Boring Tax Stuff:

Well it’s that time of year when we must think of taxes. Normally we like to talk about fun things here at Four Flags Journal (FFJ). But since we who are U. S. citizens must continue to pay taxes to the U.S., in theory at least, no matter where we live in the world, we think that we need to pass tax information to those who are packing their bags in the U.S. with plans to head south.

We who are from the U.S. also have to deal with local taxes in our new country and it can seem a little complicated.  So this week we thought we’d give you an idea what is available to you as a resident living and working in a foreign country and what a U. S. expat’s obligations are back home. Expats from the UK, India and other countries are free from tax obligation as soon as they move outside the country of their birth. Not so the U.S. citizen.

Please keep in mind that we are not accountants or tax preparers. We are only U. S expats who struggle with these things too.  Therefore, you will need to consult your accountant to see which applies to you and what you need to do to avoid tax complications.  If you have U. S. income, such as a pension, and have less than $10,000 total held in foreign accounts at any time in the year, then nothing will change. You still have to pay income tax in the States, of course—if you owe any. For you, not much changes in your filing obligations.

If you earn from being employed or own a business in your adopted country, there is still a silver lining on this cloud. If you are salaried—say you are a programmer who has immigrated to Santiago, Chile–you have a $97,000 U. S, tax exemption on money earned offshore. It is even more for a couple. You will still need to pay taxes in Chile, of course, but you get a break on your U. S. tax burden.

Technically this exemption applies only to earned income.  Self-employed and capital gains are another matter. But if you are self-employed, you could still be able to avail yourself of the tax benefit by holding your business in a corporation in a non-taxed jurisiction, which, in turn, pays you a salary. Here is where you will need a tax adviser for sure to plan for your specific situation.

But it goes even further depending on how much taxes you want to legally avoid and the nature of your business. We, of course, do not object to paying reasonable taxes in our adopted country. But in many countries, local taxes don’t kick in unless you are there about six months. A little less than six months and you have no tax obligation. You would need to find out the law for the country of your choice. Some business owners take advantage of the U.S. offshore exemption, live in two countries outside, and just make sure they are not in either country long enough to be required to pay taxes. With their corporation paying them a wage that comes under the U. S. exemption, they are relatively tax free. Of course this strategy could also work for a non-U.S. citizen, who has no obligation to the country of his birth in the first place.

The most onerous tax factor for us in living offshore is not the taxes but the reporting requirements to the U.S. In addition to the normal income tax forms there are two other forms required. The FBAR has to be sent to the Treasury Department before June 30 if you had more than $10,000 US total equivalent in foreign accounts, and the Form 8938 or FATCA has to go in by April 15 with your income tax return if you have offshore accounts the accumulated total of which amounts $50,000 on the last day of the tax year or $75,000 at any time during the tax year Failure to report or to report accurately have draconian fines and possible jail time. Please notice we are not talking about neglecting to pay legitimate taxes, but inaccurate reporting or failure to report.

The reporting requirements were increased in 2012. Storage of precious metals was added last year, plus there was one form at first, now there are two separate ones, both reporting the same information, but one sent to the IRS by April 15, the other to the Treasury Department.

You can read the official IRS information on the FBAR form here, Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) and the official IRS information for the FATCA (Form 8938) here.  http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA)

Another consideration is that you can make tax-advantaged investments offshore through your IRA—which is another subject.

This will at least give you an idea what will be your tax challenges if you are departing the United States. For you non-U.S. readers who have waded through all this boring stuff, you can just count your blessings that it does not apply to you.

We Rant About Hypesters!

One thing about producing your own newsletter, you get to say whatever you want. This is a rant. I get so irritated at the hype by some writers about certain countries without giving the downside. I promise you that if we miss telling you a downside it is because we just don’t know about it. And it can happen. I am grateful to you folks that are on the ground who write and correct us when we do miss it. Thanks again to Bill last week who told us the Caribbean bank would not open an account by mail. We are GRATEFUL.

I continually read that Panama checks all the blanks for everything including business. In our opinion that is not true! As far as we can tell, Panama is very good for retirees or people with income from outside the country who have no interest in acquiring a second passport any time soon or operating a retail business in Panama. But if that does not fit your profile, unless you have VERY deep pockets, our advice is–look elsewhere.  Most retail businesses are, by law, reserved to locals. There are exceptions if you have very deep pockets and can invest in a large hotel, a manufacturing plant or similar project.

But for small businesses, it is legal for you to invest your money and own it, but Panamanians have to do all the work.  One family we know of bought a small restaurant there. The gestapo arrived one day and one family member was in the kitchen. They claim they were not working, but were just there.  We don’t know. We were not there. But they were deported. That family is now looking at our area.

So be careful. Even if you are advised by a lawyer who speaks at conferences. Look at what they say, for sure. You have to get information somewhere. But be skeptical and be careful.

We promised you a synopsis of Gerald Celente’s trends analysis for 2013. We are still awaiting the winter issue, but here is an interview of Mr. Celente on January 1 that you might enjoy in the meantime.

http://www.youtube.com/watch?v=asKFlT2LQVY

Everybody is reading this newsletter!

Well, probably not, of course, but sometimes I am tempted to think so. Almost every free newsletter I get right now and some that are paid subscriptions are talking about the “flags theory,” be it four flags, five flags, or whatever. Well of course that theory didn’t originate with us, or any anyone that are still alive, but it surely is becoming popular these days—and rightly so.  If nothing else, if we  do have enough assets to justify doing so, we think it is time to begin to diversify our banking, as soon as possible. Of course we believe in much more diversifying more than that, but that is a first step. When governments get desperate enough for funds, they start looking around for any source of wealth.  We think it is best to have at least enough to give us options–outside their reach.

Right now in Argentina we see people who are trapped. They cannot leave because they are not able to get their own money out of the bank in their home country without first explaining why they want it and getting permission—which is usually not given. Even some U.S. citizens who have been living and working here and saving are left with only the option of taking Argentina pesos back to the States, there to find that their bank will not accept them, or else they offer a much reduced rate if they do accommodate the exchange.  Argentines who diversified have a decidedly different situation.

What about YOUR country. How are they doing financially and debt-wise? Do you feel secure?

Spanish

We wonder how you are doing who are working on the Spanish course. If you are making plans to come south, we repeat that you will be a long way ahead if you start learning Spanish now.  Can you live here without Spanish?  Absolutely. Many people do. But the entire experience is much richer if you know the language. And it really isn’t that hard to learn. You can just relax while continuing to work at it most days.  While I did pass the “language test” at immigration, I intend to become proficient with Spanish.  This course has been great for me. I make a cup of coffee, make myself comfortable, turn it on and practice.  One of my resolutions for 2013 is just to work on it every day.  I don’t stress over it, I don’t memorize conjugations. None of that is necessary. I just patiently keep moving ahead. And I continue to make gains.

As you know I patronize my neighbors when I shop. I feel that I am helping their families by doing business with them, and I love the personal touch. I live in an enormous city, but within that city is my own little “small town.” I know my vendors and they know me. I went into my little pharmacy here this week to buy magnesium chloride and hydrogen peroxide. The pharmacist heard me talking with the clerk, both of us laughing at my Spanish as I tried to pronounce the Spanish-language version of magnesium chloride. He came out of his inner sanctum to the counter to speak to me in English. He said, “Your Spanish is PERFECT!” Hahahaha. He had heard me talking with the clerk and came to pay me that compliment. Of course I know that he overstated in typical generous Argentina fashion but I got the message. He noticed the improvement.

I’m not spending $200 a week like I would have to pay for the immersion classes, and I’m not laboring over memorizing conjugations and grammar, I am just following the teacher for a few minutes every day. I will confess I do sometimes get carried away and work at it more than my designated 45 minutes but sometimes I quit at 30 minutes on a busy day. But it is working.

So if you signed up and run into any problems, don’t hesitate to let us know. We’ve probably been there and done that too and may have a suggestion or two.  We want you to succeed!

We know that our subject this week has not been the most exciting, and was mostly for U. S. citizens and hope the rest of you will bear with us. For people from the U.S. this can be an important issue.

Argentina

There is little to report here that is new.  Argentina is still her beautiful self. The weather in Buenos Aires is awesome. Having spent years in Florida, we consider Buenos Aires better than Florida. There is no rainy season and no dry season. We have beautiful days for a while, then a couple of days of rain just about when we need it to keep everything beautiful, then the sun shines again.

No, we have no chemtrails here that we can ever see. The skies may be blue or overcast, but no airplanes are in the skies, leaving a crisscross of trails that billow out and cover the entire overhead.  For Argentines and others reading this who may not understand, you can research “chemtrails” on the Internet.

The clouds that we do see over this entire area are economic. We think that Argentina, in particular, moves relentlessly closer every month to a crisis that we think must come, though we have no idea how long it may take to arrive. In the building where we rent, our building expense (condo fees in U.S. vernacular) went from 446 pesos per month to more than 600 pesos. Then last month they jumped to 836 pesos and now this month they were 958 pesos. That is how much the increase has changed in only two months. Perhaps this will give you an idea of what is happening here.

Our empathy is with the Argentina people. We are more fortunate than the average Argentine, having income from outside,and  in dollars. The “official” exchange rate here (set by the government) is now close to 5 pesos per $1. But on the illegal market, the exchange rate was 7.12 pesos on Friday.

Some here don’t think the crisis this time will be as bad as 2001. But other Argentines plan a permanent move from Argentina if the current regime is not removed at the next election.  Since we like Argentina so much, it is sad to us that the class of people who are planning to leave are the class of people that we think Argentina needs the most.  They are intelligent, productive people. But we will wait to say goodbye to them until we see if things change for the better.

Venezuela

The official word we have is that Venezuela President Hugo Chavez lays in a coma in a Cuban hospital after one more surgery for cancer. Some Argentines think that Chavez is deceased and it is just being kept secret for now. We think that is possible.

Next week we promise to have something fun to offer you. But first things first and we have to take care of business.  Until then, hasta luego, mis amigos! See you soon . . . in South America!

Arlean