US $106k Foreign Earned Income Exclusion

[makoman]

Originally Posted by steffan

This topic is of interest - I'll be in the same position in a couple of years. The trick might be that you need to be in another country for the full year, not just out of the US. Probably worth talking it through with your accountant. If you are self-employed there's an extra wrinkle there too.

There is some basic info here: https://www.irs.gov/individuals/inte...come-exclusion

And you need to have the RIGHT accountant. Most of us CPAs don't know a lot about international tax treaties and the interplay of US v. foreign country taxes. A safe bet would be to consult with one of the large CPA firms, although there is a smattering of smaller CPAs knowledgeable in this area as well.

[letsgetsailing3]

Originally Posted by Dockhead

It's not a rabbit hole. The IRS bureaucrats have precise instructions. If you are sitting in France coding for an American company, and meet the other standards, it's Foreign Earned Income, end of story. Like I said. As a digital nomad, you are absolutely fine so long as you fulfill the pretty clear criteria. By now there are tens of thousands if not hundreds of thousands of digital nomads.

The IRS regulation is clear. The other factor is that the person needs to have the ability to work legally in that country. It's not insignificant.

Because the same definitions of work the IRS uses are also used to determine if you're allowed to be physically present somewhere and doing work.

Suddenly, you're subject to the other country's labor laws, regulations, visas, tax laws, health care, liability insurance, etc. Your company will have to pay labor taxes and follow laws as if the employee is working in that country. You have the legal rights of workers in that other country, which are different from those in the U.S. Any legitimate international company will know this. It's more expensive to carry an employee in a foreign country. It's a hassle.

Mr Campbell seems to be indicating that he wishes to play it both ways - work as a U.S.-based employee and get taxed differently because he's living somewhere else, but without all the other paperwork, regulation, and expense.

[TXProud]

Voluntarily (Remote) working overseas for a US company doesn’t count. You’re also unable to return to the US for more than 30(?) days in a calendar year - cumulative.

My work is overseas, generally in unpleasant places. I could live anywhere but chose to stay in US, travel as necessary and pay my taxes.

[Bill Streever]

The exemption can come from establishing a residence abroad or from the physical presence test, which just means you are out of the US (and international waters and airspace, as defined by various rules) for more than something like 330 days per year. You will still have to pay social and med. There is good information about the physical presence test on line, and most decent tax preparers will be familiar with it. Check the fine print, as it is a little complicated.

[mcon12000]

Probably not worth the effort imo the IRS has determined every conceivable way to extract the appropriate Tax for every situation. Seems like finding the right accountant could be very challenging but thats your answer. I'd just establish residency in a state like Texas without any state income tax and sail away.

Another option is going the S-Corp/LLC route but that really depends on how you are utilized at your current employer. I'm an LLC and the new tax code (2019) saved me thousands of dollars vs 2018. My friends who are employees saw their taxes go up or rather some deductions disappeared.

Might be worth checking with the folks who have retired in places like Costa Rica
and how the deal with investment income and paying taxes in both locations?

[Bill Streever]

Hi all. I wanted to follow up with one more note, as I have the impression that some respondents think the exemption in question is some sort of loop hole or tax dodge. The tax deduction for American's living and working abroad is not a tax dodge. It is a legitimate deduction, comparable to the deductions available, for example, for having dependents or for interest payments on a house. It has been in place for decades (I used it while working in Asia back in the 1980s). I think the powers that be put it in place to somewhat offset the fact that Americans are liable for US income tax no matter where they live in the world, which, for the citizens of most other countries, is not true. But rather than simply saying that citizens who live and work abroad do not have to pay income taxes, the powers basically put a deduction in place for those who meet the criteria spelled out in the tax code. It's every bit as legitimate as any other tax deduction (but as with all tax deductions, you have to meet the requirements of the deduction, and each individual should assess that for themselves or with the help of a tax professional). BTW, I know from my own experience that it only applied to income earned outside of the US, so, for example, returns on investments, royalties, most or possibly all pensions, etc. are not covered. -bill

[valhalla360]

A lot of this discussion has focused on "residency" but another consideration is "tax home". The FEIC requires a foreign tax home.

From IRS Website:
Tax Home
Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a "tax home" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.

If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work.

Also from IRS Website:
Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that's your tax home. Your travel on weekends to your family home in Chicago isn't for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.

I can't find where the IRS discusses it directly but I did find on another website:

If you have a permanent place of employment in the U.S. but then are put on assignment abroad, the location of your tax home depends greatly on whether your assignment is temporary (precluding the FEIE) or indefinite (allowing the FEIE). If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. If you expect it to last for more than 1 year, it is indefinite. Courts generally consider employees not to be on assignment, however, if they choose to move and work remotely from abroad simply for personal reasons, i.e., if the employer does not require the taxpayer to live and work remotely abroad nor benefit from such an arrangement. In such case, the taxpayer’s pre-move place of business can be considered his or her tax home, regardless of the length of stay abroad.

This seems to dovetail with what the OP is suggesting. If the business doesn't require you to move overseas and gets no benefit from you being overseas, your tax home doesn't change.

[Yellowbay]

You are working “FROM” overseas. You are not “working” overseas, unless your company transfers you to the foreign office where you want to be.
If you remotely work from a foreign country, you might want to look at status as a contractor. You would probably lose all your benefits. Could you do the work as a general contractor?
Thailand is near the top of the list for working as a digital,nomad.
You can actually retire there at 50 and live there after: having an income of 1800$ US AND 25k$ in a Thai bank and your own health care
The cost of living is up to you as it can be from 80% cheaper or less.
Thailand has a lot of western infrastructure
It has a lot of marinas and I don’t know the requirements for a foreign registered boat. There is a “Farang” owned catamaran company there and they also offer charters.

[sail4evr]

Originally Posted by Dockhead

FBAR is not a big deal if you are simply careful to fill out all the forms, on time. These days it's all done online. It doesn't matter whether you deposit paychecks in a U.S., or a foreign bank account. Just be sure to do all the required reporting on all foreign accounts, and that includes investment accounts.

Hi maybe you would know.
Is Banco Popular of Puerto Rico with offices in US Virgins and British Virgins considered a foreign bank? I have an account in the British Virgin IS and Us Virgin Is.
Thanks for your insight

[sail4evr]

Originally Posted by jim King

I lived for ten years in Japan some time back and claimed FEIE while earning income there. Their tax system doesn't hit too hard until you are over the $100,000 level so my ex-pat status served me well with the FEIE.
There was a year, however, that I was called by the Dept. of Internal Revenue to prove you ex-pat status. As was mentioned you need to spend a certain amount of time outside the US in order to claim a FEIE. Not sure what that duration is currently, but the Internal Revenue Service may call you on the carpet to prove your time abroad. The way you show this time is with your passport which has date stamps.

Hi, thanks for your time. While in Japan claiming FEIE did you have to file the FEIE exemption every year and state your foreign income earned?
thanks

[Wandersome]

Ummm having lived and worked outside the USA for Quite a few years there are two main ways to claim overseas tax exception. Foreign residency, and days outside the USA. I’ve always used days outside the USA. If you can show you have spent 335 days in any 365 day period outside the USA, you can use the exemption. (Need to check... I can’t remember if it’s 330 days or 335 days.) These do not need to be consecutive days. For example I used to spend 2 weeks in the USA for Christmas and a few short trips back every year for other visits. You are still required to pay full Social security and other taxes but your income is taxed on income over $106K. Talk to a tax preparer, they can confirm. Cheers!

[mako]

There are several ways to qualify... and how wonderful it is. I just returned after 11 years in the Middle East and India.

[wannago]

Originally Posted by NPCampbell

What is your definition of a legitimate overseas position? Even before the pandemic a good portion of the people on my team worked in other countries. With the pandemic, nearly 100% of our work force is remote. I just want to be one of those "overseas" employees.

I work in the US for a foreign company.


If one of our employees from another country wants to come here to work, they first have to have a position available. Then the company has to make a valid effort to fill that position with a US citizen or permanent resident before they move another employee.


We have a small number of employees I know in South American countries (several different ones) that are anxious to get these opportunities. The last one that I was very familiar with was located in a smaller city in the South that no one else wanted to move to (I was on the project commuting weekly, but refused to relocate).


I would expect most first world countries to have similar requirements for offering work visas. And some third world countries can be actually worse, have heard stories about people getting into trouble for working on there own house.

[NPCampbell]

Originally Posted by letsgetsailing3

Mr Campbell seems to be indicating that he wishes to play it both ways - work as a U.S.-based employee and get taxed differently because he's living somewhere else, but without all the other paperwork, regulation, and expense.

I don't want to be a US based employee. I want to work for a US based company (actually tax based in the UK). I also want to comply with whatever laws and taxes the foreign country might have. However, many of the countries I am looking at have 0% income tax ... Bermuda, Bahamas, BVI, Turks & Caicos, St Kitts, etc...

[NPCampbell]

Originally Posted by sail4evr

Hi maybe you would know.
Is Banco Popular of Puerto Rico with offices in US Virgins and British Virgins considered a foreign bank? I have an account in the British Virgin IS and Us Virgin Is.
Thanks for your insight

I think BVI would be considered foreign. USVI probably isn't, but I am just guessing, based on the fact that most if not all of the US mainland tax laws are applicable in the USVI.