Puerto Rico Residency Niche & In-House AI with Rachel Farris

Hello, and welcome to the Big 4 Transparency podcast. I'm joined today by Rachel Ferris, founder of her own practice, specialized in helping people establish residency in Puerto Rico. Welcome to the pod, Rachel. Awesome. Thank you so much for having me. Yeah, my pleasure. We got to meet recently on, I think it was one of the Accounting Influencer Roundtables by Rob Brown there. I meet a lot of very interesting people there. And we talk a lot about the importance of going in on a niche. This is very niche. How did you, I guess, come across the opportunity initially? And then also, why is this a growing thing? Why are people looking for expertise in establishing residency in Puerto Rico? Both great questions. So I'll start with how I came across this. So I had a family friend, they were moving down to Puerto Rico, and I had never heard of anyone moving down, even like for leisure at that point in time. And apparently there were some tax incentives. And so they wanted a CPA on the U.S. side just to look through things and make sure it's legit. But unfortunately, the only CPA that you could find that had some experience with that was like, you need $25 million net worth. We will not take on a client unless you have that. And high net worth, but they did not have $25 million to their name. So they were like, okay, would you mind looking through this? Just like, I know you have no experience, but I want to just check it out. So I started looking into it and it really intrigued me. So really the whole appeal here is, U.S. citizens, they're taxed on their worldwide income. So that means if you're a U.S. citizen and you're living in Canada or Italy or Dubai, technically you still need to pay U.S. federal tax. Obviously there's credits, et cetera. But really a way to circumvent that is moving to a territory. So territories, no taxation without representation, they don't actually have voting rights when it comes to the U.S. federal government. And so because of that, you still have U.S. citizenship. You can maintain your U.S. citizenship, but you can move down to a territory and follow their tax rules instead and you're exempt from federal and state tax. One unique thing Puerto Rico did compared to other territories is they offered this tax incentive. So you move down, you apply for any one of these decrees. There's a bunch of them. The most common are like a 4% corporate tax for export services or a 0% tax on capital gains, interest, and dividends. So you get a lot of high net worth people in the United States that want to move down established residency in Puerto Rico to escape their big tax burden. You know, if you're in California and you're in the highest tax bracket, you're probably paying over 50% in taxes, right? Well, you move down to Puerto Rico, you're going to pay 4% corporate tax, 0% capital gains, interest, and dividends. So you're axing that by a huge percentage. So that's really the appeal and it's become quite big. I mean, we have celebrities like Logan and Jake Paul that have moved down. You have some of the big names in Bitcoin, hedge fund managers, you know, private equity guys have all started making the move down and you see it a lot in the Wall Street Journal. So as, you know, more publicity comes out, we get a lot more people coming in. Yeah. Yeah. I do remember hearing about kind of the Pauls moving there and I feel like that probably brought a lot of eyeballs to that, right? Because it's like, well, you're very public about all of this. And I think they even talked about like some of the tax differences. I mean, definitely kind of in very layman term equivalents, but like, I'm saving a bunch on tax. And how does that work? Like if you have existing, you know, assets and maybe unrealized gains in the U.S., like do you pay like an exit tax on all of that upon moving there or like what does that look like? So not necessarily. We sometimes see scenarios where people like want to sell, etc. But really what we usually do if it's publicly traded. So if you're buying like Apple stock or something like that, we'll just mark the value on the date that you've established residency. So when you eventually realize that gain, you're able to then bifurcate between what was actually U.S. sourced income and U.S. sourced appreciation and what's Puerto Rican sourced appreciation. So it's everything that is appreciated after you have become a resident and you have your decree. So let's say, you know, I had stock that was worth, you know, $200 and I had bought it for $50, right? When I moved to Puerto Rico, that first $150 of gain is going to be U.S. sourced. Let's say I appreciate another $200 by the time that I leave Puerto Rico or I decide to sell it, that $200 is then going to be Puerto Rico sourced gain. So you're able to kind of divide it out. It gets trickier if it's not like a publicly listed thing. Bitcoin is in like cryptocurrency is considered like fairly publicly listed. But if you're investing in something private, for example, usually we do a valuation study to determine like what the value of the stocks you held in that company or whatever it was, was worth when you moved down to Puerto Rico. And so then again, you have to allocate that out between pre-Puerto Rico and post-Puerto Rico appreciation. Interesting. And like without even there being any kind of funny business, like a lot of those like private asset evaluation models, right? Like I don't know if it's a Canadian thing or not, but like I've worked at tech companies where there's a 409A valuation and it's like that is not reflective of what this would necessarily like get on the market. I would say like literally might be half of what it would probably actually be valued at. But there are these, you know, longstanding methodologies that you follow that will give you a certain number and that may end up actually being very, very favorable. And so you're telling me there's usually still a deferral of tax there until you ultimately actually realize that gain and sell the asset like that. You don't need to pay upon leaving. You don't need to pay upon leaving. It gets a little trickier. Like if you're a day trader in the U.S. and you have like a mark to market election, then it gets a little trickier because Puerto Rico does not recognize the mark to market in the same way we do in the States. So there's some nuances there. But no, most of the time we just keep a spreadsheet. We tell say, hey, this is what it was on the day that we are saying that they established residency. Some people for the cleanliness of it like to just sell and then rebuy as soon as they're a Puerto Rican resident. So they're able to, you know, capture that gain, pay the tax on it correctly, then they don't have to keep track of things and have their accountant bifurcate it for them. But it really isn't a huge deal either way. In terms of the valuations, again, we always recommend getting a few people to do evaluation study on it. So it's not necessarily just one. And you have to find people that are experienced in this type of thing. It can't just be, you know, oh, this is just for like a private equity or a venture capital report. This is really for a specific purpose. And at the end of the day, there is a big chance of being audited. So it's important that you are taking a conservative approach. A lot of people take a very aggressive approach sometimes, and we don't really see that pass super well under an audit. Yeah. Yeah. Yeah. Obviously would need to be defensible like that. That would be, I would imagine, yeah, something that they're definitely keeping their eyes on in a big way. So and then like when this person came to you with this, like, where do you even go to like, you know, establish that kind of new expertise? Yeah. No, definitely. So I did a lot of research. You know, I was kind of always a great student in school and love kind of diving into the nitty gritty of things. So, you know, I looked at the whole Act 60 law. They have it translated into English. I also did a Spanish translation and then had that translated into English just to make sure I was really covering all the bases here. I already knew a good bit about kind of residency, learning about tax rules in general, but specifically learning about the application of territory tax rules was really important. I attended tons of different webinars, spoke to other professionals in the industry, even got some mentorship and then kind of just established myself as a professional in that space. When I was first getting clients, I was telling them, you know, like family, friends, friends of them. I was like, listen, I am not an expert in this just yet. But through this learning process with you, like I can get there. And so I was very transparent about the fact that it was early stage for me and I wasn't claiming to have all the answers. But that's why you build a team. Right. So I had lawyers and Puerto Rican CPAs and U.S. CPAs that I had relationships with that I was able to kind of plug and play as I needed gaps filled. And we still do that to this day in our firm. You know, I don't claim to know everything about the tax code. Right. And so when we need someone to fill in that gap for us, we have someone there. We don't claim to just know everything across the board. And that's a really nice thing about being in a niche is that, you know, you do know a lot about it. And a lot of people don't know a lot about it, but it's a learning process because since there's not a lot of information out there, it feels like every situation is unique. And so because of that, it doesn't always feel like you're starting from ground zero, but it's not a copy and paste solution for every single client, which is really interesting. Yeah, that's that's really cool. And where do you like, where have you found your main lead sources to be for this? Because to me, like, this doesn't necessarily feel like a thing that people like immediately see as a trigger of like, oh, I'm going to go seek whatever kind of professional is out there who specialized in this. I feel like they might just like ask their CPA or things like that and receive sort of whatever level of expertise is available there or something like that. And I also think like the very wealthy group of people who are doing this for tax purposes who would want the best advice on this, like is maybe not the easiest circle to break into. And, you know, I've experienced this firsthand, like with my client base at Big Four Transparency, where it's like we work with a bunch of firms, but usually pretty specifically on compensation. But then, you know, we've had firms that we work with being like, oh, we just sold. And I was like, I wish you'd spoken to me about that. Like I have a lot of buyers that like come to me for lead gen and like I probably could have introduced you or like walked you through that market of folks and they just don't think about it. So like where are you kind of generating that lead flow? Yeah, I mean, it's a good question. It's kind of a mixed bag. So some of it's referrals. So people that I have talked to beforehand or have those clients, you know, they tell their friends or they have friends in the community they're living in and that's a referral. I've built a pretty strong network as well of, you know, lawyers, other financial professionals, other service professionals, even realtors, right, where they have someone that comes in and is like looking for property in Puerto Rico. Well, you're going to need a CPA or hey, they are a wealth manager or a lawyer. Someone's come to them. Well, you're going to need this type of advisory. So I have that network that we all kind of play into. The other big thing is, you know, I do webinars. I do podcasts. I'm pretty much like if you look at Act 60 on YouTube, I think my videos come up like pretty high up there, at least in terms of a professional's videos and not just here's the story of why I moved to Puerto Rico. Like if you're talking about legit advice, we're kind of the main name out there that does talking about this. And so when you get people hearing about it from a friend or you get someone that reads that Wall Street Journal article and is curious, right, we are then the people that come up if you look at Act 60. And so we actually get a lot of kind of organic and raw traffic from it. I will say a lot of the times it is shopping around. So sometimes it's just I want to hear about it. And the very beginning, I used to take on those calls all the time. It was like, OK, cool, I'll explain it to you. And we've grown to the point where, you know, in the last probably year, we don't take on calls just explaining it. You know, we charge for our consultations. And unless you are very serious and you have already taken steps to move down, we likely won't take a call with you without some type of payment just because it became feeling like I was just a teacher. But that is why we have videos out there. And that's why we have content out there where people can read it for themselves. So it is, you know, it's interesting. You'd be surprised how many people are actually interested in it. But the rate of people that actually commit to it once they learn the nitty gritty details is different. So getting people to talk to me, not an issue. Getting people to commit to moving their life down. I'm not a salesperson. It's not our job as a CPA to sell them on moving somewhere. So you need to be committed yourself. I'm not here to tell you all the great things about living there. It really needs to be a business decision. Yeah. Yeah. When I was working at the big four, I was doing a lot of work in kind of the crypto space. And yeah, we'd get all these people being like tire kicking of, you know, maybe I'll move to Barbados or Bermuda or this or, you know. And the amount of times that and we would bill them anyways. But like the amount of times that they wouldn't go through with it was astronomical. So I'm happy to hear that you're at a point now where you're kind of charging for the consults, because it's one of those things that like I hear that and I'm like, should I be in Puerto Rico? Right. Like, but, you know, when the rubber hits the road, there's like a point zero zero one percent chance I would actually be doing that. So you alluded to the Wall Street Journal, and I know that you're like also, you know, on a Forbes list for top CPA advisors and things like that. Like, where do you develop the relationships for that as well? Yeah, really great question. I will clarify. I'm not in the Wall Street Journal article. It's just talking about AX60, but because of that, people look up AX60 or they look up AX60 CPA and we're like right up there in the results. Right. So I guess really for your question, I feel like I am just a very natural networker. I've gone to conferences, you know, I reach out to people, I attend things and I feel like I don't always take a no for an answer. I think a lot of what I do is like I'm not afraid of a no. Right. And so I'll send out networking just to send out networking and see if someone might want to talk to me. And I've done this even when I was in high school. I would reach out to CFOs of companies in San Diego and be like, I would love to talk to you. And a lot of the times people are willing to reach out to you because they're like, that's so interesting. And, you know, a little 15 year old is asking you to take me to coffee, you know. So there's a lot of things I think have built that over time. I think in terms of like getting on Forbes and getting on those things, I think it's just defeating imposter syndrome for part of it. I will say, you know, for the 40 under 40 that I got, I self-submitted. I'll fully say that right off the bat. Right. I was like, I think I'm doing a lot of really interesting stuff. And I got that. And that really helped kind of drive the way when it comes to getting on podcasts again, reaching out. You know, I've probably reached out to hundreds of people. How many yeses have I gotten back? Right. You just have to be willing to take that negativity. For Forbes, I actually did not submit myself. I don't know how that specifically happened, but I think they were very interested in just such a niche story. Right. It is, you know, a young person that is running her own firm that is doing something that, you know, is trying to help the local Puerto Rican community there. She's trying to do something different and not following a traditional path. And because of that, I think people like to listen to your message. I think the big thing is just also saying yes. Right. You know, hey, Rachel, do you want to do this webinar for free? Yeah, it's going to take me like X many hours of prep, but sure, I'll do it. Oh, wow. That video is now like the number one video on YouTube, React 60. Right. And that's where I get a lot of my leads from. So there's a lot to think about in terms of, you know, building that brand image and meeting people. But again, I just it could be my personality type. I think I can talk to a lot of people and I can find something in common with most people that I do interact with where they can remember me outside of just, you know, what I do for a living. Yeah. Well, I think like being bold enough to put out a lot of sort of expert content is huge as well. Like I think a lot of people get caught up on that. And the best framing of that I've ever heard was like from this podcaster I've followed since before I had even started a business. But I think it's Sean Porey, but he talks a lot about increasing the surface area for luck and serendipity, where it's like, oh, this person's like they're so lucky they get all these kind of like leads and whatever, which like outside looking in, maybe one could say that. But then also you've created the surface area for those to find you because you have all these things out there and you're always putting yourself out there and you're very intentional about that, which is something that like I definitely think really comes back around in the long tail where you've probably, you know, created such a wide surface area for these things to find you that they're going to find you. Right. So, yeah, I really applaud that. I think that that's that's fantastic. And Puerto Rico as a whole, I feel like is getting a lot of spotlight on it. You know, Bad Bunny at the Super Bowl, like things like that. I just feel like that. I feel like you are in a very good place to maybe ride a little bit of a wave here when it comes to that. For sure. And I think I mean, I love what you said, a kind of like luck and serendipity. You know, you have to lay the foundation and be ready to say yes to opportunities. And I think, you know, there's a level of privilege that comes with that as well. But I think I've been really good at seeing opportunity and not being afraid to say yes to things and also not afraid of failing. Like I have put I built a whole act 60 education course took me. I don't even want to know how many like tens of hundreds of hours to do this. Right. And did not do that. Well, you know, did not do that well. And it was something I thought would work. But you have to be OK to spend money and fail and you have to be OK to jump off and do something. You know, it's never plan A or plan B. It's always another iteration of it down the road. And, you know, maybe I even am still iterating to this day. Right. So I think there is a lot of flexibility that comes with being a business owner that I'm sure you know about. Yeah. Yeah. It definitely opens you up to like a whole new world of things, which we're going to touch on because you're doing more than now. You've moved past only focusing on the Puerto Rican residency. We're going to touch on that in a second here. Before we do, though, I also am curious to know, like, how did you know it was time to quit your job? Because you were also working at one of the big four before jumping into this. And like, you know, a lot of people take that path. You know, stability is a driving factor for a lot of people choosing this. So how did you know, like, OK, it's time for me to leave and go in on this? Yeah. So I'll give you some background. You know, my dad's an entrepreneur and he is someone I've never seen either of my parents actually work an office job my entire life. They have always done something unique and interesting. And I think that probably provides a very good foundation where I was like, well, I'm going into the office and I've never seen someone ever I've never seen my parents work for someone else. So it has been it was a definitely a kind of change for me. And I was an entrepreneur before this, the marketing business. And so I actually loved my big four job. I know that's really strange for people to say, but I loved the work that I did. Yeah. Yeah. I was an M&A. Like, I was obsessed with the work I was doing. I really loved the people that I worked with, too. It was a hard job to leave. The difference was, was that I felt like I was getting to a place where I was asking for new learning opportunities and I really wasn't getting those. You know, I was quite specialized and I was good at certain things. And so I would just get rolled project to project. And eventually I was working 90 something hour weeks. And I was like, wow, I'm like training people that are now going to get paid higher than me. We would have people rotate into the program that were, you know, managers or senior managers. And I was like, you know, you're getting paid more than me. Why am I teaching you for X many months at a time? And why is that adding to my existing workload when I'm already having to do all this stuff? So I did build a little bit of animosity there. And then, you know, I think this is a kicker, but, you know, it was unlimited PTO. I requested PTO like five months in advance and it got rejected. And I was like, I had taken one week that year already. I was requesting for December. I know it's a busy time, but I was like, you know, my utilization's at 125 percent right now. Like, if you can't give me two weeks of vacation this year, like that is wild. So that was kind of laying the groundwork for like, what do I really want to do next? And I had been, you know, talking to people about Act 60 for quite some time. And I figured, you know, I don't have kids. I don't have a mortgage. You know, I don't really want to work this job. And, you know, I had some offers from, you know, other firms that were going to pay me more to do the same type of work. And I was like, I don't think I want to do that. So I figured, why not make the jump and give myself time to see, you know, maybe it'll work, maybe it'll won't. And so it was a really big combination of, you know, some dissatisfaction at my job, but also seeing an opportunity of like, you know, I'm talking to all these people for free. Right. You know, sometimes, you know, they would pay me a little bit here and there. But I wasn't actually a business just yet. And so I figured, you know, I'm going to make the full jump. Why not? The only person that's going to impact is me. I had the savings to do it. And I'm lucky that it's panned out the way that it has. That's awesome. And in terms of panning out, I mean, it's gotten to a point now where, you know, you're clearly able to split some of your attention. So, you know, I introduced you as talking about, you know, you founded this this tax practice, but you're also, in addition to that, working with on an AI company. So Tax Stack AI. Can you talk to me about that a little bit and what you do there? And also, I guess, where you saw the opportunity? Of course. Yeah. So that was actually developed internally for our own use. We wanted to be doing tax research. We wanted to be looking at AI tools. And we found that, you know, chat GPT is obviously not great for client sensitive information. Gemini is not great. And we found it hallucinating a lot. We're dealing with very specific tax rules here. And so I would test it. Right. I would test all these things. None of them really seem to know what they were talking about. So we built one in-house that we were able to really upload kind of everything that we needed to reference. Right. And from that, I was going to conferences. People were asking me, like, what's your tax stack? Like, what are you using? Right. And so I just explained, oh, we just built a tool in-house. Like, I'm really not using any of the big names out there. And other people started saying, you know, would you mind like if I dabbled on it? Right. And so we started seeing a business opportunity there and we decided to release it to the market. I will say we don't do any marketing for it. And I'm going to fully say I don't think it's the best tool on the market. I think that, you know, BlueJ, Tax GPT have teams of like 20 to 50 people working on this. And this is really something we developed in-house, but it caters to the small firm. You know, you can't pay those enterprise fees and you need something that works for you. And you want something that has like a mini CRM and has tax research and can provide kind of proactive help within your actual research process. This is a really great tool. We use it daily ourselves. And I think that's the best kind of indicator of a tool is like if we are still using it in our firm and it's helping us out. Well, maybe it'll help some other people out as well. Through that, you know, I've really gotten into exploring kind of AI's impact on accounting as well. And, you know, we do consulting also to help people bring AI into their practice. It's not always bringing in tech stack AI, you know, that might not be the best fit for them. But we help create individualized tools for them as well. It's just this whole process of, you know, like accounting is built on the foundation of mom and pop firms. As much as we hear about big four all the time, like at the end of the day, it is the local guy down the block that's helping out your neighbor with their taxes. And so because of that, we do need people to revolutionize and we need to provide tools that aren't catering to the big guys and the small guys and the guys in the middle. You need something that really fits them. So they're not paying for services they're not even using. That's really interesting. And like being able to kind of develop that is like is the work with Puerto Rico, Puerto Rican residency, like is that highly seasonal or like, you know, or did you just like automate a lot of the kind of tooling that you had internally there to be able to kind of, you know, create this other sort of entity? Because, you know, as my own experience has taught me, like it's great to build something awesome, but like it does take a lot to get out there and bring it to market. Right. For sure. It is very seasonal. So, you know, there are rules about how many days you need to spend in Puerto Rico to actually capture that year. Right. And so because of that, we see things slow down as it approaches the summer. You know, people aren't going to hit 183 days, which is like the most common way to meet the presence test. And so because of that, around I would say June all the way until October, it's very slow for people coming in with new business. Now, we do, you know, kind of ongoing compliance work with our clients, but onboarding new people very slow. And then towards the end of the year, you get people that want to move before that January 1st just to capture an entire year, right, under their taxes. So we do have a very slow period. And that's why we were able to kind of develop this in-house and bring it to market. Again, it's brought to market. We are not marketing it, I will say that. But it is something that really just came out of, you know, having some extra time and saying like, OK, well, what do I want to do? You know, people were telling me, you know, you should start offering more services for different territories or more of this. And I was like, you know, you find a niche. I think you should stick with that type of niche and then find something auxiliary that complements that. I didn't want to just start branching off into all these different. types of tax topics where we kind of lose our specificity, which is why people are attracted to us. And so that's what got me into the technology spaces. I'm looking at a completely different market of people now, right? There's not as much overlap, but it is something that I'm still using on a daily basis that it helps both ways. And did you build this yourself or did you like bring in kind of contractors to be able to help build that? So I have a business partner that works on the software development side of things. He primarily did most of the development with me kind of guiding that process. A lot of vibe coding as well, kind of involved with that as, you know, we need changes and I don't want to hire a whole nother developer. So it was a very iterative process. And we brought CPAs and EAs on board to kind of test the tool as well. You know, we brought on different people with like security just to make sure we're actually able to, you know, have like login securely, payment securely, etc. So it was kind of a larger group, I guess, activity, but really spearheaded by me and my business partner. He is extremely smart, has vibe coded and regularly coded a lot of popular websites at this point. So this was right up his alley. Yeah. Well, it's cool to see you as like a CPA getting involved in like the actual development too, because I think a lot of people could benefit from getting involved a little bit in that sort of thing. And, you know, formerly, you know, the no code tooling now probably more on the vibe coding type of side of things, you'd be surprised that what you can kind of put together and, you know, answer for quick solves and, you know, maybe not like excessively complex things and like the average accountant's experience. But there are a lot of things that can be built that's really interesting. And, you know, I would encourage people who are curious about that and want to learn more or maybe even just kick off a process to get in touch with you. I think I think that's like a very important service where someone who natively understands how firms operate, but then also has that sort of technical background, I think is like a really good place to start. Even just, you know, yeah, it might be picking a tool up off the shelf that they never would have found or something like that. But yeah, I think creating your own tool in-house, right? Like people are charging, you know, tens of thousands of dollars, right, for these software. And a lot of them are good and a lot of big firms need them. But if you're a smaller firm and you don't want to pay that, you know, eight thousand dollar price point, right, for checkpoint or something like that, right, there are ways to build something that might actually suit your needs in-house for much cheaper. And you can do it yourself or you can reach out to someone like me where I'm able to kind of either walk you through that process or help with that development, because I think that's going to be kind of the backbone of what we see, you know, modern accounting technology to look like. Now, I'm not saying it's going to be filling out all the returns for you and processing all this client information. But, you know, I mean, you probably know you get client information like the most messy way possible. Cleans up data, helps you organize folders, helps you summarize emails. Like there's a lot of kind of interruptions that you see to a daily workflow that helps you then focus on higher value activities. So it's definitely a really interesting time to be an accountant. Yeah. Yeah. I love it. Well, thank you so much for coming on and sharing. And I'll make sure I include all your contact information in the podcast description for anyone who might be interested or knows of someone who's considering establishing residency in Puerto Rico. But yeah, thank you so much for your time, Rachel. I appreciate you coming on. Awesome. Thank you so much, Dominic.