The Resident Tax Incentive Code is a law that provides tax benefits to residents of Puerto Rico who establish residency on the island and conduct business or economic activities there. Here are three ways in which you could reduce your federal and state tax rates under the Resident Tax Incentive Code:
1- Lower income tax rates:
As a resident of Puerto Rico, you will be subject to a separate income tax system from the U.S. federal system. Puerto Rico income tax rates are generally lower than U.S. federal rates, which means you may be able to reduce your overall tax burden.
To determine your Puerto Rico income tax rate, you must file an annual income tax return with the Puerto Rico Treasury. Income tax rates in Puerto Rico range from 0% to 33%, depending on your annual income. It is important to note that Puerto Rico income tax rates may be higher than federal rates for certain income levels. Therefore, it is advisable to consult a tax professional to determine which is the best option for your individual situation.
2- Tax exemption on income generated in Puerto Rico:
As a resident of Puerto Rico, income generated on the island is exempt from U.S. federal taxes. This means that if you generate income in Puerto Rico, you may not be subject to federal income tax on that income. However, it is important to note that if you generate income outside of Puerto Rico, you may still be subject to federal income tax on that income.
To be eligible for exemption from taxation on income generated in Puerto Rico, you must meet certain requirements, including the fact that the work or activity that generates the income must be performed in Puerto Rico. In addition, you may be required to file a Puerto Rico income tax return with the Puerto Rico Treasury.
3- Capital Gains Tax Exemption:
As a resident of Puerto Rico, you are not subject to federal tax on capital gains derived from investments on the island. This could reduce your total tax burden if you have investments in Puerto Rico that generate capital gains.
To be eligible for the capital gains tax exemption, you must meet certain requirements, including the fact that the investment is made in Puerto Rico. In addition, it is important to note that if you have investments outside of Puerto Rico, you may still be subject to federal capital gains tax on the capital gains derived from those investments
It is important to keep in mind that the application of the tax benefits of the Resident Tax Incentive Code can be complex and will depend on your individual situation. Therefore, it is advisable to seek advice from a tax professional in Puerto Rico before making any important decisions about your tax situation.
At Gierbolini Consulting Group, we have a team of highly trained and experienced professionals who can help you take advantage of the tax benefits of the Resident Tax Incentive Code. We offer a variety of tax advisory services, including tax planning and tax return preparation. Feel free to call us to schedule an appointment to learn more about how we can help you reduce your federal and state tax rates under the Puerto Rico Resident Tax Incentive Code.