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FAQ

If claiming a foreign income exclusion on your US Federal tax return, what is the earliest date by which you can start the 12 month 330 day physical presence test for a 2021 return?
Any date that results in one or more days in calendar year 2021 falling within the 330 day requirement.The one year in the physical presence test does not need to coincide with the calendar year. If it straddles two years, you must apportion the maximum exclusion based upon the number of days in each year.
2021 Tax Law Change. IRS FORM 2555 Foreign Earned Income Exclusion (FEIE). Can someone help explain what actually changed for deployed contractors?
Prior to 2021. a contractor who worked overseas in support of US Armed Forces could not typically qualify for foreign earned income exclusion if they maintained a home in the US, no matter how long they stayed overseas. Beginning with 2021 tax year, keeping a home in the US no longer disqualifies a defense contractor if he or she is working overseas in a designated combat zone.
I'm an American working in Dubai, earning $4,500 per month? There is no income tax over here but any idea how much tax I will owe to the IRS?
I have to make some assumptions here:$4500 is your only incomeYour residency in Dubai is sufficient for the foreign earned income exclusion.That level of income is well below both the FEIE and standard deduction, so you owe no US income tax. You do probably need to pay self employment tax in your foreign earnings as there is no totalization agreement in place with the UAE to cover you.
Would you move to a third-world country in order to retire much earlier?
I did, and never looked back. In fact, I’ve now lived three countries that might be considered third-world.I left the USA in 2021 at age 60 to retire to Ajijic, Mexico. It’s a beautiful little Mexican village, sandwiched between some pretty impressive mountains and Lake Chapala - Mexico’s largest lake. It’s home to some spectacular sunrises and sunsets, a wonderful climate year-round, and a thriving community of American and Canadian expats. Here’s a sunset view from my furnished rental home - a 2 bedroom 2 bath literal art gallery of a home with a heated swimming pool on the side of a mountain. Monthly rental little more than what you’d pay for a nice 1BR apartment in any decent sized American city.I absolutely loved almost everything about Ajijic. It seemed like heaven on earth to me, on a Social Security budget. Great people, great restaurants, Guadalajara International Airport 45 minutes away…. oh hell, I could go on for an hour about what to love about Ajijic!But, when traveling to SE Asia in 2021 I happened upon Ubud, Bali. During my first evening there I went to a cultural dance performance at a Balinese Hindu temple. Breathtaking. (Guess which one is me, following the dance performance on my first night in Bali).Two days later there was a cremation ceremony for the King of Ubud, who had died sometime earlier. It was the most amazing spectacle of my life, where hundreds of men lifted the king’s 80-foot-high ceremonial stand on their shoulders and ran with it over 5 kilometers to the site where he was cremated.In between those two events I had attended several other local gatherings and befriended several very interesting people from around the world. I decided to remain in Bali rather than return to Mexico. My only worldly possessions were those that I had in my backpack. I called my friends back in Mexico and told them to sell, give away or keep everything else I had left behind. I found I could live very comfortably with only what I could carry on my back.I loved everything about Bali - the sacredness of the Balinese Hindu traditions, the beauty of nature, the international community of outstanding and interesting people, the simple yet elegant home I was able to rent at less than $400/month. The temples and rice terraces were amazingly sacred and beautiful - as were the beaches everywhere.Speaking of beachesWhen living on a tourist visa in Bali, you must leave the country every 60 days, then restart the clock on another 60 days when you return. Lots of people would get a same-day, round-trip flight to Singapore. But for my visa runs, I chose to explore other countries in SE Asia - Thailand, Singapore, Malaysia, Vietnam, and the Philippines.I traveled to Boracay Island on the Philippines - which Conde Nast Magazine calls one of the world’s most beautiful beaches. I have to agree. Every sunset there is a picture of perfect serenity.And then something unexpected happened. I met an amazing Philippine woman while in Boracay. She took my breath away with her beauty, her fun nature, emotional maturity and compassionate heart. She came back to Bali with me for a one-month visit then returned to the Philippines. I followed her one month later.Three years later, we live in a new, furnished 2 bedroom 2 bath condo overlooking a pool, banana and coconut trees, the ocean, and the next island over. For about half the cost of an American 1 bedroom apartment.We take advantage nearly every day of the excellent climate and amazing natural beauty of this area - waterfalls, mountain streams, beautiful beaches, hot springs, world-class scuba diving. We live an upscale lifestyle on my Social Security income.This lifestyle isn’t for everybody.I’m a long way from the USA, so it’s neither convenient nor inexpensive to visit family and friends.Driving here is about as screwed up as anywhere I’ve been - no enforcement, thus no adherence to traffic laws.Sometimes the power goes out unexpectedly.The internet is neither as reliable nor as fast as I’d like.I have to go to both a grocery store and a local market to buy groceries, fish, fruits and vegetables. A lunatic must be in charge of grocery stocking, because I never know if something I bought last week will still be on offer this week; if it is, it’ll probably be in a different aisle.So if you’re hung up on convenience, don’t even think of leaving the USA for a third-world country.But I wouldn’t trade my life for anyone else’s in the world. I’m the happiest man on earth.Namaste!Follow me on Twitter or like Upgrade Your Lifestyle on Facebook for occasional reflections about life as an art form.
As an American living in Germany, which corporate structure is best for avoiding tax compliance issues?
It's much better for you tax-wise to have equity in a Delaware corporation, as you can get benefits of Qualified Small Business Stock.There isn't any way to get any tax benefits or deferrals using a foreign holding company; you'll just trigger lots of complicated reporting requirements. Subpart F prevents deferral of passive foreign income.Just own your equity directly, and pay both German and U.S. capital gains taxes on any exit. Owning 40% of the equity will trigger some nominal CFC reporting requirements.The structure may make this company unfundable by U.S. investors.
My daughter moved to Sweden July 2021. She has a residence and national ID. She paid taxes on income in Sweden. She hasn’t lived there for a year so the US wants to tax her on income that Sweden taxed her on. Can she avoid double taxation?
Yes,However, unless she is unusually tax knowledgable, she should talk with a tax professional. The year of moving abroad and the year of returning introduce extra complexity and she will want to make sure she has allocated income, expenses and taxes paid to the correct countries so that she can claim the appropriate exclusions and credits.For a ‘normal‡ wage earner who is legitimately becoming a permanent resident overseas, you should be able to take a part year exclusion (you may have to file extensions until late in the year to be able to confirm that you have qualified). This should exclude from US tax the bulk of any income that Sweden taxes. For that income that both countries tax (assuming she is a high earning individual to have had this happen) the US provides a one for one credit of foreign taxes paid against US taxes due.Despite the headline of ‘American’s need to pay tax to the country they work in and the US - Terrible double taxation burden!!!’, for most income, it works out you simply pay the higher of the two taxes. So no you generally don’t have a double taxation.HOWEVER, your daughter is now, in the eyes of the US congress, public, IRS and Treasury, a suspected tax avoider with dodgy offshore accounts, that she clearly only has to evade taxes. As such, she will be subject to FATCA reporting and she risks that any banking product (like investing in a pension, mutual fund, having a relationship with a non-US person, or starting a business) will be non-compliant with the US rules and she would then need to file a range of disclosures or face very heavy fines.As she probably still has a view of returning, it may not make sense for her to renounce her citizenship yet, but if she likes Europe that may well be in here future.
I'm a Canadian citizen and I have a green card for the US. I work online (through Canadian companies), can I still work for Canada? What do I do about my taxes?
As a Canadian citizen, you have the absolute right to live and work in Canada. As a permanent resident of the United States, you have the right to permanently live and work in the US. So as long as you are physically in Canada or the US when you are working, you should be fine.Taxes will depend on where your tax home is, and it can be complicated. As a green card holder, you must file a US tax return no matter where in the world you live if US law requires it and as you work for a Canadian company, you may have to file a return in Canada if you live in Canada and/or have Canadian income tax deducted from your pay.As another answer states, there is a treaty between Canada and the US in regards to income taxes, as well as one on social security. The goal of the treaties is to reduce or eliminate double taxation.If you think you can handle it yourself, visit both Agence du revenu du Canada (Canada Revenue Agency) and An official website of the United States government (Internal Revenue Service) and start reading. In the US I would start with Publication 519 - US Tax Guide for Aliens and the instructions for Form 1040 (the full form, not 1040A or 1040EZ.) For Canada, you should file either Form NR-73 (living in the US) or NR-74 (living in Canada) and they will make a residency determination. This determination will guide you on which tax package you have to file and which guide you need to read.If tax is really not your thing, then you need a professional who specializes in both countries. This will likely be expensive, but cheaper than interest and penalties if you get it wrong.Note that while I am experienced in this area as a lay person, I am not an accountant or tax attorney and none of the above should be considered to be professional advice.
Why do citizens of the United States still need to pay U.S tax when they are living abroad?
It’s a benefit of citizenship! US Tax law requires all US citizens to file a US tax return each year regardless where they reside. To eliminate the possibility of double taxation, tax payers can claim credit for foreign taxes paid. So, if you live abroad, you typically pay the greater of the US tax liability or the foreign tax liability.Is this fair you ask ‡ well, the option is to renounce your US citizenship and free yourself from the burden of US tax laws. But, clearly “expatriates” recognize the benefits of remaining a US citizens as opposed to a citizen of another country.
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