Tax Strategies for Expats

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In yesterday’s blog, we talked about the basics in order to take the foreign earned income exclusion (FEIE). Today, let’s look at some specific strategies you may want to consider if you are considering using this great tool.

#1: Know the tax laws where you live. Some countries have higher taxes than the US. And taxes  always follow local tax rules. In some cases, capital gains might be the highest tax you pay. So, be sure to track basis according to the country laws. In some countries, there is no income tax at all, but there are high employee taxes. Just don’t assume that it will work the way the US does or the way you’ve heard it should be being based on a random third party’s opinion. Talk to an expert.

#2:  Do you want or need to have Social Security building up? If you’re near retirement age, you may want to have a couple of years’ worth of social security tax paid. If so, the strategy would be to run a US company that pays you a salary, but because it’s earned while you live in a foreign country (virtually), you get the FEIE. The income is most likely not subject to the foreign countries tax, but you will pay Social Security and Medicare tax.

#3: Just because the US federal government has rules regarding expat taxes doesn’t mean that the individual states are going to follow them too. For example, California says that you will always pay California taxes if you leave from CA to a foreign country. That means you need to consider moving to another state before you leave. That’s the only way to stop California.

#4: Don’t forget you will have a requirement to report financial investments and deposits if they ever reach more than $10,000 USD in total during the year. That form is separate from your tax return and carries high penalties if you fail to file it. At a minimum, you’ll need to file FinCen 114.

#5:  Does it make sense to form a foreign business structure outside of both the US and your new home country to find a better tax jurisdiction? Once you know whether you qualify for FEIE and how much tax your new home country will want, it becomes a question of simply looking at the cost and benefit.

Want more strategies? Pick up your copy of “The Offshore Tax Guide” at:

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