How Jurisdictional Moves Can Save Millions Over the Coming Decades

Are high taxes slowly draining your wealth-building potential?

It was 2014, and I grew up in the Philadelphia area, where it was cold and dreary throughout the winter.

My partner and I were buying distressed mortgages and knew we would earn income from those investments over the coming years.

I asked my lawyer about foreign jurisdictions, but he mentioned you must be a resident.

So, with any jurisdiction, you need to meet the residency test that is more than 183 days for places within the US.

Also, there is a closer connection test; things like doctors, voting, schools, kids, etc., must be present where you live.

Then he said to check Puerto Rico. He heard something but needed to figure it out.

Of course, as anyone would, I went home, started googling, and found myself on a plane a few months later.

The decision at that time was easy: warm weather, no taxes, and I was single, so it was easy to make the move.

Relocating to a state like Florida or even the U.S. territory of Puerto Rico could be the secret to saving thousands, even millions, over your lifetime.

Of course, uprooting your life isn't a decision to take lightly.

Let's dive into the potential financial gains, the lifestyle trade-offs, and whether a tax-motivated move could transform your financial future.

Florida: The Sunshine State Savings

Eight states in the United States do not impose a state income tax: Alaska, Florida, Nevada, South Dakota, Tennesse, Texas, Washington, and Wyoming.

For many investors and high earners, Florida's biggest draw is simple: no state income tax.

If you live in a state with an average income tax of around 5%, imagine how that chunk of your earnings could supplement your investments or retirement savings.

• Beyond Income Tax: While zero income tax is the headline, Florida often offers other tax advantages worth exploring, such as lower property taxes or favorable inheritance tax rules.
• Lifestyle Considerations: Florida boasts warm weather, beaches, and attractions that appeal to retirees and families alike. For remote workers, it offers flexibility and potential cost-of-living benefits.

South Florida is becoming increasingly popular among millionaires and billionaires establishing their company's headquarters or residency.

Jeff Bezos, Ken Griffin, and Stephen Ross are just a few of them.

As the saying goes, follow the smart money.

Puerto Rico: Tropical Tax Incentives

Puerto Rico offers a unique proposition for certain investors and entrepreneurs.

Through Act 60 (formerly known as Act 20/22), eligible individuals and businesses can enjoy extremely attractive tax incentives, including:

• 0% Tax on Capital Gains: If you relocate and sell appreciated assets (stocks, real estate, etc.) after becoming a resident, you could avoid capital gains taxes entirely.
• 4% Corporate Tax Rate: This can be significantly lower than federal and state corporate tax rates for qualifying businesses.
• Exemption on Dividend and Interest Income: Investment income generated within Puerto Rico may be tax-exempt.
• Understanding Eligibility: It's important to note that qualifying for Act 60 benefits requires meeting specific residency and investment/business activity requirements.
• Lifestyle Considerations: Puerto Rico's vibrant Caribbean culture and beautiful island setting offer a unique lifestyle, but certain adaptations, such as language (Spanish), infrastructure, and distance from the mainland US, are required.

Beyond the Numbers: The Pros and Cons of Relocating

While the potential tax savings can be incredibly enticing, it's crucial to consider the broader implications of such a significant move. Here are essential factors to weigh:

• Financial Impact: Let's use those calculators! Here's a link to an IRS calculator where you can experiment with the different states and see their impact on your income tax.
• Social and Familial Ties: Uprooting yourself means potentially being further away from friends and family. As one investor who relocated from Pennsylvania to Puerto Rico shared, "While frequent flights are possible, you will inevitably see loved ones less. Building a new social and professional network takes time and effort."
• Logistics and Practicalities: Finding housing, navigating a new healthcare system, managing long-distance business operations, and adjusting to a potentially slower pace of life on an island can all impact your day-to-day and business momentum.

Is a Tax-Motivated Move Right for You?

The allure of saving substantial amounts on taxes is undeniable.

However, a successful relocation requires careful consideration of several factors:

• Financial Threshold: At what income level and potential tax savings do the cost and disruption of moving become truly worthwhile?
• Long-Term Commitment: Are you prepared to establish residency and potentially maintain it for several years to comply with tax benefit requirements?
• Personal Priorities: Does the lifestyle of Florida or Puerto Rico – the climate, amenities, cultural differences – truly align with who you are and what you enjoy?
• Type of Lifestyle: Would you thrive in an island setting, potentially sacrificing some convenience and pace for unique experiences? Or do you value the familiarity and access of a mainland US location?

It's important to be honest with yourself. If the lifestyle, logistical challenges, or emotional cost outweigh the financial gains, a tax-motivated move might not be optimal.

Conclusion

I moved back stateside in 2019 because I now have a family and desire more services and things we are accustomed to.

Relocating for tax benefits can boost wealth but requires research and reflection.

If the timing and circumstances are right, a tax-motivated move could help you achieve your financial goals faster.

Take your time with a relocation!