Money Method: The Great Tax Escape to Puerto Rico

Did you know there are tax loopholes for Americans living in Puerto Rico? Well, at least that's what I learned from PolicyGenius.com's contributor, Alex Webb. 

But don't pack your bags just yet. There are several barriers to entry for you to consider before you make a run from Uncle Sam. 

Guest Post: Alex Webb, PolicyGenius Contributor

It has been said that the only things you can’t escape in life are death and taxes. While moving to Puerto Rico won’t help you live forever, it’s one of the few places on earth where Americans can legally escape many forms of taxation. Intrigued? You should be.

Global Taxation

Most countries tax their citizens on a residency basis. For example, if you are a Swedish citizen living in Thailand, you will owe taxes to Thailand, but not to Sweden. But the U.S. has a system of global taxation, meaning that if you are an American living in Thailand, you’ll still have to pay U.S. taxes. While there are deductions and exceptions, it’s nearly impossible to escape the IRS — unless you live in Puerto Rico.

That’s because Puerto Rico falls in an interesting legal grey area. It’s part of the United States, but it’s a territory, not a state. Puerto Rico doesn’t receive voting representation in Congress and Puerto Ricans—while being American citizens—can’t vote in federal elections. But they also don’t pay many federal taxes. Puerto Rico has the power to tax their residents, but, in an attempt to lure investment, they slashed the rates for new residents to next to nothing. And, since Puerto Rico is part of the United States, any American can move there and become a resident. All of this creates an unusual and fascinating tax loophole:

Americans who live in America pay U.S. federal taxes. Americans who live in foreign countries pay U.S. federal taxes. But Americans who move to Puerto Rico often don’t have to. With the correct tax planning, new Puerto Rico residents could legally pay a tax rate close to 0%.

How to Move to Puerto Rico

To gain and maintain your residency you’ll need to move your primary address to Puerto Rico, but you’ll only need to spend a minimum of 183 days in Puerto Rico per year. The rest of the time you can travel to other parts of the United States, or the world.

Beyond physically moving you’ll need to fill out some important paperwork. Act 22, also known as the “Individual Investors Act” is behind many of the tax advantages, and to receive the benefits you’ll need to apply for a tax exemption decree. If your application is approved, your individual tax exemption decree will have the full details of your exact tax treatment, which may vary from person to person.

If you control a corporation, you’ll need to look at Act 20, which provides for a 4% corporate tax rate — far below the 35% tax rate on the mainland United States. If you are an entrepreneur with, say, an online business, you may be able to relocate to Puerto Rico and attain large tax savings. 

Of course, your exact situation will vary and tax law is very complicated, so don’t use this article as legal advice.

This article first appeared on PolicyGenius.com, which is a financial protection planning startup educating consumers on common monetary pitfalls of life. 

Alex Webb, founder of Take Risks Be Happy, is a freelance writer and author. 

Webb co-authored and contributed to books published by National Geographic, the Financial Times, and Skyhorse. 

Money Method: Several Ways to Maximize Your Tax Refund

As your tax refunds start making its way to your checking accounts, make sure not to spend it all in one place before the direct deposit hits. 

The thought of having a couple of extra grand in your account may make you feel like a baller but there are better things you can do with that money. 

Steve Siebold, author of How Rich People Think, and a self-made multi-millionaire, says, "If you’re going to spend the money, make sure there is some benefit or return on investment so you’re not just throwing that money away.”

Siebold suggests to consider the following:

Focus on financial freedom: The long-term results of financial freedom and abundance that comes with paying off your credit cards, student loans and any other debt. Most people with credit card debt don’t understand that with interest rates at 20% or more, they’ll be paying off their credit cards forever. That extra money can help put a significant dent in your overall balance.   

TC's Tip: If you have a solid track record of paying your high interest credit card on time, call your credit card company and ask for a lower interest rate. If they say no, then ask why and how can you lower it in the future.

Invest in yourself: If you want to spend your refund, invest wisely in yourself by committing to never-ending personal growth and development. Take a professional development seminars and look into coaching/mentoring programs. The goal is to use the money to improve your skills.

Start a side business: Use your talents and passions to solve a problem that people are willing to pay for. 

TC's Tip: For example, that small business around the corner may need your help with social media. Why not set up an LLC, a website, business cards and find that first client who needs help setting up social media platforms for their business. I'm currently on the hunt for my first client. (Details coming soon)

Don’t get caught up in the moment: Write a list of the pros and cons of spending the money vs. investing it or paying off debt.

TC's Tip: It doesn't take much to start investing and you don't have to put down a six figure deposit. There are companies out there that will suite the needs of entry-level investors to the mass affluent. Take a look at automated investing companies like Betterment, Personal Capital and Wealthfront.

 How do you plan to utilize your tax refund? Leave your comments below or email views to TCsViews@gmail.com.

Related Money Methods:

• Tax Scams You Should Steer Clear From
  
• Tips to Buying More Time to File Your Taxes
  
• Money Method: Roth IRA for Beginners

Tax Scams You Should Steer Clear From

It's tax season again, and scammers are on the actively searching for their next victim. 

Illegal tax scams, can cost you your life savings, harsh penalties, accruing interest and possible jail time. 

The IRS pulled together its annual "Dirty Dozen" for tax payers, which warns them what consumers should be aware of. 

The following 12 points are pulled directly from IRS.gov

1. Identity Theft
 The IRS continues to aggressively pursue criminals who file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front. Remain vigilant to avoid becoming a victim and be sure to protect your Social Security number.

Tip: Memorize your nine digit number and do not, I repeat, do not carry your social security card around with you in your wallet.

2. Telephone Scams

Threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer. Be alert to con artists impersonating IRS agents and demanding payment.

FYI: The IRS will never call your home, cell, or your workplace to collect back taxes. EVER! They will send a letter to your home. The IRS knows where you live.

3. Phishing

Phishing scams typically use unsolicited emails or fake websites that appear legitimate but are attempting to steal your personal information. The IRS will not send you an email about a bill or tax refund out of the blue. Don’t click on strange emails and websites that may be scams to steal your personal information.

4. Return Preparer Fraud

About 60 percent of taxpayers use tax professionals to prepare their returns. While most tax professionals provide honest, high-quality service, there are some dishonest ones who set up shop each filing season to perpetrate refund fraud, identity theft and other scams. Be on the lookout for unscrupulous tax return preparers. Choose your preparer wisely.

5. Offshore Tax Avoidance

Hiding money and income offshore is a bad bet. If you have money in offshore banks, it’s best to contact the IRS to get your taxes in order. The IRS offers the Offshore Voluntary Disclosure Program to help you do that.

6. Inflated Refund Claims

Be on the lookout for anyone promising inflated tax refunds. Also be wary of anyone who asks you to sign a blank return, promises a big refund before looking at your tax records or charges fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via trusted community groups to find victims.

7. Fake Charities

Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. If you are making a charitable contribution, you should take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools you need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally-known organizations.

8. Falsely Padding Deductions on Returns

Don’t give in to the temptation to inflate deductions or expenses on your tax return. Think twice before overstating deductions such as charitable contributions, inflating claimed business expenses or including credits that you are not entitled to receive, such as the Earned Income Tax Credit or Child Tax Credit. Complete an accurate return.

9. Excessive Claims for Business Credits

Don’t make improper claims for fuel tax credits. The credit is generally limited to off-highway business use, including use in farming. It is generally not available to most taxpayers. Also avoid misuse of the research credit. If it doesn’t apply to your business and you don’t meet the criteria, don’t make the claim.

10. Falsifying Income to Claim Credits

Don’t invent income to erroneously claim tax credits. A scam artist may try to talk you into doing this. You should file the most accurate tax return possible because you are legally responsible for what is on your return. Falling prey to this scam may mean you have to pay back taxes, interest and penalties. In some cases, you may even face criminal prosecution.

11. Abusive Tax Shelters

Avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. Be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, seek an independent opinion regarding these complex situations or offers. Most taxpayers pay their fair share, and so should you.

12. Frivolous Tax Arguments

Using frivolous tax arguments to avoid paying taxes can have serious financial consequences. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying taxes. The law is crystal clear that people must pay their taxes. For decades, the federal courts have consistently upheld the tax laws. The penalty for filing a frivolous tax return is $5,000.

The IRS notes that tax scams can take many forms beyond its “Dirty Dozen” list. The best defense is to remain alert and trust your gut instincts. 

Money Culture: Pay Attention to Your Mobile Banking App

The fate of your credit could be right at your fingertips.

Figuring out how to build your credit shouldn't make you anxious. Did you know that you can find tips on anything related to your credit at your financial institution's website? And if use your bank's mobile app there are usually articles and videos just waiting for you to click.

The other day I took notice at my Bank of America Mobile App. And I was floored by the wealth of information it had under its Better Money Habits tab. 

Personal Finance Pros to Help You Hold on to Your Financial Resolutions

Figuring out the art of handling your finance is tough, but there are financial gurus who can help you stick to your financial goals for 2016.

It’s three weeks into the New Year, and I am sure many of you have your resolutions in order. At the top of your list, you may have a financial goal that you would like to attain. However, you’ve also figured out that sticking to you financial resolution isn’t as easy as you’d hope. There are several personal finance gurus who can probably help whip you into shape and honor your financial goals. 

The following are three personal finance specialist who have great advice, tools, and strategies to help anyone at any social economic level become financially independent. 

The Budgetnista 

If you’re trying to get into the habit of honing in on your finances, Tiffany Aliche, aka The Budgetnista, has a plan that can get you on track. 

Aliche created the Live Richer Challenge, a free, online financial challenge to help women achieve their savings goals in 22 days… but I’m sure men can benefit from it too.




Keep tabs on The Budgetnista on Twitter: @TheBudgetnista and Instagram: @TheBudgetnista 

My Fab Finance 

Even though Tonya Rapley’s Instagram bio is geared toward millennials, her financial tips are definitely helpful for Gen-Xers, Boomers, and younger generations. Her ultimate goal is to provide people with “tools, resources and support to break the cycle of living paycheck to paycheck so that you can become financially” independent. 

Head to MyFabFinance.com to see how Rapley can help you live financially free.

Instagram: @MyFabFinance Twitter: @MyFabFinance 

J. Money

J. Money is a blogger, money coach, and the founder of BudgetsAreSexy.com. The personal finance blog has close to 10 million views. He also operates RockstarFinance.com and coaches people interested in blogging and online business.

Follow J. Money on Twitter: @BudgetsAreSexy


Figuring out how to build an emergency fund, how to save for retirement, or how to pay off student loan debt before the human race can live in space is quite challenging but it doesn’t have to be. Do the research, ask questions, and find a personal financial guru who will help you attain your financial resolutions for 2016.

Is there a personal finance professional that's helped you stay on track? Leave your comments below or e-mail them to tcsviews@gmail.com.

Top 10 Posts Readers Loved in 2015

(Remember this? This was the old banner for Artz of Culturez)

As you can see Artz of Culturez went through several minor changes in 2015. First, I got rid of the blogspot extension. Then I swapped the letter ’s’ to the letter ‘z.’ I also posted an armature head shot of myself on the home page so you can put a face to the ideas that fill up the pages of the blog.

Related Story: 2014 Top 10 Blog Posts for Arts of Cultures

Some of the new ideas include, Artz of Culturez TV, Diggin’ in the Crates, and Empty-Nest Chronicles. However, I couldn’t help but notice that when I created the Money Culture tab and filled it with personal finance postings for Money Method Mondays, the page views went though the roof. Turns out readers want to know more about how to handle their finances.

Money Method: Financial Habits

(Dr. Dan Geller)

Guest Post: Dr. Dan Geller the Behavioral Finance Scientist

People will repeat the same six financial habits each time the economy goes through a cycle.

A breakthrough study in financial behavior, or Behavioralogy, shows that people repeat their financial behavior in a highly predictable manner based on the state of the economy. The study, conducted by Dr. Dan Geller - a behavioral finance scientist and the author of Money Anxiety, found that people repeated their financial behavior in each of the economic cycles during the last 50 years.

The study found that people "orient" themselves to the state of the economy by repeating six financial-behavior patterns - three related to their spending and three related to their savings. Each financial behavior pattern corresponds to the stage in the economic cycle, i.e. recession, recovery , expansion and decline. Here are the six financial habits:

Empty-Nest Chronicles: Financial Literacy 101

A Money Method & Empty-Nest Chronicles Special

(Photo Credit: TC's Views)

My son has officially graduated from high school and is on his way to college in August. But before I send him off to soar around the adult world I took him to our local bank to open a checking and savings account in his name.

We got a financial literacy lesson about credit scores, identity protection and Regulation D - a federal regulation that limits the number and type of withdrawals from savings, or Money Market Accounts to six per month for each account.

Credit Score Discussion

My son had many questions about credit scores for our banker.

Empty-Nest Chronicles: The $50 Corsage

My son, who is my youngest child, is a few months away from leaving the nest. For the last couple of weeks we've been preparing for the joyous event by celebrating his 18th birthday, suiting up for his cap and gown, selecting housing for his college dorm and breaking the bank for his senior prom.

Ah, the senior prom. Suit, tie, shoes, socks, haircut, prom tickets and portrait packages can all add up to a hefty bill. The last thing I wanted to do was spend $50 for a corsage. Yes, you read that correctly. I wrote $50 for a corsage. That's what I spent at a floral shop last year when my son went to the junior prom. I later learned that everyone ends up taking off their corsage after pictures and before they hit the dance floor.

This time around I skipped the local floral shop near my corporate job in the city and I found another way. 

Money Method: Financial Entrapment

The Money Maven sheds light on how to stop the cycle of financial abuse

It amazes me how many people are subjected to financial entrapment and don't even realize it. You've seen domestic financial abuse play out on the big screen. Remember Sleeping with the Enemy, and Enough, and all of those Lifetime flicks that shows the victim stuck and nowhere to go because they don't have control over any of their finances, or even worse, they have no finances at all because of their domineering partner?

"Financial abuse is a form of mistreatment in which an abuser forcibly controls a victim's finances."

The Money Maven, Patrice Washington, is back with some key advice on how to avoid and how to get out of financial abuse if you or somebody you know are on financial lockdown. 

The Money Maven wants people to understand that financial abuse is not only limited to romantic relationships, it can also creep into the picture very subtlety with close friends and family members. It can happen when they lead you to believe that without your constant and consistent help and support, they’ll suffer from some unimaginable fate.

Money Method: Roth IRA for Beginners

(Photo created by TCsViews)

So you finally got that job with healthcare benefits and a 401(k) retirement savings plan.  The only thing about that 401(k) is that your company does not contribute a single dollar to your retirement. 

After the economy took a severe turn for the worse in the early 2000s, several corporations put a freeze on their 401(k) match and some have yet to reinstate their contributions. Most companies are waiting for their bottom lines to show signs of improvement before they even consider offering any type of 401(k) match.

But why do you have to wait to save for retirement? Why not find an alternative or a backup plan to add to your retirement nest egg? How about making your own contribution to a Roth IRA? The following are six things to know to help you get started.  

Money Method: Educating Youngsters About Finance

Over the years, I’ve taught my kids a few basics about the difference between financial wants and needs. But there are so many points to go over with kids that tackling them all in one setting can be a bit overwhelming. 

Jordan Niefeld, a certified financial planner and a CPA at Raymond James & Associates in Aventura, Fla., recommends several key points to get parents started with the conversation on how to teach their children to handle their monetary funds.

Money Method: Tips to Buying More Time to File Your Taxes

The April 15 tax deadline is less than 72 hours away. But did you know that if you need more time to file your taxes the Internal Revenue Services grants an automatic six month extension? Well, now you know ... and here are five things you need to know about filing an extension:

Money Method: Eight Tax Tips to Deduct Charitable Contributions

(Clothes Donation Bin in Montclair, NJ
Image taken by T.C.)

Remember that donation you gave to that charity a few months ago? What about the clothes you donated in the donation bin, or the Salvation Army and Goodwill? Well, if you saved your receipts they may help you this tax season.  Depending on how much you donated in 2014, you can claim the gift as a deduction which may lower your tax. The IRS provided eight tax tips you should know about when it comes to deducting your gifts to charity:

Money Method: Seven Tips to Determine if Your Gift is Taxable

As you hustle through your W-2s you will need to fill out your taxes by April 15th, don’t forget the monetary gifts you gave in 2014. If you gave money or property to someone as a gift, you may be thinking about the federal gift tax. According to the Internal Revenue Service, many gifts are not subject to the gift tax. Here are seven tax tips the IRS provides about gifts and the gift tax.

Money Method: 8 Common Tax Mistakes to Avoid

The deadline to file your taxes is quickly approaching. And many of you have placed yourself under enormous amounts of pressure to get those 1040 Forms filled out by April 15. Try not to rush through filing out those forms, because if you make a mistake on your tax return, it will likely take the Internal Revenue Service longer to process it. Which means, your refund will be delayed. The best way to avoid tax filing mishaps is to use IRS e-file. According to IRS.gov, paper filers are about 20 times more likely to make a mistake than e-filers. IRS e-file is the most accurate way to file your tax return.

The IRS found eight common tax-filing mistakes that cross their desks every year. As you try to beat the April 15th deadline try to avoid the following hiccups:

Money Method: Last Minute Tax Tips

Every other day an e-mail comes in reminding me that I need to hurry up and file my taxes. But guess what? I took my own advice and filed my taxes in the beginning of the year. (see: 6 Reasons to File Your Taxes Early) 

The rest of you now have a little more than a week to fill out those 1040 forms. For whatever the reason, nearly 28 percent of Americans wait until the very last minute to get their W-2’s in order. This sometimes leads procrastinators at financial risk because they didn't give themselves enough time to get their tax documents organized.

Now, I am not a tax expert but I am a taxpayer and a consumer… so I’m just passing along the information that has helped me over my tax filing years. Personal finance websites WalletHub and CardHub recently sent along a list of last-minute tax tips from more than 15 experts and provided a guide to avoiding tax scams during this risky time of year.

If you've taken a break from shuffling through your tax paperwork, here are several tips that WalletHub suggest which may help motivate you to get those 1040s signed, sealed and in the post by April 15.

Money Method: 5 Things to Think About When Filing a Tax Extension

Tax Day is nearly two weeks away. And if you’re reading this post, you probably haven’t filed your 1040 yet. Well, thank goodness for tax extensions. Actually, let me retract that last statement. It’s not a good idea to opt out for a tax extension because there probably will be a price to pay.

John Gregory, a tax practitioner and founder of 1040Return.com, which provides tax solutions for small business owners and individuals, suggests five things you should take into account if you plan to file a tax extension with the IRS.

No. 1 - The Purpose of the Extension. Filing a tax extension gives you a grace period of six months, which pushes your deadline to October 15. However, there is a catch. The IRS allows you the extension for the sole purpose of arranging for and organizing your documents. Do not assume that you are getting an extension for paying off you tax liabilities. You still have to pay at least 90 percent of your taxes by April 15. If you are trying to buy time to put off your tax payment for six months, it won’t be a wise thing to do. The IRS will charge interest on the unpaid tax obligation. This means, you will have to shell out more money.

Money Method: Focus on Your Credit

One last tip to protecting your financial identity

The first weekend of spring prompted me to get out of the house and into the movie theater to see Will Smith on the big screen as a classy, smooth talking, con artist in the romance/drama packed film Focus.

Smith’s character, Nicky, and his crew cleverly stole just about anything of value from their unsuspecting victims. They took credit cards, watches, camera lenses, jewelry, clothes and anything that could be sold online. The movie was a learning lesson and a reminder to
always be on guard with my valuables, but most importantly it reminded me to stay focused on my credit and protect my financial identity.

Money Method: 6 Reasons to File Your Taxes Early

If you haven’t noticed, tax season is upon us. Again. 

H&R Block, Jackson Hewitt and Turbo Tax commercials have already started appearing during primetime shows. And in a few more months reminders will start popping up in our social media news feeds reminding us to get our refunds, or in some peoples case, pay Uncle Sam. 

One of the lessons I’ve learned in my adult life is not to procrastinate when it comes to filing my taxes. Yes, the Internal Revenue Services gives us until April 15th to get all of our documents in order but we don’t have to wait until the very last minute.