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The Amazon Expat Tax Bestseller, Now Updated for 2018. Are you a citizen of the United States who lives abroad? You probably know America is one of only two countries that taxes its citizens on their worldwide income, regardless of where they live or work. If you’re thinking about becoming a digital nomad or expatriating to another country, do you know how to avoid paying unfair taxes on your income while abroad? There may be huge penalties and tax evasion charges if you don’t file correctly. By combining the right strategies for citizenship, residency, banking, incorporation, and physical presence in other countries, most Americans abroad can legally lower their U.S. tax owing to $0. In U.S. Taxes for Worldly Americans, Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner shows you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Olivier covers a wealth of international tax information updated for 2018, including: · Step-by-step instructions for the Forms and Schedules you will use to file your offshore tax, no matter where you are. · How to qualify for special deductions, credits, and exemptions on international taxation. · Why opening bank accounts and corporations in foreign countries is easier than you think. · How residency or citizenship in another country can legally lower your taxes. · How your spouse and children (whether American or of another nationality) affect your tax situation. · Practical advice for moving, living, and working with tax-free income in other parts of the world. · What to consider before renouncing your American citizenship and saying goodbye to the IRS for good. As a non-resident American, there is no single easy answer to lower your taxes. If you don’t understand every possibility, you could end up paying too much. Embrace a worldly lifestyle with confidence as you master the U.S. tax system for Americans living overseas.
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U.S. Taxes for Worldly Americans
The Traveling Expat's Guide to Living, Working, and Staying Tax Compliant Abroad
Olivier Wagner, EA, CPAForeword by Gregory V. Diehl
Copyright © 2017, 2018 by Olivier Wagner.
No part of this publication may be reproduced, distributed or transmitted in any form or by any means, mechanical or electronic, including photocopying or recording, storing in or sharing via any information storage and retrieval system, or transmitting via email, without prior permission in writing from the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses allowed by copyright law.
I am an accountant, but I am not your accountant. If you want advice on your specific situation, please seek the advice of a professional.
Any perceived slight of any individual or organization is purely unintentional.
To inquire about getting your own book or course produced, published, or promoted, email [email protected]
U.S. Taxes for Worldly Americans by Olivier Wagner
WHAT HAPPENS IF I DON’T FILE?
INTRODUCTION TO FORM 1040
HOW THIS BOOK IS STRUCTURED
Ch 1: MOVING, LIVING & WORKING ABROAD
THE DYNAMICS OF RELOCATING
FAMILY DYNAMICS ABROAD
MAINTAINING TIES BACK HOME
MITIGATING TRAVEL EXPENSES
EMIGRATING FROM THE U.S.
FOREIGN BANK ACCOUNTS & INCORPORATION
Ch 2: GETTING AND STAYING TAX COMPLIANT
PAPERWORK AND FORMS
FTC & FEIE STATES
FOREIGN-OWNED DISREGARDED ENTITIES & FORM 5472
PFICs & FORM 8621
FBAR & FORM 8938
OTHER IMPORTANT FORMS
Ch 3: INCOME
PARTNERSHIPS & S CORPORATIONS
UNDERSTANDING SUBPART F INCOME
WHAT QUALIFIES AS SUBPART F INCOME?
FOREIGN EARNED INCOME EXCLUSIONS (FEIE)
BONA FIDE RESIDENCE TEST
PHYSICAL PRESENCE TEST
Ch 4: DEDUCTIONS
FORM 2555 & PASSING THE BONA FIDE RESIDENCE TEST
SEVEN TYPES OF ITEMIZED DEDUCTIONS WITH SCHEDULE A
PREPARING SCHEDULE A
Ch 5: CREDITS
THE ADDITIONAL CHILD TAX CREDIT
Ch 6: OTHER TAXES
SOCIAL SECURITY TOTALIZATION AGREEMENT COUNTRIES
PASSIVE FOREIGN INVESTMENT COMPANIES (PFIC)
Ch 7: RENOUNCING U.S. CITIZENSHIP
COVERED VS. UNCOVERED EXPATRIATES
AVOIDING COVERED EXPATRIATE STATUS BEYOND THE EXIT TAX
YOUR FINAL TAX RETURN
WHY YOU SHOULD CONSIDER ACQUIRING A NEW PASSPORT (OR TWO)
HOW TO GET A SECOND PASSPORT
THE PRICE OF CITIZENSHIP
THE PRICE OF RESIDENCY
ABOUT OLIVIER WAGNER & 1040 ABROAD
FOREWORD FROM THE PUBLISHER
When I met Olivier Wagner at a digital nomad conference in Bangkok, we were both already active global citizens. Each of us had the freedom to go where we wanted. We could maintain our income from anywhere in the world, so long as we could get online. We had adjusted to the complexities of this lifestyle and were free to explore any opportunities the world offered.
I have been traveling the world since the age of 18. While most people transition to nomadic or expatriate living after many years, I have had the somewhat rare experience of spending my entire adult life exploring the world, one country at a time. This path has taken me to more than 50 countries thus far and given me a profound new perspective on both myself and our planet. It has matured my mind and broadened my perspective in ways that I don’t believe anything else could have, so much so that my second experiment in authoring and publishing became a personal development manifesto on how travel fundamentally transformed me.
Although I expanded professionally during my travels – registering companies, opening bank accounts in various nations, and even picking up a couple of new passports – it would not be until I met Olivier that I would start to get serious about the tax obligation I was given as an American citizen by birth. As an the holder of an American passport, I took advantage of the ease of travel afforded to me, but I rarely considered the seriousness of my home country’s worldwide tax policy.
As I traveled and worked online, I managed to do so in a mostly anonymous manner, as I was worried about making too big a name for myself. Not the least of my worries was becoming tax compliant. What if I filed something incorrectly? What if I didn’t give the U.S. government enough information? What if I gave them too much? I had remained invisible for so long, so why should I risk coming into the light?
I’ve now had the (often unpleasant) experience of working alongside some of the biggest names in offshore services as a writer and consultant. I’ve seen much of the seedy underside associated with the industry of internationalization. I’ve even been defrauded for thousands of dollars by these so-called industry “experts” who promise to be able to help Americans plant flags, but can rarely fulfill the complex foreign processes they promise. The author of this book was the first person to explain to me why it was important to get tax compliant and that avoiding my U.S. tax obligation would only grow riskier and more complicated as time went on. Olivier even showed me that if ever I planned to renounce my U.S. citizenship, I would need to settle my tax score.
For the first time in my life, I am fully tax compliant. Thanks to Olivier’s help, I no longer have that nagging little worry that if I ever get too successful, everything I’ve built could come under fire by bureaucrats with busy fingers.
My situation is not unique. Each person who internationalizes their life to any extent learns to branch out from the constraints of their home country, so that they may pursue their own version of an authentic lifestyle. I am so glad that my publishing company was able to help Olivier bring this book together. I realized he wanted to go beyond an overview of how to file taxes from overseas. He wanted to introduce a new way of living to people who might be intimidated by the details. Just as he helped me, his words here will broaden your mindset about how you can live the worldly life you desire.
If a subject appears foreboding (like the U.S. tax code often does), you will never explore the options it holds. If you don’t know what options you have, it goes without saying that you will never use them. I’ve seen a lot of fear-mongering and emotional bullying from the cult of personalities who maintain blogs and expensive private memberships about this kind of information. These savvy internet marketers scare ordinary people into taking massive action for the sake of their own profit.
Among the conversation about nomadic life, expatriation, or retirement overseas, there are a lot of voices screaming to: “Move everything you own and everyone you love offshore before the government implodes and your dollars are worthless!” They’ll pressure you to follow their footsteps and start living the “James Bond” lifestyle of martinis on white sand beaches, secret bank accounts, and homes on every continent. They are overly posturing and inaccessible for the average person. I am glad that these once scarce resources are being made available to the public through down-to-earth people like Olivier Wagner, his company 1040 Abroad, and the book you hold in your hands.
Maybe you are just getting started on your journey away from home. Maybe travel and expatriation are still just ideas for you to play with. By sharing real stories and making these examples true to life, Olivier’s book will help you to make progress in the direction of living the global lifestyle you desire.
Think of this book as a partial guide to the larger topic of expanding your identity beyond the rules of your home nation. It does not cover the whole journey (no single book could), but it brings vital clarity to what many people consider to be the most obfuscating and offensive part of becoming a responsible world citizen. Just as Olivier’s influence has brought a much-needed foundation to my life, I’m sure that his book will do the same for you if you take his advice to heart.
Gregory V. Diehl
Author, Travel As Transformation
Co-founder, Identity Publications
Are you a citizen of the United States who lives abroad? You might be an American who’s moved abroad but hasn’t given up their original citizenship. Maybe you were born in the U.S. but have no real ties to it. Such “accidental Americans” are more common than you might think and many of them don’t even realize they are obligated to pay U.S. taxes.
Maybe you’ve recently moved from the United States and aren’t sure how this affects your filing requirements. Have you established residency in another country? Do you still derive income from the US or another country? All of these factors will change your tax situation.
You could be a self-employed “digital nomad” who works from several different countries, moving wherever you want at your leisure. Despite such an unconventional way of making a living, you might still owe taxes to the U.S. If you don’t file correctly, you could be missing out on important opportunities to reduce your tax burden legally. Or worse, things could end up with the government revoking your passport and coming after you for several years of back taxes that you never knew you owed.
You may already know that the U.S. is one of only two countries in the world that taxes its people based on their citizenship, and not on where they live or their money comes from. If you make more than $10,400 per year (as of 2017) and are a U.S. Citizen, you still must file a return each year. In 2018, the requirement to file will increase to anyone with an income of $12,000 or more. Even if you can arrange things so that you legally owe nothing, you must still file. This can be problematic for anyone who has not filed taxes in a long time – or ever. How do you ensure Uncle Sam gets his due without suffering enormous penalties as you struggle to get compliant?
You may have been told that you don’t owe any U.S. taxes on money made overseas. This is true up to a certain amount, but only if you know how to take advantage of the proper avenues. Exclusions can cover the first $102,100 of earned income (as of 20171), wages and self-employment income. But to claim this exclusion, you must let the IRS know what’s going on through the regular filing of your tax return. Combined with certain other tests and exemptions, it is possible for most people who work abroad to keep their taxes at $0 legally.
How do you know if this is the right situation for you? To find out, you’ll first have to answer many other questions. How many days do you spend abroad each year? Do you have residency, bank accounts, or corporations in any other jurisdiction? How much money do you make as an individual or company entity? There is no one easy answer for every American living abroad. If you don’t understand the full spectrum of possibilities, you could end up paying a lot more than is necessary. Or worse still, you could be considered tax non-compliant. You may be able to evade negative repercussions for a while, but sooner or later you will have to face the music.
My work with 1040 Abroad (and my goal in writing this book) has not been to scare people into taking action. On the contrary, I wish to empower people to live fuller lives and feel more confident in their actions by taking control of their unique tax situations. By reading the information contained here, you should get a much better grasp on how the U.S. tax system uniquely affects Americans abroad. You should be one step closer to getting the freedom of mind you desire.
If you like what you’ve read here, I encourage you to check out the wealth of articles on the 1040 Abroad blog for more valuable information like this. If you have any questions about what you’ve read here or want me to help you by coming up with a plan on how to handle your U.S. taxes as an overseas American, I encourage you to email me directly at [email protected]
Yours in freedom,
I grew up in France, near Strasbourg, but always had dreams of living around the world. When I went to the U.S. in 2004, I studied the American tax system in Louisiana before moving to New York to work in corporate finance. In 2005, I finally received my U.S. green card and became a U.S. citizen in 2009. I had successfully climbed through the hurdles that so many immigrants from all over the world strive to overcome, bringing into my life all of the trials and benefits that a U.S. passport brings to its owner. I still retained my original French citizenship as well, so I was now a dual citizen of two of the most powerful and free-to-travel nations on Earth.
With my new American wife, I stayed at my job in New York for five more years, until wanderlust came crawling back to me in 2011. That was when we decided to move to Canada, where I experienced life for the first time, not just as an American citizen, but an American expatriate living abroad.
At this point in my life, the French government saw me as French, the American government saw me as American, and the Canadian government saw me as a Canadian resident. I was already living a very diversified life, mixing and merging international cultures and bureaucratic rules in ways that were completely unknown to me before. All that would seem small, though, in comparison to the major lifestyle overhaul I would experience just four years later when I decided to pack my bags and transition to a life of full-time nomadism around the world.
For the last few years now, I’ve embraced a life of much greater motion. I travel wherever my two passports will allow me, whenever I want to. I’ve experienced life as an American and French expatriate in dozens of countries on almost every continent.
While I know I am not an American in the same way as someone who grew up in the U.S. is, as I didn’t move there until I was an adult, I still think of myself as an American. In some ways, I have experienced more aspects of being American than most natural born citizens ever will. I’ve been a tourist, a foreign resident, an immigrant citizen, and now an expatriate living and working abroad. I’ve also seen all sides of the spectrum: the good, the bad, and the many regulations it all entails. This is what ultimately leads me to the path of helping other Americans like myself who are in unconventional tax situations due to their worldwide lifestyles or identities.
Americans requiring special attention for their taxes can fall into three primary categories – expatriates, perpetual travelers, and accidental Americans.
Expatriates are what most people think of when they picture an American who has left their home country. They live permanently or semi-permanently outside the U.S. in another country, but have retained their American citizenship. They could be permanently retired or working long-term in a regular job in their new location. Either way, they aren’t deriving any income from the U.S. itself. Expats pay taxes in the foreign country where they live, which allows them to use a Foreign Tax Credit when filing their returns back home. Because they already pay tax in a foreign country, it is un likely they will to have to pay tax at all in the U.S. (but only if they file everything correctly).
A true nomad is somebody who travels from place to place constantly, rarely staying in one place for more than a few weeks or months. Because of this transient lifestyle, they never establish enough ties to any country to become a taxpayer there. They travel on tourist visas, or at most student visas. Most of them have either a nest egg of savings, are retired, or run an online business from wherever they go. This is a desirable path because it is the only way that Americans can ensure they never have to pay taxes because they will never have to file a return anywhere else. These people still must file in America, however, even if they never set foot there during the year, and I help them to figure out how to set it all up to legally minimize their obligation.
An accidental American is someone who, for most of their life, may not even realize they are, in fact, technically American citizens. They were usually born in the U.S., but they moved somewhere else when they were very young. Because America grants everyone born on its soil citizenship by default, these people have been carrying this status with them for years and are blissfully unaware of the tax consequences it carries. This is a major legal and financial risk that a lot of people are subject to, but they are not even aware of the danger. People who suspect that they could fall into this category should talk to experts who can help them to figure out their situation and what to do about their taxes.
The reason I help these kinds of people is because most U.S. tax preparers are only familiar with the tax laws for people who live and work domestically. It’s quite a switch when you decide to take your life overseas in one form or another. The person you have been using for years to help you stay legal and above board might be totally out of his or her element when you make these lifestyle changes. Even if they are terrific in their specialization, they might not even realize the new, endless limitations and opportunities that now apply to you. Suddenly, keeping your money in foreign bank accounts, running foreign corporations, and having residency – or even citizenship – somewhere else means there are now rules that must be given special attention. There are also a multitude of new forms to be aware of and strategies to take advantage of.
More people are now renouncing their U.S. citizenship than ever before, and each has their own reasons for doing so. Some are worried about the changing political landscape of today, others pay attention to new rules and restrictions on freedom of travel, or (for better or worse) how the rest of the world views Americans. Mostly, they want to avoid all the complicated tax burdens that come with the territory of being a U.S. citizen. Part of my job is to educate them about how this process works and help them to complete their renunciation through legal means, if that is the best option for them. It’s not necessarily difficult to get rid of your American citizenship, but it does warrant a lot of deep thought, planning, and a bit of money to pull it off properly.
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