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