US expats who qualify for Non-Habitual Residence (NHR) status may enjoy considerable financial advantages by filing their taxes as non-residents, yet it is vitally important that they seek professional advice from an international wealth manager before filing taxes.
No matter if you are a dual citizen or green card holder, filing taxes in both countries is required of you. There are ways you can maximize your returns. We've summarized below the advice of Derren Joseph, the US tax preparer and the lead accountant of American tax service in Portugal HTJ.tax.
1. Invest in a Tax-Favorable Investment Portfolio
Expert investors typically focus on lowering investment fees, selecting suitable stocks, and diversifying to optimize long-term returns. Unfortunately, not enough people consider the impact of taxes on long-term returns - an oversight because taxes can have a dramatic effect on investments returns; failing to consider this factor could mean you sacrifice part of your wealth over time.
Portugal offers very reasonable income tax rates of 25% for non-residents and residents who reside outside the country for no longer than 183 days; rental income, capital gains and pensions are taxed between 10%-28% - US expats living in Portugal should be aware of these taxes and how they could impact their tax returns.
One major consideration for US expats living in Portugal is filing their federal tax return each year and reporting income from worldwide sources to the IRS by April 15 (or June 15, if filing an extension).
US expats living in Portugal need to understand how their taxes will impact their returns, as this could impact them financially. There are various strategies which can help maximize tax benefits and optimize returns.
First, investors can create a tax-efficient portfolio that takes advantage of taxable accounts to lower their tax bill by holding investments with lower levels of ordinary income such as bonds or cash instruments generating interest and dividends, or by including stocks with greater potential return that are less affected by taxes percentage-wise.
US expats residing in Portugal may also qualify for various tax deductions and allowances that can help lower their federal tax liability, such as reduced rates on taxes withheld from compensation payments, deducting moving expenses and taking advantage of foreign earned income exclusions.
2. Keep Up With the Latest Deductions and Credits
Portugal is an attractive option for US expats seeking to relocate, with its delicious seafood dishes, stunning 16th to 19th-century architecture, and attractive living costs. Before making this journey across Europe however, it's vital that you conduct proper research to maximize tax benefits when relocating.
At first, it's important to keep in mind that American citizens living in Portugal must file two tax returns each year--one for both countries--to meet tax compliance. Furthermore, Americans are required to disclose all worldwide income to the IRS; to simplify matters further you may qualify for deductions and credits that make the process less burdensome.
At tax time, you can deduct rental income and capital gains. Furthermore, the Foreign Earned Income Exclusion allows you to avoid U.S. taxes on some of your foreign earnings; unfortunately this tax break isn't open to everyone who lives abroad.
Additionally, if you wish to open a bank account in the US, your bank may refuse due to strict IRS regulations enforced through Foreign Account Tax Compliance Act (FATCA). Therefore it's essential that you find an international wealth manager who can guide you through these complex tax laws for optimal results.
Portugal and the US have signed a totalization agreement that ensures you won't pay double Social Security contributions and save a considerable amount of money by doing so.
As Portugal offers great deals on real estate, one or two-bedroom apartments will cost only approximately $500 a month in Lisbon compared to similar units in the US. Furthermore, houses or condos in its suburbs can often be purchased for even lower costs than that. But before making such purchases, be aware of what could be difficult bureaucracy and living situations that come your way.
3. Hire an International Wealth Manager
Wealth management companies can assist US expats living in Portugal maximize their tax returns by overseeing their assets and employing effective tax strategies. Such firms employ an array of financial experts who specialize in investment planning, retirement planning, estate planning and tax minimization - in addition to offering other financial services such as trust administration, asset management mortgage brokerage and insurance policies.
Hiring a high-net-worth private wealth manager is an essential investment in your future financial success. A qualified manager will take time to understand your individual goals before investing with full discretion according to an investment plan you create together. They'll also monitor your portfolio regularly and provide reports that ensure you remain on track toward meeting those goals.
Steward Partners Global Advisory professionals through Raymond James can assist with finding suitable lending products tailored to meet the needs of their individual clients.
Financial advisory is an industry with high specialization and regulation, so selecting an adviser who possessing both technical expertise and non-technical (soft) abilities (such as communication, education/coaching and sales and business development skills). CFA program's core competencies of capital markets proficiency, portfolio construction ability and financial planning knowledge can also prove valuable tools in this regard.
Experience of potential wealth managers is also important; generally speaking, it is recommended to work with someone with at least some years in the financial industry, who will have gained in-depth knowledge about financial planning, tax law and investment strategy - as well as possessing the required skillset for handling complex investments or high net-worth clients.
Finally, when interviewing prospective wealth managers it's crucial to take your personal and professional goals into account. You want someone that you feel comfortable working with every day as well as confident they possess the expertise needed to manage your assets effectively.
4. Stay on Top of Your Taxes
Tax compliance for US expats living in Portugal is an integral component of life. Tax laws can be complex, so having an expert on hand is vital in order to meet all obligations. Avoid having the IRS come knocking at your door over unpaid taxes! There is a program known as the Streamlined Procedure which allows late filers to catch up without incurring penalties; but only if they act quickly before IRS contacts them directly.
As an American expat living in Portugal, several tax deductions may apply to your taxes as an expat. This includes the foreign earned income exclusion, Foreign Tax Credit on Form 1116 and housing and other expenses. Furthermore, the IRS and Portugal have entered into a Tax Treaty Agreement which may allow you to offset some of your Portuguese taxes paid with American ones owed back home.
Not only will you have to pay income taxes and social security contributions, but there will also be social security contributions and other fees due to social security contributions and fees. On top of these costs are various capital gains taxes including property and real estate taxes (with rates depending on type and location), dividend taxes from resident companies as well as interest income earned on public company bonds, state bonds or bank interests plus an Imposto de Selo stamp duty tax that applies on contracts, loans or documents signed during that time.
Are You Thinking About Retiring in Portugal, Finding Your Vacation Home Spot or Benefitting From the Golden Visa Program? No matter why it has become increasingly popular among US expats, Portugal remains an invaluable country. But to make the most out of your money as an American Expat in Portugal it's vital that you understand how local taxes impact your overall financial strategy - taking the time and getting expert guidance can ensure you make savings while simultaneously experiencing all that this vibrant nation has to offer!