How To Make A Tax-Free Living Overseas
July 16, 2014, New York, New York: How to legally minimize your tax implications as a U.S. expat.
Dear Live and Invest Overseas Reader,
Most U.S. expats realize that the United States taxes its citizens on their worldwide income.
They understand, too, that every U.S. citizen must file a U.S. tax return every year, regardless where he chooses to reside.
What many don't recognize, though, is that an American abroad can use a foreign corporation in a zero-tax jurisdiction to legally and legitimately reduce U.S. tax on his business income.
Your first line of defense as a U.S. expat is the Foreign Earned Income Exclusion (FEIE), which excludes from U.S. income tax the first US$99,200 of wage or self-employment income earned by a U.S. citizen residing in another country. (If married, you can combine your spouse's income for a total exclusion of US$198,400.) Technically, you're residing abroad if you're outside the United States for at least 330 days during any 365-day period.
However, this is only the start of strategies available to you as an American abroad to reduce or even eliminate your annual tax bill.
For example: You can use the FEIE to reduce or even eliminate U.S. federal income tax on wages paid by either a U.S. corporation or a foreign corporation. Realize further that it doesn't matter if you are the owner of the corporation...the FEIE applies as long as you are an employee of the company, even if it is your own company.