U.S. Taxes from investments while cruising

[kaiserlp2]

So we have been working so hard on what we thought was the "difficult" part to become liveaboards (aquiring the funds), that I actually failed to consider all the other "challenges" that are included with leaving the U.S. for an extended period of time.

A bit of background: Turning 50, wife 3 years younger, daughter a freshman in high school.

We will be waiting to leave until she graduates (2017). At this time, we "think" she'll take a year off prior to college and go with us, but that will somewhat depend on college scholarships.

Our plan is to stick in the carribean for approximately 6 months, and then figure out whether to head throught the canal, or across the Atlantic.

Cruising will be funded by dividend/interest income from investments. We are looking at $30k per year.

I've done some forum searching, and haven't really found any advice/guidance on a few of my questions:

1) What "state" do you claim to be a resident in while cruising? Some states don't have "income" taxes, but others do. did you decide based on that? We don't plan on ever bringing our boat to the U.S. (it's in the BVI right now).

2) Health insurance and the ACA... we could "theoretically" claim to live outside the U.S. for the 330 days per year, but we'll still need to insure our daughter while at college. Anyone having to deal with that yet?

3) how ABOUT tax returns? Do you just jump online and fill out the forms, or do you have somone do them for you? Or do you plan a trip back to the U.S. prior to April 15th?

I realize that any "advice" may be worth only what I'm paying for it, but it would be of great assistance to understand possibly how people have tackled some of these issues

Thank you in advance

Phil

[Kenomac]

Sounds like you have an excellent plan!
Suggestions:
1. Pick a state with no state income tax for residency
2. Pay cash for most of your healthcare needs and purchase a catastrophic plan for the big stuff, which is easy to do outside the USA and cheap.
3. Tax returns online
4. Enjoy the South Pacific, hopefully, we'll see you there.

[ejs]

Watch the college tuition situation if your daughter might go to an in-state school. For example, here in California the in-state tuition savings are much higher than the state taxes on a dividend income...

Eric

[msponer]

1. There are mail services in Florida and South Dakota that will help you establish residency in their state. Both states have no income tax.

However, this may not be necessary. I've been surprised at how the tax code favors those living off of investment income. A family of four can earn about $80k from a common mix of dividends and long term capital gains and not owe any taxes after the standard deductions.

One thing I've learned in the last year is that its important to setup your investments to control your income: for example, I had to switch from a mutual fund to ETF's because the mutual fund was kicking out taxable income that I did not want.

2. We have a high deductible plan through the ACA, and I am happy to have it. The premium for two adults and two kids is about $600/month. It's important to me that we have insurance in the US if one of us develops something awful and expensive, like cancer.

3. We have a printer and scanner on board, and have been able to do everything through email with our accountant.

[kaiserlp2]

Originally Posted by ejs

Watch the college tuition situation if your daughter might go to an in-state school. For example, here in California the in-state tuition savings are much higher than the state taxes on a dividend income...

Eric

Extremely good point! Same way here in Missouri... it's about 240% more per credit hour for "out of state" tuition.

Thanks!

Phil

[kaiserlp2]

Originally Posted by msponer

1. There are mail services in Florida and South Dakota that will help you establish residency in their state. Both states have no income tax.

However, this may not be necessary. I've been surprised at how the tax code favors those living off of investment income. A family of four can earn about $80k from a common mix of dividends and long term capital gains and not owe any taxes after the standard deductions.

One thing I've learned in the last year is that its important to setup your investments to control your income: for example, I had to switch from a mutual fund to ETF's because the mutual fund was kicking out taxable income that I did not want.

2. We have a high deductible plan through the ACA, and I am happy to have it. The premium for two adults and two kids is about $600/month. It's important to me that we have insurance in the US if one of us develops something awful and expensive, like cancer.

3. We have a printer and scanner on board, and have been able to do everything through email with our accountant.

Thank you for the information!

I've even noticed that some states don't have an income tax, but DO tax dividends... and of course, there's always that wonderful possibility of a law changing while we are cruising. blech!

On #2, I have a question. Since a company can't turn you down for a "pre-existing condition", wouldn't you just be able to purchase that plan at the time you need it? Of course, that's assuming you meet one of the exemption requirements (like outside the U.S. for 330 days)...

I like #3 a lot. I can easily check with our tax preparer and validate whether she would accept that arrangement!

Appreciate your responding...

Phil

[kaiserlp2]

Originally Posted by Kenomac

Sounds like you have an excellent plan!
Suggestions:
1. Pick a state with no state income tax for residency
2. Pay cash for most of your healthcare needs and purchase a catastrophic plan for the big stuff, which is easy to do outside the USA and cheap.
3. Tax returns online
4. Enjoy the South Pacific, hopefully, we'll see you there.

Well, again, the concentration has been on being able to AFFORD doing this. Now that that has been accomplished, I'm just coming to realize that there is a ton more to think about.

Interesting how just having the boat and the funds just highlights all the other things one needs to consider!

Thanks for the input!

Phil

[msponer]

Originally Posted by kaiserlp2

On #2, I have a question. Since a company can't turn you down for a "pre-existing condition", wouldn't you just be able to purchase that plan at the time you need it? Of course, that's assuming you meet one of the exemption requirements (like outside the U.S. for 330 days)..

I didn't know that. Do you know how quickly you can enroll? It probably takes a few weeks to start chemotherapy or have heart surgery, so that you may only be liable for emergency care and a few days or week of hospitalization?

When one of my kids was younger I had to take her to the emergency room quite often, and I saw how they treat folks without insurance. I wouldn't want to be in that situation, of being pushed out the door. So even if it works to enroll in ACA at the last moment, I'm not sure its something we would do.

[ReMetau]

For the ACA health, I think you still have to purchase within the open enrollment period.

[onestepcsy37]

Try florida.

No income tax. And St Brendans Isle, a very reliable mail forwarder and a florida address.

Our friends have been using them for five years as a florida address and are very happy with them. They are widely used by other cruisers and mororhome people too.

[kaiserlp2]

Originally Posted by msponer

I didn't know that. Do you know how quickly you can enroll? It probably takes a few weeks to start chemotherapy or have heart surgery, so that you may only be liable for emergency care and a few days or week of hospitalization?

When one of my kids was younger I had to take her to the emergency room quite often, and I saw how they treat folks without insurance. I wouldn't want to be in that situation, of being pushed out the door. So even if it works to enroll in ACA at the last moment, I'm not sure its something we would do.

See quote directly after yours. Appears that there may be more 'snags' in doing this that I had read.

I can totally understand your points (and concerns) on this. And you're right... with those types of serious illnesses, it not something you can 'wait' for generally.

More to think about and consider....

:-)

Phil

[kaiserlp2]

Originally Posted by onestepcsy37

Try florida.

No income tax. And St Brendans Isle, a very reliable mail forwarder and a florida address.

Our friends have been using them for five years as a florida address and are very happy with them. They are widely used by other cruisers and mororhome people too.

Looks like SBI has found a nice niche market to be successful in! Thanks for pointing this out.

They have some great services, at what appear to be very affordable rates.

Phil

[ReMetau]

Originally Posted by kaiserlp2

Looks like SBI has found a nice niche market to be successful in! Thanks for pointing this out.

They have some great services, at what appear to be very affordable rates.

Phil

We have been using them for years. Well worth it.

[In Training]

If your daughter takes a year off to travel with you and you change state residence, she may have to go to an in-state school in the new location, although Florida would be a great place to go to school at that age.

Some states allow if high school there and other require the residency just prior.

[letsgetsailing3]

Before you go all in with the "tax-dodgin' " scenario, check on what it will actually cost to go with your real situation.

If you own property in a state, it may make sense to keep that as your state of residence.

With that level of income, you're not likely to incur very much of a tax burden after deductions. Like others have pointed out, it may also make sense to retain state residency to help with in-state tuition or other state benefits. Will you be returning to a particular state?

I don't really have a problem with people gaming the system a little, but it's worth first consulting with your accountant -- I've seen people go all out to avoid taxes while shooting themselves in the foot in some other financial or logistical way.