Do I lower my US income tax liabilities if I retire or work abroad?

Here is my test ansawer.

Here is my test ansawer.

If you receive Social Security or other pension income, it does not qualify for the Foreign Earned Income Exemption (FEIE).  They are considered passive income. 

If you have ACTIVE income from a job or business, then you can take advantage of the FEIE.  There are rules of course.  It is best to consult with an international tax attorney or CAP who specializes in international taxes for more details. 

 

Even if you can't reduce your...

If you receive Social Security or other pension income, it does not qualify for the Foreign Earned Income Exemption (FEIE).  They are considered passive income. 

If you have ACTIVE income from a job or business, then you can take advantage of the FEIE.  There are rules of course.  It is best to consult with an international tax attorney or CAP who specializes in international taxes for more details. 

 

Even if you can't reduce your income taxes, you will be probably be able to reduce your cost of living my moving offshore. 

If you are working abroad and are receiving income from the United States, you are allowed a certain amount of income that you can exclude from US income tax. I don’t keep up with the exact number, but I think it’s up to in the range of US $90,000 or more these days; I’m not sure. However, this is for people who are employed overseas or who have earned income overseas, as opposed to income made from a sale of a house or the sale of stock.
 
Earned income can be...

If you are working abroad and are receiving income from the United States, you are allowed a certain amount of income that you can exclude from US income tax. I don’t keep up with the exact number, but I think it’s up to in the range of US $90,000 or more these days; I’m not sure. However, this is for people who are employed overseas or who have earned income overseas, as opposed to income made from a sale of a house or the sale of stock.
 
Earned income can be free of taxation at a state and federal level, but only to a certain limit.   That’s one primary difference relative to US income tax liabilities between living overseas and living in the US. It’s a big difference if you have earned income. It does not affect any taxes that might be due though on the sale of assets or social security if you’re getting it and you need to pay taxes for one reason or another.
 
If you earn money overseas under normal circumstances and you have a record of any taxes paid there, you typically can deduct those taxes paid overseas from the taxes you have to pay in the United States, but you always have to check with a professional as it may be different in some nations. Many countries have treaties with the US on this but it’s a accepted practice that people do not pay taxes twice. Once to another nation and again to the US without recognizing the other tax. They make an allowance for that. 

I'm not technically allowed to give tax advice because I am not a licensed accountant, CPA, or tax attorney but I can comment that there are some generally well-known schemes.
 
For Americans, the bottom line is we're required to pay taxes on worldwide income regardless of where we live or for how long we lived there. You can move out of America and for never come back, but you still have to pay taxes. You still have to declare your taxes in America and pay whatever you owe.
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I'm not technically allowed to give tax advice because I am not a licensed accountant, CPA, or tax attorney but I can comment that there are some generally well-known schemes.
 
For Americans, the bottom line is we're required to pay taxes on worldwide income regardless of where we live or for how long we lived there. You can move out of America and for never come back, but you still have to pay taxes. You still have to declare your taxes in America and pay whatever you owe.
 
This is not the case for other countries.  In Spain, for example, if people want to change their tax domicile to a different country, they can do that. They wouldn't have to pay taxes and fees anymore. It's not like that in America. A lot of people think if they leave America that they don't have to pay taxes but that’s not true. You definitely need to hire a licensed person to look at your exact situation and give you advice. There are a lot of expats who are accountants out there. Qualified tax advice for expats is definitely something that's becoming more in demand as more people move and technology gets better and becomes easier and cheaper for people to travel and move around.
 
For US citizens, there’s also an income tax exclusion.  Over the years it has increased to now it’s over $100,000 per year.  There are a few different ways to qualify for it. One of the ways that people talk about it a lot is being outside of the country for 330 days a year. There are other ways to qualify for it. Any accountant who deals with these international matters would know.
 
Another thing to be aware of is that you have to declare your accounts. It's a pretty big topic. It's very complex and our tax code is very complex. There's a lot to think about. For this reason, I have never done my taxes on my own. It just gets complicated especially if you're living and working in more than one country. 
 
There are, perhaps, ways to reduce your US tax liability.  I know of a lot people who didn’t even file their taxes for 3 years or 5 years. Make sure you're on top of it so that you don't run into any sort of problems or penalties or things like that down the road. It's better to be upset about filing and paying now and get through it the right way than to avoid it and just assume that you don't have to pay anything and get in trouble later.

 

(Pictured: Kristin Wilson working in Costa Rica in a hammock.)

Yes, you can absolutely lower your US tax liabilities abroad .  Living outside the U.S. creates amazing opportunities to lower your worldwide tax bill--sometimes even to $0.  That's right, depending on your specific situation, you may be able to grow wealth while not paying tax to any government, all completely legally.  

 

On the U.S. side of things, the main strategy here is to own an active business through a non-U.S. corporation and...

Yes, you can absolutely lower your US tax liabilities abroad .  Living outside the U.S. creates amazing opportunities to lower your worldwide tax bill--sometimes even to $0.  That's right, depending on your specific situation, you may be able to grow wealth while not paying tax to any government, all completely legally.  

 

On the U.S. side of things, the main strategy here is to own an active business through a non-U.S. corporation and actually participate in the operation of that business.  That way, your non-US corporation itself is not subject to U.S. tax (assuming that its business is conducted outside the U.S.), and then your non-U.S. corporation can pay you a salary of up to about $100,000, which will be free of U.S. tax as long as you qualify for the Foreign Earned Income Exclusion (the "FEIE").  You can qualify for the FEIE by staying outside the U.S. for at least 11 months per year.  Or, if you want to spend more time in the U.S., you can become a "bona fide resident" of another country and still qualify for the FEIE even if you spend up to 4 months per year in the U.S.

 

Now, the above is just a high-level overview--there are of course some ins and outs there.  But the bottom line is, if you own and operate the sort of business that you can do from anywhere, living outside the U.S. provides tremendous opportunities to grow tax-free wealth.

 

(Pictured: hotel in Virgin Islands)