Strategies for Minimizing Tax Burden as a U.S. Resident

In today's world, understanding tax obligations and finding ways to reduce them is essential for many individuals. This article will explore various options available to US citizens looking to lower their tax liability.

Firstly, it's important to note that the United States has a citizenship-based tax system, meaning citizens pay taxes on worldwide income, even if they live abroad. However, there are ways to navigate this system and reduce taxes.

One such option is investing in municipal bonds, claiming tax credits, maxing out retirement accounts, leveraging health savings accounts, and starting a business. These strategies can help lower tax obligations for US citizens living domestically.

For those considering living offshore, the substantial presence test comes into play. This test considers days spent in the current year, one-third of the previous year, and one-sixth of the days in the second year before the current year. If a person spends 330 days per year outside the US and meets the bona fide residence test, they can significantly reduce their tax liability to the IRS.

Moving to Puerto Rico is another popular choice for US citizens looking to lower their tax burden. Puerto Rico offers a flat 4% tax rate on exported services and no capital gains tax for US citizens, provided they meet the residence requirements, which include spending at least 183 days a year in Puerto Rico.

Working with a tax expert is essential to getting tax obligations lowered legally. At Nomad Capitalist, they help clients create a holistic plan, connecting them with immigration lawyers and tax experts around the world.

For those who wish to leave the US permanently, renouncing citizenship is an option. However, it's important to note that the fee for renouncing US citizenship is US$2,350, but it is currently being challenged in the courts. Renouncing US citizenship eliminates all US taxes, but it comes with downsides, such as losing access to the US job market.

An alternative to renouncing citizenship is obtaining another passport through citizenship by investment or citizenship by descent. Caribbean citizenship by investment is a cost-effective and fast way to secure another passport.

Non-US citizens who consistently spend significant time in the US could be considered a taxpayer if they meet the substantial presence test. If they have U.S. source income, such as dividends from U.S. stocks, they may be subject to a withholding tax (usually around 15% on dividends). Non-resident aliens have a limited exemption amount (up to $60,000), and if they own U.S. assets exceeding that, they may owe estate taxes.

In conclusion, living offshore, moving to lower-tax states, restructuring income sources, or even moving to Puerto Rico can help reduce tax liability for US citizens. However, it's crucial to work with tax experts and understand the specific requirements and implications of each option.

Despite the United States being a globally significant power, wealth disparity is at an all-time high, and the American dream is over for many. It's essential to explore options to lower tax obligations and secure a financially stable future.