• About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe
No Result
View All Result
Live and Invest Overseas
FREE REPORT
BEST PLACES TO RETIRE
*No spam: We will NEVER give your email address to anyone else.
  • HOME
  • COUNTRIES
    • Top Destinations
      • Portugal
      • Panama
      • Belize
      • France
      • Colombia
      • Dominican Republic
      • Thailand
      • Mexico
      • Spain
      • Argentina
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
Live and Invest Overseas
  • HOME
  • COUNTRIES
    • Top Destinations
      • Portugal
      • Panama
      • Belize
      • France
      • Colombia
      • Dominican Republic
      • Thailand
      • Mexico
      • Spain
      • Argentina
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
No Result
View All Result
Live and Invest Overseas
No Result
View All Result
Home Taxes

How To Reduce Your Taxes While Living Overseas

Kathleen Peddicord by Kathleen Peddicord
Sep 10, 2008
in Taxes
0
Create Your Own Tax Deduction
211
SHARES
3k
VIEWS
Share on FacebookShare on Twitter

How To Live Tax-free

“Most U.S. expats realize that this country taxes its citizens on their worldwide income,” writes our international tax guru this morning.

“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 $87,600 of wage or self-employment income earned by a U.S. citizen ‘residing’ in another country. (Technically, you’re ‘residing’ abroad if you’re outside the U.S. for at least 330 days during any 365-day period.)

“Here’s something else you may not realize: You can use the Foreign Earned Income Exclusion 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.

“You reap the benefits of the FEIE if you’re self-employed, as well, operating a small business outside the States, say, or working as an independent contractor for a U.S. or foreign corporation but performing your work, again, outside the United States.

“Remember, though, that the FEIE applies only to federal income tax. If you’re using it as the beginning and the end of your international tax management strategy, you’re still liable for Medicare, Social Security, and FICA …which amount to about 7.5%, or $6,570 a year on a salary of $87,600. And your employer is required to match your Medicare, Social Security, and FICA contributions, so your situation is costing him about 7.5%, as well.

“Plus, if you’re self-employed abroad but operating without a corporation, you’re liable for 100% of FICA and Social Security…and you can suffer a reduction of your FEIE based on business expenses you claim.

“In other words, the Federal Earned Income Exclusion is a great start. But you can do more.

“To maximize the tax benefits of residing abroad and (legally) minimize your total tax obligation in the U.S., here’s what you want to do:

“First, form an offshore corporation in a zero tax jurisdiction, register that company with the IRS, and open a foreign bank account in its name.

“Second, draw a salary of up to $87,600 from that foreign corporation. As long as you qualify for the FEIE, and the company’s income is derived from active, not passive, business, you will have no U.S. federal income tax liability on this income.

“Volia. The properly registered and domiciled foreign corporation is not responsible for Medicare, Social Security, or FICA.

“Furthermore, you are now not self-employed; you are an employee of your offshore corporation, and therefore not subject to self-employment taxes either (that is, no Social Security, no Medicare, no FICA).

“Plus, all the expenses of the offshore corporation are now additional deductions and do not reduce your Foreign Earned Income Exclusion.

“And…operating this way, you might be able to retain some or all of the offshore corporation’s earnings in excess of the FEIE. Careful planning in this area can allow the deferral of U.S. income tax on active business income inside the corporation.”

Piece of cake, right?

In fact, this international tax stuff is mind-numbingly complicated. Lief and I searched for competent, reliable, and, critically, affordable guidance for more than a decade before we found our guy. One guy wrote five- and six-page memos in response to every (we thought simple) question we asked. Then he sent a bill for thousands of dollars per page…

We couldn’t understand the advice…which was beside the point, because we couldn’t afford it anyway.

Four guys later, we found our guy. We ask him a direct question…he gives a direct reply. And he bills not by the hour or by the page but by the challenge.

Kathleen Peddicord

Tags: FEIEForeign Earned Income Exclusion
Share84Tweet53
Previous Post

How to Receive Social Security Overseas

Next Post

Gone Fishin’

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.

Related Posts

Forms to file U.S taxes, a calculator, a pen, and twenty dollar bills
How to

Comply And Conquer: How To Legally Minimize Your Tax Burden

by Lief Simon
April 4, 2022
0

We Americans have it rough when it comes to taxes. The Big Bad Wolf of the world’s financial arena—the IRS—calls...

Read more
Colonia El Centro with church tower, Banderas Bay Coast Line, Puerto Vallarta, Mexico.

3 Places Where Real Estate Taxes Cost Next To Nothing

July 20, 2021
Woman paying taxes

Understanding Your Tax Obligation As An American Expat

April 26, 2021
The word Tax written with wooden blocks and alarm clock on coins in the background.

Tax Season Scams: Identifying And Avoiding Today’s Most Common Scams

April 4, 2021
'Tax time' memo on 1040 individual tax form

FEIE Basics

December 26, 2020
bungalow in the dominican republic

Things To Consider When Investing In Properties Overseas

May 1, 2020
better take out your calculator if you are thinking of a 1031 Like-Kind Exchange

Staying IRS Compliant While Abroad: Dates And Common Q’s

October 15, 2017
Next Post
palm treeson a beach by the clear caribbean waters

Gone Fishin’

Start Your New Life Today, Overseas

A world full of fun, adventure, and profit awaits! Sign up for our free daily e-letter, Overseas Opportunity Letter, and we’ll send you a FREE report on the 10 Best Places To Retire In Style Overseas Today.







LIOS Resources


  • New To LIOS
  • Ask An Expert
  • Media Center
  • Contact Us
  • FAQs

Quick Links


  • Best Places To Live
  • Best Places To Retire
  • Finding A Job Overseas
  • Real Estate

Sign up for our free daily e-letter, Overseas Opportunity Letter, and get your FREE report: The 10 Best Places To Retire Overseas In 2022

  • About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe

© 2008-2021 - Live and Invest Overseas - All Rights Reserved.

No Result
View All Result
  • Home
  • Countries
  • Budgets
  • Archives
  • News
  • Events
  • Bookstore
  • Newsletters
  • About Us
  • Members Area
  • Contact Us

© 2008-2021 - Live and Invest Overseas - All Rights Reserved.

Sign up for FREE and learn how to live the good life on a modest budget, find bargain property, and more. Plus, check out our free report on the 10 BEST PLACES TO RETIRE.

RETIRE OVERSEAS AND LIVE LIKE ROYALTY

The World’s Best Places To Be In 2022?

Discover Them Here…