While living abroad we have a much different opinion on taxes. In most other countries, taxes really are put to hard work. They may be more than 2x what the US requires you pay, but in the end, the benefits far outweigh the means. As my brother-in-law puts it, “you don’t have to deal with anything else, which makes the extra dollars worth it.” He has a good point. Who really wants to think about all the other things that we pay for (i.e. health insurance, etc)?
As a US citizen we are required to file taxes until the day we die regardless of where we live, unless we renounce our US citizenship. It is the nature of being from the “Free World.” But there are benefits if you look hard enough.
Filing taxes come every year like clock work… and we work the whole year towards righting our books. We have now a bookkeeper on retainer who supports us monthly with reconciling our Online Quickbooks and an accountant that specializes in International filing. We feel like we have finally gotten together the best support team possible. One of the things that our bookkeeper said to us that we latched onto early on was that in order to make money and to be a profitable business you have to know the whole picture of what you are doing so you can see where to streamline, adjust, etc. She is right.
What we have found has been enlightening:
- The US government offers you an exclusion if you live out of the country for 335 days
- Many of our Quickbooks entries were duplicated from our Bank of America virtual transactions
- We can classify based on our interest projects so our money can be allocated into buckets
- We spend far more than we make and now we know why
- There are great write off opportunities when you are an independent / sole proprietor
We now feel like we are headed in the right direction and are legal, focused and directed… and we have researched the crap out of the global opportunities for being expatriates.
Want to learn more? We are happy to put you in touch with our team.
IRS Site Information: Foreign Earned Income Exclusion
If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($100,800 in 2015). In addition, you can exclude or deduct certain foreign housing amounts.
You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer’s Tax Guide to Fringe Benefitsfor more information.
For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. This includes amounts paid from both appropriated and nonappropriated funds. Also, if you are a U.S. Government employee paid by a U.S. agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U.S. Government and does not qualify for exclusion or deduction.
- Can I Claim the Exclusion or Deduction?
- Tax Home In A Foreign Country
- Bona Fide Resident test
- Physical Presence Test
- Exceptions to Tests
- Figuring The Exclusion
- Choosing The Exclusion
- Which Form to File
- Foreign Housing Exclusion or Deduction
- Individual Retirement Arrangements
- Extension to Claim Foreign Earned Income Exclusion
- Application of Foreign Earned Income Exclusion and the Combat Zone Exclusion to Civilian Contractors Working in Combat Zones (PDF)
- Form 2555, Foreign Earned Income
- Form 2555-EZ, Foreign Earned Income Exclusion
- Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
- Form 2350, Application for Extension of Time to File U.S. Income Tax Return
- Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- U.S. Citizens and Resident Aliens Abroad