#551 – The Expat Files: Challenges in Latin America, Tax Strategies, and Plan B

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now I wonder Hello there all you expat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started It seems no matter how many times I list the places that I think expats and gringo should never go except Maybe to visit and go on vacation. I still get emails from people asking me why I beat up on those places For example, Mexico Panama Belize Ecuador Uruguay, and of course my favorite Latin whipping boy Costa Rica

[00:51] I'd say at least once a week I get an email from someone or another up in the states who has visited Costa Rica absolutely loves it Of course, they've never been anywhere else in Latin America except maybe Tijuana Cancun Casa Mel port of IRT and any number of gringo tourist Trail places in Mexico. So generally when I get emails like that, I don't bother writing back. Sorry I mean you pick your battles, right? And if they want to go to Costa Rica more power to them just hope you have a big bank account and a big tolerance for Gringos and a Latin kind of big brother and jaded locals who look at you as just a dollar sign So why am I bringing up Costa Rica on the show today when people write me emails singing the praises of Costa Rica? Which I instantly round file. Well, I just happened to like this guy. That's got a very famous newsletter

[01:37] His name is Jim Willie. You probably heard of him his website. I believe it's the golden jackass calm and it's called the hat trick newsletter He's a world-renowned Commodities expert with a PhD in statistics now He's the kind of no BS guy that can really sort the numbers now He pops up regularly as I guessed on alternative radio and I heard him just the other day on my own favorite podcast show Caravan to midnight with John B Wells as the host during that interview He slipped in the fact that he's been living in Costa Rica for eight years. Yeah, he did the VWYF You know vote with your feet So you have to admire him for that, but he really picked the wrong place Well, maybe he didn't pick it when he first landed eight years ago But he was lamenting on that radio show all the things that were going wrong with Costa Rica for one

[02:24] He said that Costa Rican big brother has grown to such a size and it found so many ways to milk businesses specifically gringo businesses that as a result 2,000 plus US businesses have left Costa Rica in the past three years. That's 2,000 by the way I want you to note that rags like the overseas retirement newsletter and international living certainly don't talk about that kind of stuff and Then the host of the show asked Jim Willy you've got eight years living in Latin America So what do Latin Americans specifically Costa Ricans think about what's happening up in the US and Jim Willy kind of laughed He said you know what in the eight years I've been in Costa Rica I've only met probably three Latins in all that time who

[03:10] Understand the US is in big trouble and going down the tubes fast the rest when I bring it up They just don't believe it. They say how could that be the US has a huge military They've got massive beautiful cities with big buildings and high-rises US people have big ideas. They get things done They've got Hollywood Vegas my jammy and soon to have a $15 minimum wage and of course the topper They've got Disney World and Disneyland Yes, Jim Willy confessed that the average Latin the above average Latin even the so-called upscale intellectual Latins are Absolutely clueless. I like how expat Eddie puts it. He says Latin Americans are intellectual cripples Hmm sound familiar. So then John Wells the host said well, why do you live there then he said for one

[03:56] It's well out of the reach of the long arm of Uncle Sam now I have a feeling when he moved there eight years ago. He did what so many disgruntled first-world people do He ended up in a tourist area in Latin America and kind of got stuck there What with a nice tropical beautiful landscape and cheap cost of living at least it was back then now I'm not a hundred percent sure because people don't like to disclose their assets and I don't blame them But I'd say he probably did exactly what most expats do when they first get down to Costa Rica Especially if they haven't got boots on the ground and the rest of Latin America they end up buying some land a condo a beach house a townhouse whatever maybe two and Maybe they buy into some big investment scheme like a teak plantation avocados pineapples Whatever a lot of that stuff going around too Although I don't know of any secondary gringo investors who made any money that way only it seems that people who set up those deals

[04:46] But that's a story I'll talk about on a future show. So stay tuned bottom line as a result Almost no long-term expats in Costa Rica are happy anymore They want out and that's what happens when gringos invade such as progress, huh? So again, my advice forget about Costa Rica Belize Panama most of Mexico Uruguay most of Ecuador Brazil and Argentina Now that's not to say you can't find some excellent inexpensive places there and some very great deals But they're not nearly the virgin lands of opportunity anymore Not like they used to be some 10 or 15 years ago But still that leaves expect gonna bees and wannabes more than a dozen Latin countries to choose from Yes, there are many places. You could still live the life of Riley on a crap pension or a measly social security check

[05:33] By now you all realize you definitely need a plan B ideally that would mean voting with your feet Permanently most likely to a country in Latin America. I mean, why aren't you listening to this program? They expect files living in Latin America, right? However, if you're stuck up in the States You'll need that plan B because when the feces hits the ventilator and it will there will be no need to panic Nope, no need to run around like a chicken with its head cut off No need to go into a depression or lock yourself in the basement with your shotgun You just remain cool calm and collected Gather yourself and your things together and head down to that Latin country where you've already had some boots on the ground Or you've met some friends and have already developed a personal network That's how you make an easy transition to plan B

[06:18] And one of the easiest ways to put your plan B in motion comes down to my July 2016 Expat insider seminar, of course, it'll be off the gringo tourist trail in and around Guatemala Central America You know people ask me all the time. How long can you keep doing these seminars Johnny? I say I'm gonna do them Until the feces hits the fan up north and suddenly you wake up one morning The ATMs are out and when you go to the bank They're either closed or they tell you you can't get your dollars out for a couple of days There will be announcements of special measures and crackdowns at the border Of course, not for people coming in but for citizens like you who want to get out When by the way, there's a lot of talk in the states now that there are going to be two kinds of passport documents one to travel Internally throughout the country state by state and one for international travel George Orwell would be proud, huh?

[07:08] And the other day, you know I was talking to a couple of gringos and that subject came up and one of them said You know now that the IRS can block or void your passport if you owe more than $50,000 in back taxes That of course means you can't leave the country. But does that mean you can't leave your state either? I mean, it looks like that's what's coming if they're gonna have an internal passport document, too Well, I can tell you this much shortly when all that comes down I won't be given any more seminars because it'll just be way too tough for people to come on down Which is why I'm saying you really should sign up for my boots on the ground July 2016 Expect insider seminar because as things look now there just might not be another one These days high-powered people in the know are hinting at something terribly bad is right around the corner And they're not talking about 10 years from now either now only fools and astrologers will pick the date

[07:58] Well, I guess they're one of the same right fools and astrologers I'm certainly not sticking my neck out to pick the crash date That said as conventional wisdom goes having a plan B is like having an insurance policy You never really want to use it But it's there in case Hillary hits the fan and you don't want to be anywhere near that mess when it happens So just go to www dot the new expat comm click on Johnny's July 2016 seminar at the top of the page and check out the itinerary and all the sign-up details and there's a three payment plan option too and while you're there check out the optional pre and post seminar trips provided by the famous John Galt and remember if you sign Up by May 1st you get a $500 per person early bird discount. So check that out, too Now said about that if you remember on the last expat file show

[08:47] We started an interview with a gringo tax expert who's located down in Medi in Colombia And we left off with me talking about how I ran into a gringo who went to one of the annual IRS April milk and cookies embassy open house events in Costa Rica and he noticed he was being filmed by three tiny cameras as He was shooting the breeze with the IRS guys and he realized then they weren't really there to help They were just on a fishing expedition to find out about other gringos in Costa Rica who may be living beyond their means and thus future targets for IRS audits now note in every Latin capital city Just before April 15 the IRS comes down and has a little open house They put ads in the local papers inviting gringos to come in for milk and cookies and to answer tax questions

[09:35] That's the premise anyway, so right now Let's continue that interview with our tax man Vincent Villa Mina answering questions from his office in Medi in Colombia So Vince you say you got 600 or so expat clients Have you had any that were audited under your watch and what happened? I have I have First off obviously there are different levels of audits, right? So kind of depending on what sort of audit you're selected for it might be more in-depth or not Like for example one client in particular It was like it's like a semen but he lived in he lived in Costa Rica actually, you know Hey, we had to prove that he lived in Costa Rica, which was on the easier side I think the biggest thing was you know Get you getting the translations etc that of the documents his driver's license He owned some land in Costa Rica

[10:22] You're just getting a translation of that sort of stuff and then the second part being You're really checking his movements through his ships movements around the world because if you're a merchant Seaman or you're an airline pilot for that matter You're only allowed to exclude the money that you earned and either in waters or airspace of a country You know the time that he was in international waters a pilot with or sewer this with with international airspace That portion of time is not is not subject to the foreign or native exclusions So like that was a pretty tedious process kind of tracking movements Obviously depends on people's records and I think you know when there is an audit You know you want to make it really really easy for the IRS agent to do their job now Vince

[11:10] I know if you get audited in the states if it's kind of a deep audit they'll ask that you be present I know I've been through a few of those So then what's the story on expats they're far far away generally from any IRS office Could there ever be a demand from the IRS office saying that that person has to be there physically? Or do you just skip all that and sign a limited power of attorney or over to your tax preparer? You could either sign a POA have your tax preparer come in or you know what the expats really everything is done online Right and and you could do an audit over the phone Email your fax your documents directly to the IRS agents kind of walk it through virtually Well, that's kind of a new one on me I mean you can do an audit over the phone with an IRS agent I guess that would be a four-way call then right between the IRS the tax preparer the tax filer and of course the NSA

[12:01] Obviously no milk and cookies there, right? Generally, I recommend to just do me in the IRS agents It's better to to have a professional kind of handle it all together You know you don't want the client revealing too much or saying the wrong thing or whatever So I mean I would say have the have a professional handle the audit from start to finish Okay, let's deviate a bit here. It says on your website. You cater to expats who have businesses in the US now with my experience I see it's more the opposite. It's expats who are permanently down here They have businesses outside the US and they've more or less cut their ties with the states They're the ones that need the expert tax advice We have expats that have businesses in the United States, right? Because they might have real estate or some other sort of US based businesses and then actually I would agree with you

[12:49] Most the time it's expats have business either online or in the country where they reside Now Vince one of the questions that comes up for expats all the time is what is necessary for an expat to report and what's not? Sure, I mean obviously if you have farm bank accounts Investment accounts, etc. You'd have to report it. This is all in the F bar now There's two forms to look at one is the F bar the F bar is the standard if you have over $10,000 Combined in several bank accounts at any point time in the year. You have to report all those bank accounts Number two is the 89 38 form. That's a form for Forum financial assets which include bank accounts. It's a greater net if you will of things so it could include

[13:37] foreign companies or foreign You know stocks bonds mutual funds, you know loans Partnership interests, etc. And so a few things to be aware of especially with that form again If you're living abroad if you're single that form is is 200,000 if you're married It's 400,000 if you own real estate in the name of a company Like how the US people might buy have best with property in the name of an LLC Latin America like in Medellin or in Colombia people buy it in the name of a sass then that Becomes a foreign financial asset. So again, if you do not want to report it then buy it in your own name But obviously if you put it the name of a company it becomes a financial asset

[14:23] One thing that is not reportable would be any sort of art collectibles antique, etc The other big thing that people always ask is what about having gold or precious metals in storage? Now that depends on if it's stored in a vault, right? We could physically go there and hold your gold bars or bullion or coins, etc Or if it's stored in more of a like a custodial account Perth mint Etc. The gold money Perth mint. It's obviously gold but it's it's it's stored in a financial account. And so those would be reportable Again anything in like a safe deposit box or a physical vault That's physical is now reportable anything then a bank account or some sort of custodial accounts would be reportable

[15:09] Okay, now let's talk about something new that's near and dear to everyone's heart and future heart attack Obama care. I understand if you're an expat and out of the country more than 330 days a year you file a form so you don't incur the Obama care penalty I think now if you don't buy into some kind of insurance plan in the States It's a couple of hundred bucks penalty soon to drastically escalate But you're exempt from all that if you're out of the country 330 days or more a year No, that's true. I mean if you're if you're living outside the US if you are an expat You do not have to worry about Obamacare Now I could tell you I know a couple of gringos who came down here so long ago during the Vietnam days as aging hippies And they never left. They also haven't filed taxes since the good old Woodstock Jimmy Hendrix Carnaby Street and Peter Maxx hippie days

[15:59] Yet they're still in good standing with the IRS because they made under that minimum amount every year and I think it's now 10,600 bucks for a single person So the IRS rules say you don't have to file if you make under that amount or you can if you like either way However, these guys are worried about that Obama care thing. They understand now They might have to file just to say they're down here full-time and therefore not part of the Obama care plan Or else supposedly the fines will start adding up. They're kind of worried because they just might have to get on the grid again Yeah, I mean again you're right about that it's under ten thousand six hundred dollars that I have to file I mean anything with Obamacare again You do not have to worry about it if you do have a residency abroad

[16:44] But just claiming the exemption and saying that you're a foreign tax resident the two ways to claim the exemption would be obviously saying you're abroad some are members of You know religious organizations that don't believe in that so that's another way to to apply for that So when I run into these guys who make under the ten thousand six hundred dollar limit I can tell them it's no problem to continue with their old non filing ways and Obamacare won't get in the way either You know again, I mean it would have to file because they're underneath the threshold anyway, right? Exactly. Exactly Yeah You'd be surprised how many gringos you run into that have gone native and guys and gals who came down and never left because they Found their niche building solar outhouses for Jesus. Some of them think Jimmy Carter's still in office, you know Yeah, they got their own

[17:31] Serma medicine doctor that they see anyway in the jungle now What about that new law that was just passed saying that if you owe more than fifty thousand bucks in taxes They can pull your passport or not renew it if it's expired. What can you tell us about that? Obviously people are concerned about it. There's still some sort of Implementation period, you know personally No, have I had a case where someone's gotten their passport taken away because of not filing? No Have I heard? Potentially somebody being stopped at a border and asked about their taxes that I have for example I have one particular a gentleman who was a teacher like the American school and Bahrain or and and He did get stopped and then the next day the IRS came to his parents house where he was registered address

[18:20] I think part of that was the fact that Again, he was working for an American school, you know That American school was producing W to information to the IRS So it was easy for them to track him, you know Same thing if you were taking money out of retirement accounts have a lot of you know brokerage transactions So I can see that would be a problem if you don't file in your w-2 forms stack up and get sent back to the IRS Yeah So the IRS actually has to have proof in the form of w-2 forms or some kind of statements from employees or brokerage Accounts for them to make a case against you anyway Yeah, exactly You know obviously there with the rest when it comes to being an expat is is mostly a self declaration Meaning you're telling them how much you made and as you know

[19:08] Unless the next pet works for a transnational company like let's say Walmart or Home Depot Your Latin employer if you have one won't be sending out any w-2 forms They don't even know what they are because they have different much more abbreviated tax systems in Latin countries And of course most expats who do work and have a job have their own businesses Which means they're quote on the honor system to send back that info to the IRS now, of course We don't advocate doing anything illegal at all But you know what's considered illegal up in the states concerning taxes, etc He's often not illegal at all in foreign jurisdictions In fact, I understand there are only three countries in the world now where you have to pay taxes and report Income from outside sources that would be the US Ettria and Brazil

[19:54] Brazil actually has a very similar sort of factor reporting or whatever where other citizens and residents have to report all their assets And I hear Colombia is following that pattern too, and I believe Canada is going to implement that shortly also If you're a resident of Colombia, you have to report a your worldwide income Is that right? So then everybody should take note of the fact that Colombia is doing the same thing as the US So you can no longer use that as a reason to move to Colombia They now are taxing your worldwide income as is Brazil and of course the world's biggest offender the US Now Vince State Department and other figures say that there are over 10 million US citizens living abroad now and over at one and a half million of my living in Mexico and

[20:40] That number is increasing all the time people aren't figuring out what's happening up north and they're voting with their feet In fact, so many are leaving the country H&R block tax services have gotten into the act I noticed they're advertising down here in Latin America now They're targeting expat gringo saying they've got a new expat tax service. Would you like to comment on that? Well a few things. I mean, obviously H&R block is as everyone knows, you know, kind of The more simpler returns, I mean they could do the tax return But I don't think they're the ones that are gonna help people kind of with tax planning and really thinking through More complicated issues. I mean if someone's living abroad and earning a pension sure I mean, it might be a good resource But I don't think H&R block is gonna be a good resource for people that are really trying to be smart about about planning

[21:28] And you know have somebody that they could reach out to throughout the year to ask questions, etc Because I think bad part about H&R block that I heard was there is a lot of turnover there And so, you know your tax preparer that you work with one year Might not be the same one that you work with next year and give the person up to speed on your situation and your nuances Etc. And I think that's kind of a little bit of the downside of H&R block versus obviously with our firm You know, I'm not going anywhere I'm one of the partners and so we're always going to be there to To help out from year to year and and also do a lot of planning, right? I mean, I think that's the biggest kind of value add is not just the prep but but helping people Understand their their financial decisions their investment decisions where they want to put money

[22:15] You want to buy real estate? Don't put it in your name so you don't have to report it Now Vince, you know a lot of expats are bonded to their tax preparer up in the states in Cleveland, Chicago Wherever who might really excel at preparing taxes for residents up in the states But he might not have any expat clients at all So although your guy in Cleveland might have been good for you in your past life once you get down here and become an expat There are a lot of tax rules and regulations He might not be familiar with because he doesn't have any expat clients except you So you might not know it, but you could be his tax guinea pig So in my mind and from experience, I should say he might not be the guy to go to yeah No, I mean, that's true I mean, and that's obviously what we do end up picking up a lot of business or a lot of as people that are

[23:03] Americans and they might have like a very good accountant back home and have like a 10 20 30 year relationship But as soon as they move abroad either the accountant doesn't know and he spends all his time researching it or the accountant I mean if he's at least honest and truthful with himself doesn't want to even deal with it because they're obviously big fines and Penalties for getting this stuff wrong. That's where we come in We might even work hand-in-hand with the local account and say, okay We're gonna handle these fines the afar the foreign corpse and all this stuff and then the regular accountant just does the regular stuff And we give them the PDF files and they could attach it with the return when they e-file it or mail it in And so that's not a problem either. I think you're right. It's a very niche market I mean, there's just not a lot of people that really know what they're doing here

[23:49] And then the other side of it is I see you know A lot of people that come to me and their accountant might have screwed up and they didn't take certain Exclusions or the guy didn't know about the foreign income exclusion and and that's when we do the amendments It's trying to get people's money back In fact the other day gringo got a hold of me. He's a strange case He said he's just starting his Social Security and he owes some very delinquent school loans and he knows sooner or later They're gonna start deducting that stuff from his Social Security check So the long arm of delinquent government's debts can you get it down here, too? Though I understand the maximum they can take from you is 15% of your Social Security check, right? Yeah, yeah, exactly Now originally this guy was really worried because he thought they could garnish his check completely Well, the government can do anything right, but I guess there is that 15% limit

[24:37] Now Vince most expat gunna bees and wannabes and expats themselves Are interested in getting their assets and their banking accounts, etc out of the United States, but a lot of them have IRAs So let's talk about what some people call the checkbook IRA Which allows you to hold things like gold and real estate and pretty much any asset outside of the country And yet it's still in an IRA Which serves of course two purposes for the expat one you've got it all out of the country and uncle Sam can't touch it Two you don't have to cash in your IRAs early and pay penalties and taxes and take what's left and then ship that out of the country So it's safe and sound and out from under the greedy paws of uncle Sam So why don't you talk about that for a second? I've done a lot of checkbook IRAs In fact, I have I have one myself and it's certainly a good option to yeah to invest in real estate

[25:27] Golds private equity deals, etc. So that's actually something I own I'm currently looking at buying a house of Medellin for investment purposes Again, if you want to have kind of little pockets of investments around the world, then yeah I check with IRA would certainly be a way to do that So do you recommend certain companies for a checkbook IRA or do you set them up yourself? I set them up Vince having six or seven hundred expat clients You must have had some very strange and interesting cases to deal with tax wise Why don't you tell us about one or two of those? One really interesting story the same guys I spoke with before about who got audited Because he was a merchant mariner He was actually one of the guys on Captain Philip ship that got taken over by the pirates

[26:15] He was out in the middle of the ocean quite some time and probably the issue with the audit was That the auditor was saying hey, well, he was an international waters and I was like, well, yes, but he was kidnapped by pirates That's the movie they made with Tom Hanks as the captain the one about the pirates around Africa, right? Yes, exactly So it was a whole big thing with the IRS even about just how much he could exclude because he was he was captured And then my argument was he wasn't really working then he wasn't earning income. He was using captivity, you know It's just funny how the IRS tries to get you on it I'm like come on the guys in prisons like wrongfully for months. Come on The question is who's the lesser of the two pirates here? Reason four thousand five hundred and seventy six why it's necessary to vote with your feet and get the hell out of the states

[27:04] Before it's too late. Okay on that happy note I thought I was gonna be able to finish that interview today But looks like we're gonna go into a bit of next week's show for the final segment. So stay tuned for that Meanwhile, I want to remind you again to go to www the new expat.com and check out my July 2016 Latin insider seminar if you sign up before May 1st to get in on the early bird discount and finally Don't forget to check out my youtube channel. Do subscribe. It's free You've been listening to the expat files living in Latin America coming to you twice a week from somewhere south of the border Email me the expat files at gmail.com And if you want me to help you sort out your own Latin American plans schedule a one-on-one

[27:50] Consult with me. Just send an email and let me know at the expat files at gmail.com. Nos vemos