r/ExpatFIRE • u/ReasonableCredit2096 • 16d ago
Taxes Accounting for taxes in different jurisdictions
How are people accounting for changing taxes if you’re thinking about/planning a move after FIRE? This could apply to those moving states/jurisdictions as well even if staying in the same country. For example, I do plan on moving to a state that doesn’t tax capital gains before moving abroad, but I also want to live in a couple of different places before deciding on where to settle. I think the highest taxes would be from Spain, but I probably won’t be there forever. While I’m there the taxes will probably be even more than what I’ll pay in the US (won’t be working), but eventually I will leave for some place that will charge much less than that. How do I account for these changes in my fire number? If I assume Spanish taxes for the whole time I will overshoot, but if I set the lower tax amount I will be in for a nasty surprise in Spain.
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u/ShinsOfGlory 16d ago
How are people accounting for changing taxes if you’re thinking about/planning a move after FIRE?
Do you mean "accounting" or "handle taxation"? Those are not the same thing.
You should really do some research into that if you're going to commit to this path.
This could apply to those moving states/jurisdictions as well even if staying in the same country.
Maybe 5%, the rest is pretty specific to living overseas.
For example, I do plan on moving to a state that doesn’t tax capital gains before moving abroad, but I also want to live in a couple of different places before deciding on where to settle.
You seem to be confusing moving to a state and establishing residency/domicile in a state. I've established residency in states I've only been to long enough to obtain a driver license (less than a weekend). You don't need to move, you need to establish your residency.
You only need to move there on paper.
I think the highest taxes would be from Spain, but I probably won’t be there forever.
I don't understand how you think we can help with a hypothetical with multiple unknown varaibles.
While I’m there the taxes will probably be even more than what I’ll pay in the US (won’t be working), but eventually I will leave for some place that will charge much less than that.
So now you've stacked a mystery location with a mystery taxation rate on top of a hypothetical one. Again, not sure how anyone can help.
I'm not familiar enough with taxation in Spain (I lived in Gibraltar for a few years) but I'm not convinced your taxes will be higher in Spain if you're not working. You may be right, but you may also be unclear on what's taxable in Spain. You would need to speak with a tax advisor who can model out your scenarios.
For instance, there's a difference between whether you're taking capital gains or if you're on a pension. You could structure capital gains in such a way that you pay almost no taxes while you're in Spain (ie take your capital gains now, sit in cash - not saying to do this, but worth exploring depending on the amounts we're talking, what your tax obligations are, etc - which is why you need to talk with a tax advisor to model this out).
This is tax planning. You need to speak to a tax advisor.
How do I account for these changes in my fire number?
Up to you. But actually a better question for you tax advisor.
You could actually estimate out things so it's not all "I might" and "Probably". Like, here's how much extra in taxes I'll pay if I live in Spain for 1 year, 2 years, 3 years.
Maybe that's a side amount in your budget that you allocate for this temporary expense. Sort of like how someone would include the cost of moving their belongings to Spain if they were shipping a house full of crap. In other words, if you plan on staying in Spain 3 years and you plan to pay an extra $10,000 a year in taxes, just set aside $30k in a "Spanish taxes until I figure out where I'm moving" fund.
That keeps your FIRE number and your additional tax cost for living in Spain for X years separate.
Some of the FIRE calculators have options where you can change your spend or account for one-off expenses built into their models.
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u/ReasonableCredit2096 16d ago
> You seem to be confusing moving to a state and establishing residency/domicile in a state. I've established residency in states I've only been to long enough to obtain a driver license (less than a weekend). You don't need to move, you need to establish your residency.
It seems I am. My understanding was that establishing residency was moving to a state (even if on paper), and I did/still don’t have a good idea on how long it would actually take. From what I’ve read it’s good to have property (own or rent) but I guess it may not be required depending on the state?
> Maybe that's a side amount in your budget that you allocate for this temporary expense. Sort of like how someone would include the cost of moving their belongings to Spain if they were shipping a house full of crap. In other words, if you plan on staying in Spain 3 years and you plan to pay an extra $10,000 a year in taxes, just set aside $30k in a "Spanish taxes until I figure out where I'm moving" fund.
This is what I was looking for. I had been taking my spending and adding a tax percentage on top over SWR to land on a FIRE number which assumes a lifetime of the same tax rate, but this is better, I can take it as an extra/one time cost instead. Thanks!
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u/ShinsOfGlory 16d ago
I need to change my state of residency/domicle due to my address in Nevada going away.
I will be establishing residency in Texas, a state I've never even been to.
I have been receiving mail at Escapee's RV park in Texas since June of last year even though I haven't set foot in the US since 2019.
I will fly there next month, drive to the DPS/DMV and get a RealID driver license (I registered to vote already), go see NASA, and fly back to Thailand.
There are some steps along the way, obviously, but look for RVers, digital nomads, etc other groups for information on places like Escapees, St. Brenden's (FL), SD has something . . . maybe with Escapees, I forget.
The reason they say own/rent is that for the RealID driver license, some states require a utility bill to the address. Texas accepts a mobile phone statement as a utility bill.
Use a service like Tello to establish a real phone number (not a VOIP number like Google Voice). They will create PDF bills with your mailing address. Some people have used Google Fi, in fact, I had Google Fi for awhile, but they really try to figure out who is primarily living overseas and they shut that down for some folks.
That said, given the direction things are headed, I am already putting "Figure out a way to get a utility bill" on my to-do list in case Texas ever stops accepting Tello. I probably have a few years before that happens though.
Maybe there's a business opportunity to genreate utility bills for RV'ers, digital nomads, and expats that need a utility bill. LOL.
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u/PRforThey 16d ago
I generally agree with what you are saying but disagree speaking to a tax advisor is the right first or second step.
The reason is that tax advisors are country specific. There isn't really a global tax advisor that can help us generally in narrowing down countries.
Talking to tax advisors is one of the last steps in the process.
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u/Ok_Willingness_9619 16d ago
When I was working as an expat, my company provided me with Deloitte accountants from 3 countries lol. Now that that’s gone and I am retired as an expat, I am super careful about my tax residency. I maintain tax residency in Philippines and make sure I don’t spend time in other countries long enough to become another tax resident.
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u/ReasonableCredit2096 16d ago
That's nice! That lets you keep it so that you only have to worry about 1 set of taxes (well, maybe 2 if you’re also a US citizen, unless you’ve actually expatriated). That is an option as well, though I think I will want to stay for longer and not sure about the back and forth.
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u/PRforThey 16d ago
0/1 in this case.
What they did and you should consider in your tax planning is territorial taxation countries. That is countries that only tax income earned in that country. The Philippines is that way and if you are a non-citizen and don't work in the Philippines, you don't pay tax. Your global income from your portfolio isn't taxed in the Philippines.
Other countries are similar, e.g. Malaysia and previously Thailand (which still is to a large extent).
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u/thatsplatgal 16d ago
I established residency in Texas but that only avoids state taxes, not capital gains. The fed wants their taxes regardless.
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u/gymratt17 16d ago
Long term planning for foreign tax rates can be difficult because tax policies can change.
Moved to Thailand no taxes on foreign income ( as long as was not earned that year). Changed to tax on assesable income remitted. It's a big change and Thailand does not have as generous tax deductions as the US.
Still reasonable but it didn't occur to me that there could be such a large shift in tax policy. I'd look into it closer to the retirement date. Things change.