Taxing Times
In October, I’ll be in Porto, Portugal, for my annual Offshore Wealth Summit.
One of the topics we’ll cover is filing taxes as an American offshore.
Taxes are a hot topic right now as the presidential race heats up…
Should he be elected, Trump plans to permanently extend his 2017 tax cuts, eliminate taxes on Social Security benefits, and further reduce corporate taxes—moves that are could add north of $5 trillion to the deficit.
Harris meanwhile has taken on Biden’s tax-the-rich platform, proposing a $5 trillion tax increase which includes raising the corporate and capital gains rates, ending the step-up in basis for estates, and taxing unrealized capital gains.
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Little wonder people are looking to escape coming fallout.
Indeed, many people believe the main reason to “go offshore” is to avoid taxes.
And it’s true that there are legitimate ways to minimize your U.S. tax bill as an American overseas… and we’ll cover them when we meet in Porto…
That said, I’ve always recommended against Americans using taxes as a reason to go offshore… because, while Americans have been able to (and still can) enjoy some tax breaks by becoming resident of another country, the bottom line reality is that the tax benefits for Americans overseas have always been limited.
An American living and earning an income overseas can take advantage of the Foreign Earned Income Exclusion to exclude his first $126,500 of earned income from U.S. tax (that’s the figure for 2024; the figure is adjusted upward for inflation annually)…
Up to a few years ago, Americans were able to get a tax deferral on retained profits for any U.S.-controlled foreign corporations.
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Now, the deferred income of big U.S. companies—think Apple and Amazon—with billions of retained earnings offshore from the United States is taxable in the United States.
Those rules hit the little guy, as well.
This change came in with the Trump tax reforms of 2017, and we all were given eight years to pay up.
As I said, I’ve never seen taxes as a reason for an American to go offshore (though the tax advantages can be a big benefit for a non-American taking his life across borders)…
So… what are the benefits?
Diversification, opportunity, and security are the best reasons for anyone, including an American, to diversify offshore.
Years ago, I had a conversation with an American who had read that the euro was going to collapse. He got in touch because he knew I owned property in France.
What was I going to do about my apartment in France, he wanted to know. Wasn’t I worried about the imminent euro debacle?
I explained that if the euro went away, France would bring back the franc… or it would adopt some other currency. My property would then be priced in that currency at an amount that reflected its value. An apartment in central historic Paris has intrinsic worth. You can denominate it in whatever currency you want.
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In fact, if the euro were to collapse, I could take that as an opportunity to pay down the mortgage using stronger U.S. dollars.
Having an investment in euro that generates euro income, as this apartment has done, isn’t only diversification for me and my family. It also adds a layer of security to our lives.
At the same time this guy was asking me about the collapse of the euro, pundits in the United States were calling for the collapse of the U.S. dollar.
Who would prove right in the long run? Impossible, then or now, to predict.
That’s the point of diversification… so you don’t have to worry about which predictions will come true.
Currencies and economies go up and down. Sit with all your assets in a single market, and you get to ride the rollercoaster.
Break out into other options, and your portfolio stabilizes overall… while (potentially) expanding quicker.
A more stable financial portfolio isn’t the only hedge you can gain for your family by going offshore. Creating options for living and earning an income outside your home country gives you and your family greater security long-term.
Our kids have second residencies and second passports. They can live and work in multiple countries, including the United States. If the economy of wherever they’re living and working begins to fade, they can pick up and move somewhere new with better options.
For Kathleen and me personally, another advantage of the international lifestyle we lead is that it allows us to beat the weatherman at his own game.
Our plan has been to spend the best months in Panama each year—January through mid-April—and then to head to Paris for spring, as we did this year.
Right now, we’re in Turkey, scouting opportunity on the country’s stunning Turquoise coast…
Then, when winter looms in Europe, we’ll return to Panama, spending time at LIOS headquarters in the city and our home at Los Islotes.
The point is that going offshore creates options and options lead to opportunities.
What, specifically, could prove to be the biggest advantages of going offshore for you?
I couldn’t say. But I can tell you that staying where you are, wherever that is, and keeping everything you own there with you, is a narrow approach that will lead to limited upside.
Stay diversified,
