YSK that if Americans live outside of the US for more than 330 days a year, they don't have to pay taxes on $125,000 of their income that year
YSK that if Americans live outside of the US for more than 330 days a year, they don't have to pay taxes on $125,000 of their income that year
why: so the government won't be able to use your money for whatever the fuck they're planning for the next 4 years.
as a traveler, none of my money has been funding Israel, for example.
one-step method: you basically fill out one extra tax form called FEIE while you're doing your taxes, write down the dates you were outside of the country, and then since you aren't in the country and are not receiving any services from the US, you don't have to pay income tax up to a certain amount (it's a little over 125k this year).
The exemption only applies to earned income, meaning you cannot apply any of that $125k to stuff like investment returns, dividends, royalties, or rents collected.
If you were employed by a foreign company that has no presence in the US how exactly would the IRS know whether you've earning more than $125k?
Because money keeps getting deposited in your bank account every two weeks and you're not reporting any income.
Banks hand all of that information over.
Honor system
they wouldn't know initially.
you report your income, and then if the IRS suspects foul play, they would check later.
If you're making over 125k, then you'll likely have some kind of connected web/media presence that would allow them to at least circumstances confirm your position and standing within the field.
they could also check your bank balance and international holdings against the amount you said you've been making and see if it matches up.
they could also check your bank balance and international holdings against the amount you said you’ve been making and see if it matches up.
Does the IRS have authority to issue such requests to foreign banks? How would the IRS even know what foreign bank to issue these requests to?
Sorry, I have no knowledge about what information is communicated across international borders with regards to the banking world and how this gets tracked on a per-individual basis.
These posts are always so funny to me, because it implies you were completely happy with what the US has been funding for at least a year but now you want to talk about tax avoidance?
"These posts are always..."
show me.
I haven't seen any other posts about the FEIE(except for mine earlier this year).
"...it implies you were completely happy..."
not at all, in fact, the post body specifically contradicts your implication.
your "implication" is drawn entirely from your own flawed assumptions and unnecessary ignorance.
"..now you want to talk about tax avoidance?"
I've been talking about the feie for years, so in the future you might want to check yourself since you just wrecked yourself.
But if you earn over the threshold, you're expected to pay taxes to the US government, no matter where you're actually living or working, no matter if you're also paying taxes wherever you currently are. The US is the only country in the world to assert that it has the right to tax its citizens remotely in this manner. It's not normal.
Add that to the list
Double taxation treaties are very common. What I've been told by US coworkers makes the US stand out is that you still need to file your taxes with the IRS, even when living abroad. No idea if that's actually the case.
I have lived outside my native country for a while and only had to file taxes in my country of residence (neither of which is the US), because there's a DTAA in place between the two.
It’s not the only country. I’ve lived in another country that was just like that. I bet other countries have the same rule to avoid some tax loophole. Or just because they can.
The US has double taxation treaties with over 60 countries. When you pay taxes somewhere else, you deduct all of that tax from your US taxes above the $125k.
Though I definitely agree the IRS shouldn't need these treaties, because if you're not living there, why should you even need to file?
They also charge you a crazy exit tax if you want to give up citizenship in order to save on taxes. They always get their pound of flesh.
"over the threshold, you're expected to pay taxes"
sort of, that's the "up to 125k" limit part of the FEIE(readjusted for inflation every year).
you still don't pay taxes on the first 125k.
earning more than 125k is not a problem most people have.
The problem most people have is not knowing that the feie exists in the first place and there are legal, straightforward ways to avoid paying income tax while saving money traveling.
"no matter if you're also paying taxes wherever you currently are..."
this is very iffy and depends on a lot of factors.
again, for most regular people, foreign income tax credits will erase most financial duties to the US.
"The US is the only country in the world..."
nearly.
"It's not normal."
nope, it's definitely weird and it sucks.
but at least there's the FEIE.
Well, it is on them to find me and this income.
I always find it mad as hell that Americans have to pay tax in the US even if they are living and earning elsewhere
Especially given generally Americans are pretty allergic to reasonable taxation
yeah it is totally banana stacks, and nobody tells anybody else how to get around that, of course.
since nobody knows the sacred knowledge anyway.
some tax guy, not my tax guy, just a random guy who worked in taxes, offhandedly mentioned it to me like it was no big deal one day and I was like whaaaat?
most of the expats I know just don't pay taxes because they're dumb, or they're paying taxes that they don't need to because nobody told them about the FEIE.
I read somewhere that Eritrea (the North Korea of Africa) is the only other country that has this policy.
Once again the US is in good company.
However, since you don't pay taxes on that money, it can impact which kinds of retirement accounts you can use based in the US, if any. Also, trying to invest as a US citizen outside the US can suck because of all the agreements with US banks. Many Japanese platforms, for instance, won't touch me because of US reporting requirements. I also can't functionally use the tax-advantaged retirement accounts here because many amount to what are called PFICs by the IRS which requires paperwork and are taxed punitively more than wiping out any advantage the retirement accounts would have.
You're also going to have a rough time getting a US investment account if you don't have one already. Then you have to figure out how to have a US phone number because two-factor auth basically requires it for any bank or anything that will touch you.
There are other "fun" things about being a US citizen living abroad.
"However, since you don't pay taxes on that money, it can impact which kinds of retirement accounts you can use, if any"
The math works out in your favor.
wouldn't you rather have that money earning interest now rather than receiving a few hundred later on when you probably don't need it as much?
"Also, trying to invest as a US citizen outside the US can suck because of all the agreements with US banks."
it can suck, and it can also be awesome.
I see you're speaking specifically to Japanese banking standards, which I would agree are one of the more difficult countries for a US citizen to interface with.
but that's a great thing about there being about 200 countries.
Bank somewhere else if you want to.
try Hong Kong or China or Thailand or Portugal or Sweden or you know, a lot of countries.
you don't have to live in the country you bank in.
Yeah, some is specific to Japan, though there will be similar hurdles anywhere the US has an agreement (and that the target country's institutions actually follow it, I suppose).
I have a couple of retirement accounts in the US that I contributed to before (I moved overseas in my early 30s) that I basically can't touch for a number of reasons right now. Just wanted to throw it out there.
It might be interesting to crosspost this to [email protected]
Also, I know you mean good, but this isn't relevant to probably a high number of Lemmy users who are not US citizens
No, as labeled, this is a US specific tax procedure that people who don't pay US taxes won't be able to take advantage of.
but lucky for them, most of them don't have to!
most countries outside of the US have a similar procedure included in their far more citizen friendly tax codes.
the us is way behind other countries on...well a bunch of stuff, but with taxes specifically, you don't usually have to declare that you're not in the country if you don't pay taxes, you just don't pay the relevantaxes and the government only bothers you if you're a big old liar.
Unless you renounce US citizenship of course. I understand it's a bit extreme, but it is a solution
do you mean "another option to avoid paying taxes is renouncing your citizenship?"
in which case, yeah, extreme and still an option.
but the FEIE is way simpler and you can keep the few perks US citizenship still affords its rabble.
Which isn't free btw.
Yeah, it goes up faster than inflating each year, it seems. 126,400 per person or 253k for married I believe this year, which is a pretty fair bit especially considering you deduct the taxes you locally pay off the top first, afaik
"considering you deduct the taxes you locally pay off the top first"
i understood local taxation to be inclusive to the FEIE, can i see your source?
https://www.investopedia.com/terms/f/foreign-tax-credit.asp
https://www.irs.gov/pub/irs-pdf/f1116.pdf
I thought it was a Form 1116 thing, but I could be wrong for sure. IANAL and haven't yet done foreign taxes so who knows yet
I'm seriously tempted to sell all my stuff and just become a nomad.
Sounds pretty dreamy all in all.
it's pretty great.
and it's just about as easy as you have described.
If you have any questions, I am happy to answer.
I've been doing this a long time and I've helped other people start traveling.
Does project 2025 get rid of the IRS? If so, how would this be enforced?
No, this is a legal and very straightforward IRS procedure corresponding to physical presence in the United States.
it's called the feie, Foreign earned income exclusion act.
you basically fill out one extra tax form called FEIE while you're doing your taxes, write down the dates you were outside of the country, and then since you aren't in the country and are not receiving any services from the US, you don't have to pay income tax up to a certain amount (it's a little over 125k this year).
that's it.
https://getyarn.io/yarn-clip/a421c712-bdee-42c4-9a0b-5e5c30a05c58
Sorry for the link but it's the first one I found to the Python sketch.
No apologies necessary, thanks for the clip.
