Retirement Taxes

[ottonp]

My wife and I have been thinking when we retired we would just buy a massive boat, live on it, and move from port to port as needed. Since we are already saving for our retirement, I am curious how paying taxes would work. I know a lot of people choose the state they retire to based on state income taxes, but if we live on a boat, can we escape state income tax altogether? What about federal? I know puerto rico has no federal tax, they have a special puerto rico tax....just wondering how those living on boats deal with taxes...

[lorenzo b]

use an accountant
set up a mail drop in Florida
register your boat in Florida and the feds if you can
get a CG inspection sticker
go wherever you want

[skipmac]

Florida would work. No state income tax. No tax on the boat. Annual registration fee for the boat minimal.

No way to avoid federal income taxes if you are a US citizen, no matter where in the world you reside if your income originates in the US.

[Doodles]

Originally Posted by skipmac

Florida would work. No state income tax. No tax on the boat. Annual registration fee for the boat minimal.

No way to avoid federal income taxes if you are a US citizen, no matter where in the world you reside if your income originates in the US.

Nope, it doesn't matter where it originates from. If you are a U.S. citizen, your "worldwide" income is subject to US taxes no matter where you are living.

[skipmac]

Originally Posted by Doodles

Nope, it doesn't matter where it originates from. If you are a U.S. citizen, your "worldwide" income is subject to US taxes no matter where you are living.

Well not a tax expert but I did read in the past that if your legal residence is outside the US for long enough and all your income also originates outside the US then after some period of time you are no longer liable for US income taxes.

I could ask my accountant who just moved to Germany. Considering her situation I'll bet she knows the latest rules on this issue.

[Doodles]

Originally Posted by skipmac

Well not a tax expert but I did read in the past that if your legal residence is outside the US for long enough and all your income also originates outside the US then after some period of time you are no longer liable for US income taxes.

I could ask my accountant who just moved to Germany. Considering her situation I'll bet she knows the latest rules on this issue.

I'm a practicing CPA and all I do is tax work. Trust me on this one.

There is something call a "foreign earned income exclusion" which can under the right circumstances make up to a certain amount of "earned" income (~$91,000 for 2009) non taxable. But things like interest income, dividends, capital gains, Social Security income and pensions don't qualify for the exclusion. This may be what you are remembering.

[skipmac]

Originally Posted by Doodles

I'm a practicing CPA and all I do is tax work. Trust me on this one.

There is something call a "foreign earned income exclusion" which can under the right circumstances make up to a certain amount of "earned" income (~$91,000 for 2009) non taxable. But things like interest income, dividends, capital gains, Social Security income and pensions don't qualify for the exclusion. This may be what you are remembering.

Correct. Was referring to foreign earned income only and under certain requirements and restrictions. Since the OP appears to be US citizen collecting retirement from US sources this will probably not apply in any case.

[cdennyb]

i'd look into getting a passport for Belize. I hear (from a banker friend and insurance agent of mine) that if you have $1200 deposited in a Belize bank every month you can qualify for a passport there. Something referred to as a retirement passport (?), catchy name. They use the American Dollar as well. If you show your income in Belize would that still subject you to US Fed tax?

[speciald@ocens.]

You alaso should contact a financial planner to minimize your post-retirement taxable income. Taxes can be paid as late as September each year with extensions. No penalty unless you owe money. I use St. Brendan's Isle in Green Cove Springs, Florida. It is a mail forwarding service that will give you a legal Florida address. Florida does not tax your boat if it has been registered in another state for more than 6 months before you apply for a Florida registration.

[capt_douglas]

You should consult the IRS on this, but for a time I lived outside the US and paid no taxes. I had to file, but claimed foreign residence. There were a number of criteria I hada choice of (less than 30 days stateside, less than 180 days stateside and being out of the US Dec. 31/Jan 1, and maybe a few more) but my accountant at the time suggested the best one for me. This was a 5 years ago before the IRS got all testy about folks socking money away in Swiss banks.

I lived for 7 years in the US Virgin Islands. You didn't pay federal income taxes but you did pay USVI taxes. I'm still waiting for my USVI income tax refund from 1992-1998 so that may be a consideration.

If you want to avoid state income taxes then the thing to do is get residency in those states (FL, NH, for two). Each state will have their requirements for establishment and maintaining residency requirements so you'll need to comply with those.

If you think you can sail from US port to US port and hide out, I don't think that's going to work for too long. However, if you met the criteria, you could cruise the Bahamas, Caribbean, or Mexico, meet the requirements (and have appropriate documentation), file, claim the deductions, and pay almost, or possibly nothing.

[Doodles]

Originally Posted by cdennyb

i'd look into getting a passport for Belize. I hear (from a banker friend and insurance agent of mine) that if you have $1200 deposited in a Belize bank every month you can qualify for a passport there. Something referred to as a retirement passport (?), catchy name. They use the American Dollar as well. If you show your income in Belize would that still subject you to US Fed tax?

Yes, as long as you are still a US citizen.

[skipmac]

Originally Posted by cdennyb

i'd look into getting a passport for Belize. I hear (from a banker friend and insurance agent of mine) that if you have $1200 deposited in a Belize bank every month you can qualify for a passport there. Something referred to as a retirement passport (?), catchy name. They use the American Dollar as well. If you show your income in Belize would that still subject you to US Fed tax?

Even if you "show your income in Belize" where does the check originate? If your income is from the US and they are just mailing the money to Belize that has changed nothing. It is still US income just being sent to another country and still subject to all taxes.

[osirissail]

Originally Posted by skipmac

Florida would work. No state income tax. No tax on the boat. Annual registration fee for the boat minimal.

No way to avoid federal income taxes if you are a US citizen, no matter where in the world you reside if your income originates in the US.

- - Florida is the most popular State for US cruisers traveling the seas for the reasons stated. However, one small correction - ALL your income from anywhere in the world is taxable if you are a US citizen. There are offsets for taxes paid to foreign governments and certain limited exemptions for wages earned in a foreign job.
- - Living on a boat does not remove you from the jurisdiction of the State you are located in. You need a State boat registration from one State or another. Part of the choice of a State is the cost of boat registration/renewals and "use taxes" and "property taxes" that some States levy on boats.
- - And, if you remain in a State's waters for about 90 days (+/- depending upon the State) you might be subject to Sales/Use tax on the value of the boat. So in depth research is needed to locate the "best" State for your needs.
- - Of prime importance after you pick your State is to coordinate all your other Citizen obligations to that State. Things like drivers license; voting registration; banking address of record; Federal IRS address; USCG address for the boat and all the licenses like FCC and Customs decals. Get everything coordinated to one address.
- - This is where outfits like the mail handling services for cruisers comes in handy as some will allow you to use their address as your "address of record." And Florida seems to be the prize winner in that category also if you are cruising internationally.

[onestepcsy37]

become a 'resident' of florida by getting your mail sent to st brendans isle in green cove springs florida. our friends did that just before they retired and he avoiding paying new jersey state income taxes on a big retirement lump sum payout that way. from that you can register your boat in the state (no additional taxes for doing so, but annual registration fees are now over $100).

as far as recurring income taxes there are, of course, no state taxes in florida, and, thanks to low federal tax rates at the lower income levels you may pay little or no income tax on your retirement income. our income is mostly social security and investment income; the social security income is only partially taxed and the investment income i've been taking out is, so far, mostly partially taxable. we haven't paid federal income tax in the past eight years and we're at a 'comfortable' income level.

[osirissail]

With proper planning and lots of foresight you can structure your retirement income from investments to be non-taxable, but if you are in high return investments you will probably be paying some significant Federal taxes which in my case run about 20% of gross. Social Security is only taxable if your other income exceeds a threshold amount. Normally fixed retirement plan income, it you still have such a plan, is treated as normal income since taxes were deferred all the years money was going into the fixed plan.
- - What is important is that you file with the IRS each year continuously even if you qualify for not owing any income tax - unless - your total income drops below the IRS amount for not having to file. The idea is to avoid having to fly back home and spend significant time explaining to an IRS examiner how and why you did not file each year. If you have continuous records of IRS filings then you can normally resolve any questions by mail. It is the old "CYA." principle of avoiding future hassles before they get a chance to ruin your cruising days.
- - With a good bank/financial institution to "park" your retirement income and providing complete internet access, the cruising life is a lot easier. All the IRS forms are available for downloading and you can print them out and fill them in. Without real estate ownership and otherwise getting rid of "complications" back in the home country, you get down to simply taking the "standard deduction" and a one page or at most two page IRS package to mail in each year. My sister (mail handler for me) scans and emails me the 1099's which I print out on board and then attach to the 1040 before mailing.
- - Florida especially, and probably a few other States have no State taxes beyond sales taxes and no "retirement income" taxes, personal property taxes, etc. so you can avoid that whole level of taxation and only be "beholding" to the Fed's.
- - As a side note: there was a recent financial news article about permanent "ex-pats" renouncing their USA citizenship strictly because of the requirement to file IRS forms every year even when they did not have an USA derived income or other income that was USA taxable. Such "renouncing" filings have quadrupled in the last year.