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International Tax Review

Kathleen Peddicord by Kathleen Peddicord
Oct 14, 2013
in Offshore
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A Calculator is going to be the first of your needs when planning for taxes overseas - International Tax Review
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Six Tax Things Every American Abroad Should Know

“You’ll notice that Lief is in his office as usual,” I wrote this morning to our Panama City staff. “However,” I continued, “he asks that you pretend that he’s not. That is, except in case of critical emergency or dire need, please steer clear of Lief’s desk today.”

Tomorrow is Tax Day for us and all other Americans who asked Uncle Sam for a six-month extension for filing our U.S. taxes. For the past two weeks leading up to T-Day, our family room has been strewn with piles and stacks of bank documents, expense receipts, and account statements that I’ve been strongly encouraged not to touch. Jack and I tip-toe through the room, careful not to sit a glass or a book in a place that might interfere with Lief’s filing “system.”

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 these past two weeks, our pillow talk has had a lot more to do with foreign-earned-income analysis, foreign tax credits, investment rental write-offs, and mortgage expense than…well, than with anything else.

Lief is holed up in his office today with our Panama accountant finalizing our returns. From behind his Do Not Disturb sign 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 some 16 years ago:

Tax Tip #1:

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, and many retirees overseas don’t need to invest in tax planning either. A move overseas is often a tax-neutral event for someone with only retirement (that is, pension or Social Security) income.

Tax Tip #2:

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.

Tax Tip #3:

Third, the Foreign Earned Income Exclusion (FEIE) may be the beginning and the end of the tax planning you require. As an American citizen living and working abroad who qualifies for the FEIE, your first US$97,600 (for 2013) of earned income is tax-free in the States.

Note, though, that the FEIE applies to earned income only. It’s no help when it comes to investment, dividend, interest, or capital gain income.

Tax Tip #4:

Fourth, when it comes to purchasing and holding real estate overseas, remember 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.).

In some jurisdictions, 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.

Tax Tip #5:

Fifth, when it comes to addressing the tax issues in any new jurisdiction where you’re considering taking 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. Get local legal advice as early on in your planning as you can.

Tax Tip #6:

Sixth, you can avoid any local tax issues by being only part-time resident overseas. 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. This can mean no tax obligation in the country where you’re part-time residing, but it also means that you will need to use the 330 Day Test, and not the Residency Test, to qualify for the FEIE. This means you can spend only up to 35 days per year in the United States (as I said, not an issue if you don’t have earned income).

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

 

In nearly 30 years covering this beat and 16 years of filing tax returns as an American abroad, I’ve not met another tax advisor who compares.

Kathleen Peddicord

Continue Reading: Best Surfing Beaches In Panama

Tags: bankingcomplianceFEIEfilingTaxes
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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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