How to get to ZERO income tax.

This will cover ANYONE in the WORLD.

HUGE VALUE THREAD!

THIS IS MY CURRENT TWITTER MAGNUM OPUS.

Bookmark this, print it out, mark it up, don't try to get through it all today, and for f*ck's sake RT it so EVERYONE can benefit!!!

***THREAD***

Section 1: The basics

Income tax is based on income

Your wealth, your sales, and your ad spend don't have income tax.

Your income/profit does, BUT not all income is taxable.

So first, if you want to get to ZERO income tax, you need to get to ZERO TAXABLE INCOME.

So how do you get to zero taxable income?

There are two ways.

Subject yourself to jurisdictions that do NOT tax income.

OR

Only have income that your jurisdiction does NOT tax.

Let's give two examples of this:

1) There are countries that do not have income tax. If you are ONLY subject to that country's tax system, then make all the income you want.

2) Your country may not have income tax, BUT may not tax certain types of income. Load up on that.

Section 2: Who taxes you?

Let's get more advanced.

Every country has rules that determine if you are subject to their taxes.

Let's use a few countries as examples: The US, Canada, the UK, Australia, and Uruguay.

The US

In general, the US is the further reaching.

If you are a citizen of the US, if you make money anywhere, the US claims the right to tax it (if taxable income).

STOP, U.S. PEOPLE - DON'T PANIC - THERE ARE A BUNCH OF EXCEPTIONS TO THIS RULE. WE WILL WALK THROUGH THEM.

If you aren't a citizen, but a resident of the US and live in the Cayman for three months a year and make taxable income there, the US would tax it.

Key point here is a resident of the US can break residency and no longer have US tax - a US citizen will have to meet exceptions.

Canada/the UK/Australia

I'm putting these together because they are similar in who they tax.

All three of these countries tax the WORLDWIDE income of their residents.

You can break residency of any of these countries, while remaining a citizen, and no longer be taxed by them.

@lawrencekingyo has mentioned several times getting to zero income tax.

His first step would have been to break UK residency, but could remain a citizen.

So if you live in a country that taxes its residents on worldwide income, breaking residency may be key in getting to ZERO INCOME TAX.

STAY WITH ME. I'M NOT TELLING YOU THAT YOU HAVE TO MOVE TO GET TO ZERO INCOME TAX - IT'S JUST A COMMON WAY TO GET THERE.

So how do you break tax residency in one of these countries?

It's usually a fairly easy process: you move to a new country.

A "move" is subjective, but basically shift the big things in your life to a new country: immediately family, job/business, cars, where you get your mail.

There's also some rules about time you spend in the country you break residency from. You can usually visit, but not spend a ton of time there.

Let's say you UK/CAN/AUSTRALIA want to take this path of break residency. What next?

Hold that thought and I'll get back to you.

Let's move back to the US for a min.

Again, you can break residency, but the US is still going to tax you so what are the exceptions?

#1 FEIE - If you move to a foreign country, your first $107k and some of your housing costs can be EXEMPT from US income tax.

If you are under that threshold, then you are in the same boat as people in the UK/CAN/AUSTRALIA breaking residency.

What if you are above $107k? How do you get to zero?

First, think about this - if you are single making $150k in the US, you are probably paying $55k in tax!

So if you end up living in a low cost country, making $107k tax-free then you are much better off.

...but let's say you are a US citizen and you make $300k and you want to get to ZERO!

Honestly, it's tough, but you can get to 4% which is pretty damn close to ZERO from the 40%+ you might have been paying.

Section 933 of the US Tax Code literally says that if you are subject to US tax, but are a tax resident of Puerto Rico, the US won't tax your income!

Wha???

Yeah, it's true.

So what's the 4%?

It's a reduced Puerto Rico tax that PR gives to foreign companies to setup shop in PR and service foreign markets.

4% on business income and 0% on dividends. Again, pretty close to ZERO.

Pretty amazing actually.

So those are the move scenarios if you are US:

US FEIE to get to zero US tax if you are under the $107k threshold. Pick up with UK/CAN/AUSTRALIA for Step 2.

or

Move to Puerto Rico and pay 4% if you have a qualifying business.

I'LL VISIT A DIFFERENT PATH IN A MINUTE FOR PEOPLE WHO WANT TO STAY IN THE US!!!

...and get to zero tax.

Step 2 - Back to UK/CAN/AUSTRALIA

So you've broken residency and are now no longer subject to your country's tax. Again, you can still be a citizen.

Now what?

Well, now find a country that won't tax you and take residency there.

There are two paths here:

1) Find a country with no income tax: Bahamas, Cayman, Monaco (THE LIST IS HUGE IF YOU GO LOW TAX).

or

2) Find a country that only taxes income earned in the country - TERRITORIAL - (Uruguay, Costa Rica, Panama, and several others).

ZERO Tax Countries

There are 15. Some might work for you. Some might not.

For many, these aren't the best options for a variety of reasons. They also aren't necessary to get to ZERO income tax, as you will see.

TERRITORIAL Tax Countries

These countries tax income you earn in them, but not income you earn outside of them.

Setup residency here and don't make in money IN the country to get to ZERO income tax.

How do I not make taxable income IN the territorial country?

Two Ways:

1) Depends on the country, but in general, don't service businesses within the country or sell anything to anyone in the country. Get all your revenue/sales from outside.

...

2) Free-trade zones. Some countries utilize areas where if you follow certain rules, there is NO TAX.

Uruguay is a great example, right @lawrencekingyo?

Step 3

You have broken residency in your home country so you don't have tax there.

You have setup residency in a no tax/territorial country. If territorial, you aren't creating taxable income in the country.

Step 3 is don't create taxable income anywhere else.

Avoid Residency and Permanent Establishment

Avoid tax in non-resident countries by NOT doing the following:

1) Don't create residency in another country. Generally, don't stay more than 183 days in a year.

2) Don't get a job, have a office, or employees in another country.

On the second point - you can visit other countries and make internet sales to residents. You can also have contractors.

In general, just don't create a business presence in another country with a building or employees.

Also don't get a job or perform in person services.

In Summary - Moving for ZERO income tax

Break residency from your home country, setup residency in a no or territorial taxed country (don't have taxable income there), and don't create a business or stay more than 183 days in other countries, and you can get to ZERO INCOME TAX.

Okay, now, what if you don't want to move for zero income tax?

What if you want to stay in your country?

Remember in the beginning when I talked about taxable income?

Let's start with the US.

Certain income in the US is exempt from tax.

Make all this you want and get to ZERO INCOME TAX.

Examples:

Real estate gain exclusion. Buy a house, move in, fix it, flip it, and pay no tax on the gain.

Municipal Bond interest - tax free.

Loan proceeds from whole life insurance - see @ChroniclesNate

Qualified ROTH IRA or 401(k) distributions.

If you can get your whole income portfolio to the above - it's easier than it sounds, then you can get to ZERO income tax while still living in the US.

Another way is deferral

There are a lot of things you can contribute you that defer taxes:

401k, IRA, HSA, etc...

but even bigger ones like a Solo 401k on your business that you can contribute $57k to and pay no income tax this year.

In fact, if you have multiple businesses, you could potentially defer $57k of tax for each and even contribute more to a pension plan - potentially deferring $150k of income!

The catch in using deferral to get to zero income tax is 1) most of us need money to live on. Unless that comes from tax exempt sources, whatever isn't deferred is taxed.

2) If you use deferral, you'll get taxed later. For this reason, I'm a big fan of paying tax now and using tax advantaged vehicles for getting to zero tax later - like ROTHs or Whole Life Insurance.

In other countries, the same applies above as in the US.

If you are in a country that has tax and you don't want to move to have ZERO tax - you have to find sources of income that are not taxed or you have to find tax-advantaged vehicles/wrappers to defer your tax.

This is a lot of information.

I've used the US as an example of a country that taxes citizens everywhere, but with key exceptions to move and get to zero income tax.

I've also used the US to show how you don't have to move and can use exempt income/deferral to get to zero tax.

I've used UK/CANADA/AUSTRALIA as examples of countries that only tax residents and how to move to get to zero income tax.

They also have exempt income and deferral strategies if you don't want to move.

I hope in all of this you have been inspired.

You have now seen that zero income tax is possible.

Even more importantly, you have seen that LOW TAX is possible and moreover, with proper planning, you can pay MUCH LESS TAX than you are paying now.

This was a lot of work.

There is no one you know that this thread would not benefit.

My DMs are always open to all.

Let's RT the f*ck out of this so EVERYONE CAN BENEFIT!!!