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How To Live Tax Free as an American Nomad

DEATH & TAXES AHEAD

Much is made of the Leviathan that’s the United States Internal Revenue “Service.” Gotta love euphemism. What a “SERVICE!”

For a laf at “The Land of the Free”:

The only major nation that taxes its citizens (and green card holders) regardless of where they live is the United States. So long as you hold a U.S. passport or green card, the Internal Revenue Service wants its cut of your profits [and income (-ed)] and capital gains.

(Some lists of countries that tax citizens and legal residents on their worldwide income include Libya, North Korea, Eritrea and the Philippines. The tax systems of these countries are not well developed and data is limited.)

Don’t you keep good company, America?

There are actually people who were born in the USA when their parents visited, have never lived in the USA, but are automatic citizens and if they have assets to go after, your land of the free will chase them across the globe.

All other major nations view taxation as a sort of payment into the commons for the services rendered generally by the government. If you don’t live here but in fact, live in another country, then you’re not a beneficiary of said services.

There are caveats, however, which make it such that only the wealthy have to bother. But who’s not for a little hype in the intro? Now, you’ll read it.

The first caveat is that no matter your income, you only have to pay to the USA the difference of what you’d pay, to what you paid to the country in which you reside. So, if the tax you’d owe to your fellow ‘Mercns for fuck all is $10,000, then if you paid those English wankers $12,000, you’re off the hook. However, if the Spaniards only hit you up for $8,000, then you’re going to owe your brethren $2,000.

See how simple?

But there’s another provision that pretty much takes complaints off the table for most. It’s Form 2555 in the IRS Library. Foreign Earned Income Exclusion (FEIE).

The bottom line is that anyone who lives or travels continuously outside of the USA for 330 days or more per year can exclude about $105,000 of earned income, regardless of whether you paid income taxes anywhere else. If you’re a couple filing jointly, you both get the exclusion, so up to about $210,000 total (but calculated on each spouse’s earned income).

The caveats are that it has to be earned income, no matter where it was earned (even within the US, say, working for a US company abroad). Earned income is basically things like wages (W-2) and self-employment income (1099). Things not excluded are income from retirement plans, pensions, social security, dividends, or other passive income such as distributions from a company you own but don’t actively participate in (K-1).

Also, you still have to pay Social Security and Medicare, which is about 7.5% for W-2 wages (the employer pays the other half) and 15% on self-employed income. But still, far better than paying an additional 10-37%.

So, the bottom line at the bottom of lines is that if you make $105K abroad and spend less than 35 days in the US, your tax bill is about $7,900 if you earn wages, or $15,750 if your income is self-employment income from things like online businesses, freelancing, consulting, etc. Do note this is taxable income, so after all other deductions, such as mortgage interest and itemized or standard deductions.

If in the US, $105K would put you in the 22-24% tax bracket, depending on whether single or married. So, an additional $25,000, about. Not chump change. Plus, if the spouse also has $105K of taxable income, that’s basically $50,000 tax reduction.

Of course, this isn’t tax advice, nor is it exhaustive. It’s a general idea. There are some quirks with Trump’s Tax Reform, such as being able to deduct half of that 15% self-employment tax from adjusted gross, but this give you a general idea and it’s big.

For a good primer I found that goes into greater detail and depth, see: The IRS Foreign Earned Income Exclusion For US Expats – The Complete And Definitive Guide.

I depart to Chiang Mai, Thailand next Tuesday, January 14. I’ll be in Thailand fo a couple of months, then Vietnam, Cambodia, and Laos for another couple of months; then I’m looking at Sri Lanka for a couple of weeks to a month, and then it’s off to Lisbon, Portugal followed by a summer in central and eastern Europe, and maybe some Med time in Cyprus during the summer and fall. So, much more to come…

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More

5 Comments

  1. Todd on January 9, 2020 at 19:40
    • Richard Nikoley on January 9, 2020 at 21:00

      Thanks Todd. Well done.

  2. pzo on January 10, 2020 at 08:50

    “Taxes are the price of civilization.” Chief Justice Oliver Wendell Holmes.

    My taxes pay for many services that I expect my local, state, and government to provide. Sure, we can discuss tax sources, equitability, and fairness.

    I don’t mind paying taxes. What chaps my ass is that many of the most profitable companies in America don’t pay corporate income taxes and even get “refunds”. Subsidies. The property tax structure here in Texas is a real clusterfuck. My county just north of Austin, has 50,000 appeals every year.

    And the size and cost of our military. Not at all anti-military, but about 65% of our discretionary budget pays for war; past, present, and future. Surely we don’t need that much military-industrial complex support.

    Hunter-gatherers paid taxes. Sure did, in labor. Everyone pitched in and pulled their weight.

    To not pay taxes and use government services – impossible not to – is hypocrisy in action.

    • Jackson Cu on January 19, 2020 at 07:03

      All corporate taxes are ultimately paid by their customers …. which trickles down to… the consumer.
      Corporations are turned into de facto tax collectors on individuals.
      The average net profit margin across many industries is around 9%. Industries with higher net profit margins attract more startup competition which tends to lower it.
      If you got rid of corporate taxes, price competition would whittle said net profit margin back down to 9% and prices to individuals would go down.

      Consider that corporate salaries are heavily taxed already.

      Lowering the corporate tax rate would attract businesses to move back to the USA.

  3. Richard Nikoley on January 19, 2020 at 16:23

    Exactly, Jackson. I’ve been saying this for decades.

    Higher Corp taxes are just a hidden tax on consumers.

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