Retiring and Moving Abroad: What Do You Need to Know?
Most Americans consider retiring around 60, though many others step away from active work around 55 years. If you’ve been thinking of retiring and moving abroad, you’ll want to start planning in advance. One of the first practical steps in the right direction would be to contact your tax consultant and get detailed information. Learn everything you can about how to sell your manufacturing business, the expected taxes you’ll pay, and how to move the funds overseas. Like most retirees, you’ll want to secure the funds from the sale and use them for a comfortable life in your new country.
Step One - Work Out How to Sell the Business
Expect that finding buyers for your manufacturing business could take some time. Like expert M&A advisors advise, you might want to plan your exit strategy carefully. Collect the necessary documents and prepare financial statements like profit and loss and balance sheets. Prospective buyers will want a clear overview of your company’s financial health before they contemplate making you can offer. Most importantly, they’ll want to ensure that you don’t owe the IRS any dues. These are only a few aspects of how to execute an acquisition successfully. Proceed with the direction of a competent professional and finalize the deal seamlessly.
Step Two - Understand the Applicable Taxes for Your Particular Business
The IRS levies taxes according to the business category. For instance, the taxation systems for a Limited Liability Company (LLC), Sole Proprietorship, Partnership, C Corporation, and S Corporation are distinct. Start by exploring the applicable taxes for your particular business. Here’s a quick look:
Sole Proprietorship and LLC
The IRS considers a Sole Proprietorship and LLC as disregarded entities. In other words, you won’t file a separate corporate income tax return for them. Any profits and losses these entities make are included in your personal tax return. If you intend to sell such companies, you’ll incur capital gains tax on the proceeds from the sale. You do have the option of separating the LLC and assigning it an independent status. However, you’ll make significant tax savings if you include the LLC in your individual tax return.
If you’re selling a C Corporation, expect to pay twice the capital gains tax. The IRS considers a C Corporation as a separate entity that is required to pay taxes on the sale and profits it earns. Further, shareholders must report the profits they make from the sale of the company shares on their individual tax returns.
S Corporations and Partnership Firms
S Corporations and Partnership firms are taxed according to the same structure. Any assets you sell for these companies are taxed only on your personal income tax return. S Corporation shareholders must report the capital sales from the business sale on their individual returns and pay the applicable taxes.
Selling the Company Assets
When you’re selling a manufacturing company, you’ll also sell its assets. The IRS categorizes the assets into real estate, depreciable, and inventory. Real assets comprise land and building structures that are taxed according to the ownership title. Depreciable assets include office equipment, furniture, and any other items that lose value with regular use. Inventory incurs tax according to how you sell it - in bulk when selling the business for retiring and moving abroad or as part of sales during company operations.
Step Three - Figure Out the Best Ways to Sell the Company
When you’re thinking of retiring and moving abroad, you would want a secure business sale where the taxation incurred is the minimum possible. At the same time, you’ll want assurance that the buyer will honor payments so you can transfer the funds to your new location.
With your attorneys and tax consultants’ advice, you could consider entering into a seller financing deal. Such deals can get you higher value for the company, and by deferring payment receipts, you could save on some of the applicable taxes. You’ll show lower capital gains in the tax return for each fiscal year. However, entering into a seller financing sale can be risky. The buyer could default on payments or not maintain the profitability of the company. Whatever the option you choose, proceed with caution.
Step Four - Inquire About the Best Ways to Transfer Funds to Your New Location
Having sold your company, you’ll want to make sure that you can access the funds for retiring and moving abroad. As long as you inform the IRS of your intentions to relocate and pay the necessary taxes, transferring funds is not a problem. You can choose to open a bank account in your new country and avail of the banking services. When choosing the right bank, inquire about the guarantees on deposits they provide, fees and charges, and facilities like debit cards, interest rates, and availability of offices in the city where you’ll live.
If you can move the account to a US bank that also works in your host country, that would be ideal. You can continue to receive Social Security checks directly. When you’re ready to transfer funds, consider using online services like Transferwise, PayPal, Western Union, or various others that provide services at the minimum fees.
Step Five - Look Into the Taxation Laws of Your Host Country
Discuss your impending move with the tax consultant, who can provide advice on the taxation laws in your new country. Do keep in mind that even after moving to a new country, you’ll continue to file tax returns in the US, as long as you retain citizenship or a Green Card. Each country has individual regulations like, for instance, filing taxes as US expat in France may involve different aspects than when filing returns in Germany or Canada.
Step Six - Take Advantage of the Exemptions Provided by the IRS
The IRS has laws that allow you to avoid paying taxes in your host and home country. You’ll claim exemptions to reduce the tax burden with the assistance of an expert accountant. Here are some of them:
Foreign Earned Income Exclusion
Foreign Housing Exclusion
Financial Bank Account Report or FBAR
Foreign Tax Credit
Statement of Specified Foreign Financial Assets
Although the IRS provides exclusions for the housing and other expenses incurred during your overseas stay, certain costs cannot be included. For instance, food and purchasing property and furniture. You’re expected to curtail extravagances and keep expenses down. Take advantage of online sources of information about affordable groceries and meals. For instance, if you’re living in Canada, check out Canadian restaurant menus for fantastic deals closeby.
Retiring and Moving Abroad Has Several Advantages
Lots of Americans are now retiring and moving abroad. Their reasons include taking advantage of the better weather, economical health care, lower costs of living, or simply to be close to family and friends. Some others also choose to retire overseas for a better overall quality of life. Having made your decision, approach the move with careful planning, following the advice of expert M&A advisor and business tax planners. Your retirement years are sure to be a golden finale of a lifetime of working hard and achieving your dreams. But, without the worry of staying compliant with laws or having adequate money to live comfortably.