If you’ve been a reader of this letter for any length of time, you know I hate taxes.
I unequivocally believe that I have a moral obligation to reduce my taxes to the lowest level possible.
It’s not about Maseratis and private yachts (I drive a Volvo and get seasick easily).
I’ve slashed my taxes because I know that tax dollars pay for some of the most vile, immoral things imaginable.
Drone strikes on children’s hospitals. Illegal wars that benefit a few defense contractors and oil companies. A gigantic police state that makes people less free every day.
All of this is paid for with your taxes.
In addition to the morality issue is the extraordinary waste that comes with government spending.
Just think about all the money they squander, from the $2+ billion for the Obamacare website, down to the $387,000 that the NIH spent giving Swedish massage to bunny rabbits.
Sure, there are plenty of programs that have noble intentions.
But they’re so bogged down with bureaucracy that they consistently fail to get the job done– just consider how many sick and wounded US veterans have died waiting to see a physician under their government health plan.
The icing on the cake with taxation is a complete lack of transparency.
The US Army just got caught red handed, for example, cooking its books and making wilful accounting misstatements totalling trillions of dollars.
People have gone to jail for far less egregious offenses.
I founded a large company that raised tens of millions of dollars of capital from investors.
Management submits detailed budgets and cash balances to the Board of Directors and provides all shareholders with clean, audited financial statements and regular updates.
This is the only proper thing to do.
When someone else hands over his/her capital to you, it comes with a supreme fiduciary obligation for the funds to be invested with great care and transparency.
This solemn vow also applies to taxation: paying taxes demands transparency, results, and accountability. But governments fail on all fronts.
Now, we’re told growing up that when we disagree with our government, we’re supposed to wait patiently for several years and then voice our dissatisfaction in a voting booth by choosing between two lackluster candidates.
But in reality this changes nothing.
Voting is a pointless and rigged exercise that leads many to false hope, others to angry protest, and everyone else to despair.
My approach has long been to restrict the resources that I contribute to a government that I disagree with.
Money is far more powerful than voting.
And by taking completely legal steps to reduce the taxes that I owe, I no longer make direct financial contributions to what I morally oppose.
Plus staying in control of my income has put me in a position to use the tax savings in more productive ways.
Rather than funding illegal wars, my tax savings have gone to support a distressed village in Nepal, fund a wounded veteran’s $70,000+ experimental prosthetic, and put an orphaned girl through university.
No matter what you do or where you live, there are plenty of ways you can make a huge dent in what you owe.
Maximizing contributions to tax-advantaged retirement accounts is an easy example.
If you’re a US taxpayer, you might also be able to restructure your retirement accounts into a self-directed SEP IRA or solo 401(k), allowing you to take over $50,000 per year off the table, with the added benefit of giving you more influence over how your funds are invested.
Many small business owners can also generate hundreds of thousands of dollars in tax savings by setting up captive insurance companies under Internal Revenue Code section 831.
For anyone with a more flexible lifestyle, moving overseas can also bring significant tax benefit.
I’ve discussed the Foreign Earned Income Exclusion before for US taxpayers, which provides an exclusion for over $100,000 of ‘earned’ income (i.e. NOT investment income), plus further deductions for overseas housing.
Here in Puerto Rico exists yet another phenomenal tax tactic, especially for US citizens.
US citizens can move to Puerto Rico in an instant. For you, coming to Puerto Rico is like moving from California to Texas. There are no visa or immigration requirements.
And once you get here, there are a myriad of special tax incentive laws aimed specifically at investors and entrepreneurs that can dramatically reduce or eliminate taxes on business and investment income.
Act 20, for example, slashes your corporate tax rate down to 4%. Act 22 cuts your dividend income and capital gains taxes down to ZERO.
Remember that Puerto Rico is a US territory, so it has its own tax code and local government.
This means that if you become a resident here earning Puerto Rican income, you are no longer subject to pay tax to the IRS.
That’s the primary benefit.
Here’s an example for an entrepreneur: you could start a business in Puerto Rico without actually moving here under Act 20.
Each year the business pays just 4% tax on its income to the local government, and nothing to the IRS.
After a few years it has accumulated a sizeable cash pile, none of which has been taxed by the IRS.
You then move to Puerto Rico under Act 22, file some paperwork to notify the IRS of your move, then take ALL the money out of the company as a dividend, tax free.
The next year you could move right back to the US with all that money in your pocket and absolutely zero tax liability to the IRS.
This is just one small example, and it’s completely legal.
Only an idiot commits tax evasion or tax fraud. There are countless ways to legitimately reduce what you owe.
And if you believe as I do that they’re wasting your money, it makes sense to consider your own options.
Premium members: I’m just out of meetings with senior government officials here in Puerto Rico; next week I’ll send you an in-depth report of what I learned and how you can maximize the tax benefit here.