Tax-Free Living Offshore

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The year 2020 has brought a big change for a lot of small business owners. Maybe you’ve discovered some of the same things. The most reliable income comes from working at home. That might mean you need to move a business online. Or it might mean you need to start an online business.   

And once you have a business that works online, you will discover huge advantages. It costs a lot less to start a business. You can get online a lot faster. You can change, grow, slow down, just basically pivot your business in response to industry and economic changes. And, boy, we’ve had a lot of changes recently.  

An online business makes it easier to BE in business. But there is another huge benefit. An online business makes it easier to have a life and still be in business. In fact, you can live and work anywhere if your business is online. All you need is a reliable Internet connection.  

Geographic arbitrage, the ability to financially maximize where you live, goes hand in hand with online businesses. Make USD and spend baht or pesos or some other currency that relates to a lower cost of living.  

If you move outside the US, you may also have a tax break.  

The secret is something called FEIE, foreign earned income exclusion. First of all, you have to qualify as a foreign resident.  

There are two ways to do that:  

  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or 
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. 

If you are a U.S. citizen and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($103,900 for 2018, $105,900 for 2019, and $107,600 for 2020).  

In addition, you can exclude or deduct certain foreign housing amounts. You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer on their premises and for their convenience. 

Income Exclusion for FEIE 

In order to exclude income, it has to be earned income. In other words, interest, dividend or rental income wouldn’t be eligible for the FEIT exclusion. 
You may be subject to tax in another country. If you’re living and working in another country, you may find that you end up paying more taxes even with the FEIT. That occurs if the country you’re in has a high tax rate. 
FEIE has a number of possible strategies associated with it. You can’t learn everything you need to know from a blog like this, but it’s a good place to start learning more about your options. 
The IRS has a number of pages with more information.

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