurance policies.
00:36:07.760 | I would make a fortune if I took one of those actions. So someone like me, let's say that I,
00:36:14.720 | and I may do this someday, I'm just, I'll give you all my ideas, you feel free to do it, I may do it
00:36:18.400 | someday, you never know. At the moment, I don't want to do it. I'd rather keep things simpler,
00:36:23.680 | but you never know. Maybe I will decide to do it. So I could move to Puerto Rico, I would start a
00:36:29.280 | financial advisory firm, I would start an insurance agency, and I would probably start,
00:36:33.680 | depending on how I structured it, I would start something like a small family office,
00:36:39.680 | a small multifamily office. I could live in Puerto Rico. I was as long as I spend 183 days per year
00:36:45.760 | there, I could qualify for Act 22, which be helpful for my own personal investment activities
00:36:51.040 | as well. And I would start an Act 20 business, I would be paying an income salary to myself,
00:36:55.600 | I'd be paying salaries to my staff, but I could recruit fairly easily people to come to Puerto
00:37:00.880 | Rico with me. And I could hire Puerto Rican people to work current residents of Puerto Rico to live
00:37:05.680 | there and work there for me. I could build a business, generate several millions of dollars
00:37:11.680 | of profit, of corporate profits, all of that profit taxed at a maximum of 4%. Then, let's say
00:37:18.080 | I make $5 million in three, four, five, six years, something like that. I generate $5 million of
00:37:24.400 | profit. I decide I no longer want to live in Puerto Rico. I take my $5 million of profit,
00:37:29.440 | maximum tax rate paid was 4%. I moved back to the United States, I have generated an absolutely
00:37:35.360 | massive financial windfall, which now puts me in a situation where I can redeploy that capital
00:37:41.360 | elsewhere and other components of the US economy if I didn't wish to stay in Puerto Rico. That's
00:37:47.440 | the opportunity. And that doesn't exist anywhere except Puerto Rico. Now, I hope that I've made
00:37:54.240 | the strong case for you, because there are a number of major advantages here. There's a couple
00:37:59.200 | other things, nice things in Puerto Rico. First of all, Puerto Rico is kind of a weird place.
00:38:04.000 | On the one hand, it's a beautiful Caribbean island. It's absolutely beautiful. And because
00:38:08.240 | of its geography, there are a bunch of interesting microclimates in Puerto Rico. You can have the
00:38:13.840 | beaches, you can be up in the hills. Mountain is kind of an aggressive term to use, but you can be
00:38:18.800 | up in the hills where it's a little bit cooler in the forest. You can be on the beach. It's a
00:38:22.480 | beautiful Caribbean island. There's all kinds of things there that are offered in terms of
00:38:26.640 | different kinds of lifestyles. You can live in an exclusive high-dollar enclave. You can live
00:38:33.200 | very inexpensively. I've got friends who are living just standard Puerto Rican housing,
00:38:41.200 | very inexpensively, a few hundred dollars a month for two and three bedroom,
00:38:44.320 | serviceable two or three bedroom apartments. So that's available there in Puerto Rico. And that
00:38:51.520 | could be really, really useful. Puerto Rico has the benefit of it being part of the United States.
00:38:58.560 | So that means unlike other places that you might like to go, you don't need, if you are a US
00:39:03.760 | citizen, you don't need any permission to go there. It's easy to relocate. You don't have to
00:39:08.400 | apply for a residency visa. You don't have to apply for any kind of legal right to work. You
00:39:14.080 | can today, if you are a US citizen or a US person, you can today just simply get on an airplane and
00:39:20.800 | go there. It's a domestic flight by the airlines, which is fairly cheap. You can fly on Spirit Air.
00:39:27.040 | Last time I went there, I took my wife there. And last time we went to Puerto Rico,
00:39:32.800 | I paid $104 for round trip tickets from Fort Lauderdale to San Juan. And we took one of our
00:39:42.480 | children too. So you can find deals on a low budget cattle car airline like Spirit Airlines,
00:39:50.000 | et cetera, to go to Puerto Rico, which means you should probably go and check it out in person.
00:39:53.600 | But you don't need any permission. You can just simply get on an airplane and fly there.
00:39:57.360 | You can rent an apartment. You can do that. Your cell phone works in Puerto Rico exactly like it
00:40:02.800 | works in the rest of the country. It's a domestic place. There's no passport. You can get Amazon.
00:40:09.200 | Amazon delivery in Puerto Rico, exactly the same as Amazon delivery in Miami, Florida.
00:40:13.360 | And you are able to keep all of the normal constitutional protections that you're accustomed
00:40:19.360 | to. So just from a civil rights perspective, that can be really useful. The only thing you give up
00:40:26.800 | as a Puerto Rican resident is the right to vote and they have bad gun laws. But beyond that,
00:40:32.320 | you get all of the rest of the constitutional protections that you are used to. There are some
00:40:37.200 | interesting benefits. For example, there's pretty decent creditor protection for a homestead. And
00:40:42.800 | one of the important things about Act 22 is that you're required to buy a home, buy a house in
00:40:51.200 | Puerto Rico. But Puerto Rico, in my understanding, has an unlimited homestead exemption.
00:40:55.200 | You have to properly file, I think, a special thing with a notary. You have to fire a note
00:41:01.360 | with the notary public that this property has been designated as a safe home, an hogar seguro.
00:41:10.160 | But I read the ley del derecho de la protección del hogar principal y el hogar familiar. And it's
00:41:17.040 | basically, in my understanding, unlimited homestead exemption. So that's really, really
00:41:21.280 | useful to you. So there's a lot of benefits to it. Officially, Puerto Rico has English as an
00:41:27.680 | official language, but it also has Spanish as an official language. But I've observed that the rate
00:41:32.560 | of English speaking has gone up significantly. So if Spanish is not your forte, you can get by
00:41:37.120 | pretty well in English. And most of the young Puerto Ricans speak English adequately.
00:41:41.920 | There are a lot of higher costs. And some of those higher costs are due to it being simply
00:41:49.920 | an island where everything has to be shipped in. You could see this after the debacle with
00:41:54.240 | the hurricane when it came through and destroyed the island. And if you just simply live on an
00:41:58.240 | island, you are far less secure in terms of the things that you have for yourself because everything
00:42:05.200 | has to be shipped in. It takes far longer to get supplies to Puerto Rico than it does to get
00:42:09.120 | supplies to Miami, Florida, just simply because you're on an island. So that leads to a measure
00:42:13.440 | of insecurity. Now, on the flip side, houses in Puerto Rico are built much better. You buy a house
00:42:18.800 | in Puerto Rico, you're going to be buying a concrete house with a concrete roof. And you can
00:42:22.640 | stock up and provision yourself for some increasing resiliency. I spent a bunch of time
00:42:28.480 | talking to all my friends there and trying to learn about what they face. Many of them,
00:42:34.000 | some of them were fortunate, they got power back after about two months. Some of them,
00:42:36.880 | it was more than six months with no power. And I talked to them about all the systems that
00:42:40.800 | worked and what didn't work, et cetera. But it's not insuperable if you're in a situation where
00:42:45.520 | you're on an island, as long as you have something stockpiled and gas became available fairly
00:42:50.880 | quickly. The electricity did come on for many of them and most of them were able to work through.
00:42:56.160 | Puerto Rico has the benefits of the Latin culture. You may like it, you may not like it,
00:43:00.480 | but there's a much greater appreciation of community in the Latin culture than in
00:43:06.480 | some of the more gringo culture. And there's a much more of a friendliness there.
00:43:12.640 | One of the comments that many of the electrical workers who were down trying to fix the Puerto
00:43:17.760 | Rican electrical grid would say was just that Puerto Ricans are incredibly friendly.
00:43:21.920 | I heard stories about where people have been without power for months, but as the electrical
00:43:28.720 | workers are coming in restoring power, then everyone's cooking them food and just welcoming
00:43:33.040 | them. The electrical workers couldn't believe how welcoming the people who had nothing were.
00:43:37.120 | And so that was really, really powerful. One of the comments that a friend of mine who
00:43:41.440 | was a Puerto Rican, born and raised in Puerto Rico, lived in Florida for several years and then
00:43:45.920 | moved back to Puerto Rico. One of the comments that they made about what they didn't like about
00:43:50.960 | living in the mainland United States was just simply the closed offness. In the United States,
00:43:57.840 | everybody drives to their house, they park their car in the driveway, they walk in their house,
00:44:02.000 | the windows are always shut. And their comment was, "I could never hear the neighbors." You're
00:44:06.560 | used to hearing the neighbors. Go to Puerto Rico, you hear the neighbors. So it's got that Latin
00:44:10.560 | culture. That could be a double-edged sword. Some people like it, some people don't like it.
00:44:14.000 | That could drive you nuts. Now, there are a lot of problems with Puerto Rico. First,
00:44:18.480 | there are major problems with the island itself and their economy. Puerto Rico is totally bankrupt.
00:44:25.120 | They've been trying to file for bankruptcy. I haven't followed the case recently, but the
00:44:28.800 | Supreme Court, I don't think, let them file for bankruptcy. The Puerto Rican income is half that
00:44:34.480 | of Mississippi, which I think is the lowest income in the United States. They have a very high
00:44:39.840 | burdensome regulation, very high burdensome licensing requirements, et cetera. It really
00:44:46.560 | scares me silly to try to think about being involved with that. I don't think the whole
00:44:51.920 | island... I'm not current on the politics of the island. I don't understand. What most people saw
00:44:56.880 | of Puerto Rican politics was the mayor of San Juan, who of course was fighting with President
00:45:02.400 | Trump after the big hurricane. And I think if you only saw that, you would have an idea that
00:45:09.520 | everybody in Puerto Rico is extremely left-wing, very progressive, et cetera. I don't want to do
00:45:15.200 | business with that kind of place. It's very, very bad for business to go and try to make long-term
00:45:21.440 | commitments to that kind of culture. But I don't think that was reflective of the island as a whole.
00:45:24.960 | Maybe it was reflective of the San Juan mayor, but not of the island as a whole. I don't have
00:45:29.680 | any accurate way to assess that because most of my contact with Puerto Rican people is with people
00:45:38.800 | who are extremely religious and religiosity would tend towards political conservatism. Those two are
00:45:46.640 | tied together. Christian religiosity is generally tied to political conservatism based upon the
00:45:51.360 | basic claims of the Christian religion. And so lots of my friends there are extremely right-wing,
00:45:57.600 | et cetera. But I don't know what things on the whole are. But as with anything, I find it hard
00:46:02.480 | to trust them for the long-term because of that political instability. I'm very concerned about
00:46:09.760 | the possibility that Puerto Rico could become a state. Now, this is, I think, one of those things
00:46:14.400 | where it's easy to overblow it. This has been an argument for years and years and years. But I
00:46:18.960 | think that the Puerto Ricans have a very strong case to make for becoming a state. I think the
00:46:24.320 | political realities make that unlikely at the moment. But there seems to be, in my opinion,
00:46:30.080 | a very strong argument for statehood. Now, do strong arguments always win? I don't know. But
00:46:35.120 | if Puerto Rico were to become a state, then all of this advantage flies out the window.
00:46:39.040 | I had an interesting exchange on Twitter yesterday. You can read it at the moment. It's
00:46:41.760 | still up on my Twitter profile, twitter.com/joshuasheets. I had an interesting exchange
00:46:46.800 | yesterday with an advocate, a political advocate for statehood. And they were talking about how
00:46:52.960 | they hate how all the rich US people are coming to the United States for the tax breaks. And I
00:46:57.120 | explained to them, I don't know how Puerto Rico succeeds if it becomes a state because I see no
00:47:01.920 | reason why, if Puerto Rico weren't a commonwealth, I see no reason why any business person would want
00:47:07.200 | to go to Puerto Rico and invest there. If I were to go to Puerto Rico and invest there, I would be
00:47:12.560 | going there with fear and trembling. Just because of all these factors, it's very, very difficult.
00:47:17.440 | And yet, the incentive from the tax perspective makes it worth it. And I see a lot of business
00:47:22.560 | people going there. Will it work out? I don't know. The change, the rules do change from time
00:47:28.880 | to time. Now, so far, I think that there's been a pretty decent stability. One of the interesting
00:47:34.240 | things that some of the legal people point out is that this Act 20 and Act 22 thing is structured
00:47:38.880 | not as a tax law, it's structured as a contract, which in their defense makes it much more
00:47:45.360 | defensible in court. And there've been some court testing now of the Act 20 and the Act 22 status.
00:47:50.800 | So I'm cautiously optimistic, very cautiously optimistic. You will pay higher, again, higher
00:47:58.160 | costs for many things. You will pay high income taxes. You will pay Social Security and Medicare
00:48:03.760 | and Medicaid taxes. You will pay very high sales taxes. You will pay a lot for permits and fees.
00:48:12.000 | It's a very paperwork-intensive society. Again, back to that kind of left-wing,
00:48:19.600 | heavy licensing, heavy permitting, et cetera. So there are going to be a lot of costs. You will
00:48:25.680 | have to be a bona fide resident of Puerto Rico, which means you have to be there 183 days.
00:48:30.960 | If your desired lifestyle involves your traveling for much of the year, most of the year,
00:48:35.360 | if you can't physically be present in Puerto Rico for 183 days, you'd better not go. So it works if
00:48:42.080 | you live in Puerto Rico and you will have to be there in Puerto Rico. You will not pay zero taxes,
00:48:48.240 | but if you have a very high profitability business, then it would be good. It can be very,
00:48:56.240 | very useful. You will need some excellent legal advice if you set this up. You will need some
00:49:02.080 | excellent legal advice to make sure that your business is fully centered in the United States.
00:49:07.120 | And this is the problem because Puerto Rican Corporation is a non-US corporation. Well,
00:49:13.840 | a non-US corporation that is engaged in a trade or business in the United States is subject to
00:49:19.360 | US tax. And so you've got to be very, very careful about how you set this up to make sure
00:49:25.680 | that you're disconnected from the United States properly. So just be very, very careful.
00:49:33.680 | You will want to get some good advice and make sure that all of your residency indications are
00:49:41.440 | to Puerto Rico. You don't want to have a tax home that's outside of Puerto Rico. You need to
00:49:45.600 | establish closer connections to Puerto Rico than to any other place in the world. So this would
00:49:53.360 | include, you want to make sure your permanent home is in Puerto Rico. Make sure your family is in
00:49:56.320 | Puerto Rico. Make sure all your personal belongings are in Puerto Rico. Make sure that your organizations,
00:50:01.520 | your social organizations, or political or professional or religious organizations are
00:50:06.080 | all in Puerto Rico. Do your banking in Puerto Rico. Make sure that you have a Puerto Rican
00:50:10.880 | driver's license. Make sure that you vote in Puerto Rico. Everything needs to change to Puerto
00:50:15.360 | Rico so that you don't wind up targeted by the IRS and them saying, "Hey, listen, this is a sham."
00:50:22.080 | Yeah, you have a one-room apartment in Puerto Rico, but you have this big house in Texas that
00:50:25.520 | you go to. That's a sham. You cannot do that. If you're going to save a huge amount of money,
00:50:30.640 | don't take that risk. What happens in the future? I don't know. I hope that this makes a big
00:50:38.560 | difference. There are glimmers of hope as to it making a difference, people starting to move there.
00:50:43.280 | There are glimmers of hope because Puerto Rico's cut its deficit, which is a good thing. Time will
00:50:48.640 | tell. But it's a unique situation. If you are in a situation where you think that you can make a lot
00:50:54.240 | of money and you're not willing to consider renouncing US citizenship or you're not willing
00:50:59.200 | to consider that yet, Puerto Rico could provide you with a very powerful tax savings case.
00:51:06.080 | And for that reason, I would encourage you to think about moving to Puerto Rico.
00:51:12.800 | I think for the majority of people, your first move should be to go fully offshore, outside of
00:51:18.880 | the United States and not to Puerto Rico. I think that's the best move for the majority of people.
00:51:23.840 | But if you fit one of those categories that I described, Puerto Rico just might save you a
00:51:32.160 | bundle. As I close today's show, I want to give you just a quick mini little lesson here
00:51:41.040 | that relates to Puerto Rico, but more important relates to general tax savings,
00:51:44.720 | and use it as a way to encourage you to come on by radicalpersonalfinance.com and buy my credit
00:51:51.680 | card course, which is called How to Borrow Money Safely and Never Pay Interest Using Credit Cards.
00:51:56.880 | One of the biggest challenges with tax planning is figuring out your activities in such a way that
00:52:03.120 | they are tax efficient. And there are many components to this. Basically, back when I
00:52:11.520 | first started teaching tax planning on the show, I talked about the different types of strategies,
00:52:16.240 | the timing strategies, conversion strategies, and shifting strategies of tax planning.
00:52:21.600 | And one of the big strategies that's important to think about is timing, the timing of income.
00:52:26.720 | You can see how, in thinking about something like Puerto Rico, you can see how the timing of
00:52:32.560 | income makes a big difference. And even if you don't want to know about Puerto Rico today,
00:52:37.920 | if you don't want to move there today, by having this in the back of your head, you'll be able to
00:52:42.560 | make good decisions in the future. You'll always be watching your affairs thinking, "Is my income
00:52:47.040 | about to blow up?" What hurts people is if they can't project and can't see. Now, for the average
00:52:52.240 | income earner, it just generally doesn't happen. You don't all of a sudden experience sudden
00:52:56.720 | windfalls, generally, that affect your taxes. But for a business person, you do have these
00:53:03.920 | situations. It's not uncommon for a business owner to spend years investing in their business,
00:53:09.440 | working day in, day out, making extremely low profit, and then finally, for the pieces to
00:53:16.080 | come together, and all of a sudden, the profit goes through the roof. That's not a surprise.
00:53:19.920 | That's built in to, it's baked into the cake. It's part of many business models. In addition to that,
00:53:27.760 | in your own personal life, you have to think very carefully about the timing of income.
00:53:32.000 | When do you take certain bits of income out? When do you recognize the gains?
00:53:38.000 | So there's a big, big deal to you. If you're going to move to Puerto Rico to take advantage of Act
00:53:43.360 | 22, you would want to be very careful in how you did that to make sure that the maximum amount of
00:53:48.640 | appreciation happens once you are eligible for Act 22, no interest on capital gains.
00:53:55.280 | But yet, how do you live in the meantime? How do you avoid recognizing gain? How do you avoid
00:54:00.080 | triggering that gain? Well, there are a lot of ways that you can do it, but one of the most
00:54:04.160 | important ones is debt. Debt can be extremely useful because debt is not taxable. This is the
00:54:11.760 | secret that real estate investors always rely on. You can, as a real estate investor, never pay
00:54:18.480 | taxes on your money if all your money is flowing into your checking account as a result of debt.
00:54:25.280 | Debt is non-taxable. When an investor takes out a mortgage on a property and then does a cash-out
00:54:31.360 | refinance, the mortgage is not taxable. If you go out and use your credit cards and you swipe,
00:54:36.640 | swipe, swipe, swipe, swipe, all the money that you're spending is non-taxable expenditure.
00:54:41.680 | You can go to an ATM and you can put that credit card in there, take a cash advance.
00:54:47.120 | In one sense, that's income because now you have cash in your hands that you can spend,
00:54:51.040 | but from a tax sense, it's not. It's debt, which is why when debt is canceled, you owe the IRS
00:54:59.200 | money for the cancellation of debt. If you have debt, you default on that debt, that debt is
00:55:04.000 | canceled, then you'll get a 1099 and you will owe the IRS the income, so the tax on that income
00:55:10.560 | for the cancellation of debt. That's why. But you can use debt, such as credit cards or mortgages,
00:55:16.960 | etc., to provide you with cash flow while you are waiting to trigger income in an appropriate time,
00:55:23.600 | in an appropriate way. One of the problems, though, is most people just don't have access to
00:55:28.560 | that source of financing at low interest rates. They don't have access to the ability to use debt
00:55:36.160 | as a way to be intelligent in their tax planning. It's hard for me to give specific
00:55:43.440 | suggestions to you because so many situations are different. The point is, I want you to imagine for
00:55:48.560 | a moment that at any point in time, you had access to, let's just call it 100,000, six figures,
00:55:54.960 | of spending power that you could use to buy things, to pay for things, to actual spendable
00:56:02.800 | money that doesn't trigger taxes. Then imagine if you could be somewhat flexible and when you
00:56:11.520 | sold other assets to pay off credit cards. Then think for a moment if you could do that safely.
00:56:19.120 | That's what I did for you in my credit card course. The reason I created that course for
00:56:25.680 | you is because I think it's one of the biggest holes in many people's ideas is how do I access
00:56:30.880 | capital safely and at low rates so that I have another tool in my portfolio? Because you can
00:56:38.800 | move to Puerto Rico and you can pay off all your credit cards from Puerto Rico as effectively as
00:56:46.080 | if you're living in Miami, Florida. You maintain all the same bank accounts. Everything works just
00:56:51.680 | like it, but there's a big difference as far as when you recognize your gains.
00:56:55.600 | So you've got big capital gains. You're going to have big capital gains. If I had to do that,
00:57:02.080 | I'd move to Puerto Rico. I'd buy a house. I'd become qualified as a NAC 22 investor. I'd put
00:57:06.960 | in the mandatory, I think it's one year of residence. I would be happy to spend that on
00:57:11.600 | credit cards if I had to, to wait to trigger the gains under the more advantageous tax system.
00:57:17.280 | But you will only be in that position if you do whatever you need to do now to put in place
00:57:22.480 | that infrastructure. So I'd invite you, if you haven't done so yet, go to radicalpersonalfinance.com/store
00:57:27.200 | and sign up for my credit card course. I think of it and I put it on my website one time as
00:57:35.360 | credit card exploitation, how to borrow money safely and never pay interest using credit cards.
00:57:40.480 | All of my courses work together. The credit card course is a very important component of my how to
00:57:46.320 | survive and thrive during economic crisis course. And it's also an important component of the career
00:57:50.640 | and income planning course. So I just invite you, come on by radicalpersonalfinance.com/store.
00:57:54.000 | Check out that course. It is a great value. I had my first refund yesterday and it wasn't
00:58:01.680 | refunded because the student didn't think it was good. It was refunded because the student was
00:58:05.600 | already an expert. Wrote to me and said, it was really good. I thought it was excellent,
00:58:09.760 | an excellent course. But I knew most of what you talked about. That's the first one in many,
00:58:15.440 | many, many students who has actually known everything that I've talked about. So I
00:58:19.200 | immediately initiated the refund. I said, great, glad you enjoyed the course. I would invite you,
00:58:24.880 | come on right by radicalpersonalfinance.com/store. Sign up for my credit card course called How to
00:58:29.520 | Borrow Money Safely and Never Pay Interest using credit cards.
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