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Hi list, I read somewhere that a US citizen after two years of legaly residing in CR will be exempt from some or all US taxation? Any thruth to that?
You’re kidding, right? It ain’t ever going to happen and certainly not just b/c you bailed out to live in Costa Rica. All worldwide income must be reported. All bank accounts to which you are signatory or beneficiary must be reported if the aggregate sum is $10,000 or more. The only way you won’t have to pay taxes is if you are collecting SS and that is your only source of income and it is below a certain amount; in this case, you won’t even have to file a 1040, but don’t think you can hide income in Costa Rica. They have all kinds of ways of checking up on you to see if you are living above your means and reporting X amount of income.
Maravilla has it exactly right. The U.S. taxes its citizens’ income universally — regardless of where they live and regardless of where that income is earned. The only relief may come in that there is a credit on your U.S. return for taxes paid on that income to a foreign taxing authority, so you probably won’t be taxed doubly.
I think I know that the IRS Code permits U.S. residents of foreign countries some freedom to file later than April 15th, but I’m not sure just what’s allowed. We filed in March, so it doesn’t matter to us. But that’s about the only break one gets for living outside the U.S.
The best perk would be not having to file taxes at all and if you meet certain requirements, such as SS being your only source of income, then you can opt out of the game. Sure would be nice to disconnect from the system — that’s what I’m striving for.
The IRS does offer an exemption up to a certain dollar amount for those residing outside the US. The amount varies based on if you are filing single or jointly with a spouse. You also need to check the requirements for State taxes from the State you left from because not all States offer the same exemptions for your State income taxes.
That could work but only if you have dual citizenship and another passport from some other country. But even renouncing your citizenship isn’t that easy from what I’ve heard.
Please check the facts with your ‘internationally aware’ accountant but I believe if you are a fully legal resident of Costa Rica and have been living outside the USA for a specific period – the first $80K of your non-US wages/salary income is exempt from US taxes. Please understand that exemption applies to your wage earnings and not interest income or capital gains….
That would be $80K for you and $80K for your wife and believe me you can live extremely well on $80K in Costa Rica
But again, please check these facts with your ‘internationally aware’ accountant.
Scott Oliver
PS. Giving up citizenship is really no longer much of an option as far as taxes are concerned as the IRS reserves the right to tax you for a period of ten years if THEY feel that you have given up your citizenship for tax reasons.
Some important considerations: First, the U.S. IRS Code provides for taxation of income earned in the U.S. regardless of the citizenship or residency of the earner. A Japanese citizen and resident who invests in a U.S. security which pays dividends in the U.S. is subject to U.S. taxes.
Second, the IRS Code provides for universal taxation of the income of U.S. citizens. The interest you earn on your bank account at Banco Nacional de Costa Rica is taxable by the U.S. IRS. So is the rent on your home here in Costa Rica. Any income, regardless of source, is taxable, if you are a U.S. citizen.
Third, if you are a full-time resident of Costa Rica and do not maintain a home anywhere in the U.S., you do not have to be a resident of any U.S. state. Regardless of where you lived last, or what your mailing address may be, if you don’t meet the standards of residency in any state, then you aren’t a resident of any state, and (among other things) you are not liable for any state’s taxes. You also can’t vote.
David, the explanation of requirement to pay state taxes is not totally accurate. Scott said it best…please, please check with your internationally informed tax consultant before taking any of the advice given here to the bank so to speak. Each State may have different tax laws regarding living in a foreign country. California offers the same expemption as does the Federal Govt. if your primary residence is in a foreign country. However, we have friends that moved from Mass. to work in England. Mass. does not have an expemption of State taxes for residence living and working outside the country. Since Mass. was their last known residence they have had to pay State income taxes for 8 years now and have not been back to Mass since leaving. To me, that is criminal. The bottom line though is definitely get professional advice when it comes to taxes.
Hmmm . . . Well, if you say your friends are paying the Mass. tax, then I guess they are. What I don’t understand is how Mass. continues to impose residency in Mass. upon someone who doesn’t live there. What keeps them from imposing that same residency status on me?
If you don’t live someplace, if you don’t vote there, if you don’t have that state’s driver’s license, if you don’t work there, then what about your life defines you as their resident? We, at least, have notified North Carolina that we’re no longer its residents, and we certainly won’t be paying them any taxes after the 2005 tax year.
What would happen to your friends if they just quit paying Mass.?
That’s why we call MA TAXACHUSETTS!!!!! Some friends of mine moved to CR from AZ, but they first moved their stuff and “established residence” in NEVADA before going to CR. They are done since NV does not have a state income tax. Attorneys can set it up in NV quite inexpensively as well.
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