Posted on 01/11/2016 2:27:53 PM PST by lulu16
Few people are not interested in legally reducing their taxes.
By living in a foreign country and meeting some other criteria, you could exclude up to $108,000 of earned income from your 2015 U.S. tax return. That can certainly be an advantage of being an expat.
The website Best Places In The World To Retire has collected more than 6,500 answers from expats to frequently asked questions about living abroad. These include cost of living, safety and healthcare.
Several expats said that they were using the Foreign Earned Income Exclusion to reduce their tax liability to Uncle Sam, and that the ability to do so was a contributing factor in their decision to move.
Alfonso Galindo, a businessman in Mexico who was born and raised in California, said that he knew individuals who were "fifty-fifty about moving to Mexico."
He added that when they learned that "they could exclude over $100,000 in taxable earned income from their U.S. returns through the Foreign Earned Income Exclusion, they thought about how much more money that would put in their pocket, and when they combined that with the lower cost of living in Mexico even without the exclusion, that made all the difference."
(Excerpt) Read more at thestreet.com ...
Have any of you done this?
I did pay taxes on U.S. property holdings, though.
I did for a lesser amount decades ago.
I was living in Yemen for 5 years in 1993 and early 1994.
No, that wasn’t a typo.
you have to live outside the country for 11+ months to take advantage of the deduction
of course, there’s the whole “paying taxes to a country where you’re not living” issue... something only the US believes its due (and some small dot of a country).
king george never thought of anything so invasive
As a long time expat let me tell you this is a nightmare
You still have to fill the mountains of US tax documents.
Second when you do return to the US you WILL BE audited and you WILL be found to have improperly filed the returns while living overseas. The tax code is very specific if you live overseas you are assumed to be a tax cheat.
The real question should be: If you live and work outside the US and do not spend more than 30 days inside the US why do you still owe US taxes at all?
If Obama would have the US tax code redone so that the US taxed on residency (Like the rest of the world)rather than citizenship, as much as I hate him, I’d consider voting for him for a third term. The US tax laws for expats are simply evil.
So please don’t think it is any kind of break in your taxes
One of the great things about this is there are some countries that don’t require you to pay taxes at all (Bahamas, Bermuda, Hong Kong), and others that use the “territorial tax system”, whereby you only have to pay taxes on income that is sourced in that country.
Countries that use the territorial tax system include Panama, the Philippines, etc. That means I can use the exemption and if I live in the Philippines and the money I make doesn’t come from the Philippines, I can pay zero on the $100,800.
At the end of that article, it links to another article that describes in what circumstances you can avoid (legally) paying taxes in on the $100,000+ in any country:
I lived in Hong Kong and Taiwan for 13 years.
back then, the Foreign Earned Income Exclusion was about $95,000.
Its part of the reason I’m a conservative now. Hong Kong had a 15% flat tax, and your taxes were calculated on a postage card. There were no deductions except for children only, and was the same for corporations, so its simplicity meant NO corruption of people gaming a complex tax regime.
The other thing - when the US Gov’t and states are taking 50% of your income to support awful social-engineering schemes and the nanny states, its actually easy for someone working hard to build real wealth.
If we just used a sales tax and abolished the IRS, we wouldn’t have any of these problems.
(But that would take away power from the government.)
It does not appear that Canada, Australia or the UK have any problem avoiding the trap and they all have income tax. You are in a real sense correct but the problem is not so much the type of tax as the mindset of the government.
We actually paid MORE in income tax in Hong Kong than we would have in the US despite the low marginal rates because there are very few deductions. We didn’t care. The tax form is one page and anyone with an 8th grade education can fill it out.
The problem is that the US tax laws are corrupt and need to be completely thrown out and replaced.
I agree.
Taxes should be used to fund the government, and nothing else.
When we have a system as complex as ours, it creates incentives in the wrong place, messes up the price signals, and is designed for mischief. Even if the total tax burden were higher (but of course, it should not be), if it were simple and transparent, we would have staggering economic growth... and more freedom.
There were 2 ways to qualify.
The physical presence test requires at least 330 full days outside the US in a 12-month period.
The bonafide residence test requires being a resident of other country for at least a full calendar year. The regs specifically say that this term is not defined, but basically means that's where you live and reside and not the US. A key factor is that you don't have a specific date to return to the US, which in my case kept going on and on for 6 years. Another is that you have indicators of residence, such as a local ID, phone number, etc. I also made sure that my plane tickets originated from the other country to the US (which were cheaper anyway and gave a free stopover). If it's done this way, then you are not limited to the few days of the physical presence test. You do have to list the days you are in the US, and pro-rate income to the US as appropriate.
I also recall the way the tax was figured changed about 2006. Before that the income was reduced. After that the reduction was figured some other way that gave a lower tax reduction.
Despite what another poster said, I was never audited.
Also note that as the article pointed out, the Earned Income Exclusion is for income tax purposes only, and you are still liable for both sides of the social security tax.
With all due respect to mom & pop, please consider the following.
As a consequence of the parents of expatriates not making sure that their children were taught about the federal governments constitutionally limited powers the way that the Founding States had intended for those power to be understood, their grown-up expatriate children are not able to argue the following point about taxes to make living in the USA more affordable.
From a related thread . . .
A previous generation of state sovereignty-respecting justices had clarified that Congress is prohibited from laying taxes in the name of state power issues, essentially any issue that Congress cannot justify under its constitutional Article I, Section 8-limited powers. This is evidenced by the excerpt below.
”Congress is not empowered to tax for those purposes which are within the exclusive province of the States.” - Justice John Marshall, Gibbons v. Ogden, 1824.
In fact, based on the Courts statement above, here is a rough approximation of how much taxpayers should be paying Congress annually to perform its Section 8-limited power duties.
Given that the plurality of clauses in Section 8 deal with defense, and given that the Department of Defense budget for 2015 was $500+ billion, I will generously round up the $500+ billion figure to $1 trillion (but probably much less) as the annual price tag of the federal government to the taxpayers.
In other words, the corrupt media, including Obama guard dog Fx News, should not be reporting multi-trillion dollar annual federal budgets without mentioning the Supreme Courts clarification of Congresss limited power to appropriate taxes in budget discussions.
Remember in November !
When patriots elect Trump, or whatever conservative they elect, they need to also elect a new, state sovereignty-respecting Congress that will work within its Section 8-limited powers to support the new president.
Also consider that such a Congress would probably be more willing to fire state sovereignty-ignoring activist justices.
Not really. Have you ever looked at the complexity of actual sales tax laws? They are just as complex as income tax laws because defining a "sale" is just as complicated as defining "income". Apart from the many exclusions that ultimately end up being a part of any sales tax regimen, services always end up being taxed in any broad based sales tax scheme. So a large segment of the population ends up paying a percentage of their hourly wage, which seems mighty close to an income tax, because of course it is - without any deductions for expenses.
And as soon as you exclude capital assets like real estate from sales taxes, you've got all the capital gains vs. ordinary income issues that are present in our existing income tax system.
Don't fall for the replace the IRS with a national sales tax trick, its not the solution to excessive taxation.
Don’t fall for the replace the IRS with a national sales tax trick, its not the solution to excessive taxation.
There are about 190 countries in the world, and for a short time the only countries requiring expat tax filing was Libya and the USA.
Now it:s only the USA. More;
Bankers used to LOVE Americans. But then the IRS went after the Swiss for their banking secrecy, and now if overseas banks don:t report holdings by Americans they can face a THIRTY PERCENT tax on EVERY one of their transactions that flowed through ANY US bank.
This means overseas banks all regard Americans as having the Ebola virus —they simply don:t want to deal with the demands, threats by the dictatorial US government.
It is basically an electronic Berlin Wall.
On the privelige side there is nothing to being an American, while on the responsibility side the burden is cruishing.
THE OPPOSITE OF WHAT IT USED TO BE.
Just got done working in the Middle East for 2 years. Not only did I get that tax break, my employer payed the rest of the taxes I owed.....
I wish I had one! But realistically the real solution to excessive taxation is to reduce the size and scope of government, and to let everyone see how much it costs them. A balanced budget amendment would help too, as would a requirement that the House and Senate actually create and pass a budget, instead of the continuing funding resolutions we have now.
If there was no withholding, and citizens had to pay their taxes directly there would be much more pressure on politicians to spend less.
If everyone paid at the same tax rate, as is the case with flat taxes in many countries, that would help inform the public.
In theory, a sales tax can have benefits since everyone sees the tax. But in reality, a high enough sales tax rate to finance a government as large as ours requires a rate too high to be evenly applied, and evasion is likely to be a significant problem. Once some sales are exempted - baby formula to keep children from going hungry will be one of the first - then we'll be right back to where we are now in a few years.
No taxation scheme that raises the kind of revenue our oversized government requires can avoid being a complex system that distorts the economy. And even with all the taxes we have, and the negative effect they have on society, we're still borrowing money constantly just to fund our daily government spending.
The real solution is a smaller government that does less, leaving more aspects of society to private institutions.
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Thanks everyone. Hubby is using this reason to move overseas. So far we are still here.
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