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Home Offshore

Tax Planning For Americans Abroad

Kathleen Peddicord by Kathleen Peddicord
Oct 04, 2011
in Offshore
0
A Calculator is going to be the first of your needs when planning for taxes overseas - International Tax Review
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Sexy Tax Talk

The foreign-earned-income exclusion…foreign tax credits…investment rental write-offs…deductible travel expense…mortgage expense…

The talk in our offices these days is all to do with taxes.

As we’re American citizens living abroad (that is, Americans legally resident elsewhere), our taxes needn’t be postmarked by April 15 each year. We have an additional 60 days (until June 15) to get our returns to Uncle Sam.

Nevertheless, Lief applied for a six-month extension for our U.S. tax filing this year. Meaning that, for the past two weeks, our pillow talk has had a lot more to do with foreign-earned-income analysis than…well, than with anything else…

Lief reports that our returns are, finally, nearly finalized. And he offers the following tips for other Americans abroad keen to keep compliant but eager, as well, to pay no more in U.S. tax each year than absolutely necessary.

This is our list of six things we wish someone had told us about international tax planning and asset protection before we set off on our living and investing overseas adventures 14 years ago:

First, maybe you don’t need to do anything. Asset protection isn’t an issue until you’ve got assets enough to warrant the investment of time and money to figure out how to protect them.

In some jurisdictions, for example, yes, you’re wise to hold property in a local or an offshore corporation…but not all. Before you do anything, make sure you understand why you’re doing it and the real benefit.

Second, whatever you do, it shouldn’t cost you tens of thousands of dollars. OK, maybe if you’re Bill Gates or Warren Buffet, a big investment in managing your tax and asset issues is warranted. For you and me, it’s not.

Third, the foreign-earned-income exclusion may be the beginning and the end of the tax planning you require. My young marketing manager Harry, for example, is sitting pretty from a tax point of view…and he got to this point without spending a single dollar on tax advice. As an American citizen living and working abroad who qualifies for the foreign-earned-income exclusion, his first US$91,500 (for 2010) of earned income is tax-free in the States, which means that, for the foreseeable future, Harry’s annual tax bill to Uncle Sam will be exactly zero.

Fourth, when it comes to purchasing and holding real estate overseas, remember these two things: First, the jurisdiction is the key; second, as a result, no attorney in your home country is going to be able to help you figure out what to do. You need a local attorney, experienced at working with foreign buyers, to help you determine how to purchase and how to hold (in a local corporation, in a foreign corporation, in your own name, in a trust, etc.).

Fifth, when it comes to dealing with the tax issues in any new jurisdiction where you take up residence, the key is to research, plan, and take action before taking up residence.Certain options for mitigating your local tax bill can be taken off the table once you’ve taken a local address. Again, you need local legal advice.

Sixth, you can avoid any local tax issues by being only part-time resident. The particulars differ jurisdiction to jurisdiction, but, generally, spend fewer than six months in a place, and you can’t be considered full-time resident for tax purposes.

There are exceptions, so, again, get advice.

I’m lucky. I happen to be married to the most international tax-savvy guy I know.

Kathleen Peddicord

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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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