Cut Your U.S. Taxes to Zero

Tuesday, March 25, 2008

Get more advice on doing your taxes overseas in International Living Postcards—your daily escape

If you're an American citizen, no matter where you roam...or how many days you spend there...you retain your U.S. tax liability.

You can mitigate this tax liability with the help of:

• The foreign-earned income exclusion…which exempts you altogether from U.S. tax on your first $85,700 of employment income if you are a resident of another country for a full tax year...or if you spend fewer than 35 days a year on U.S. soil
• Double-taxation agreements…which can, in cases, allow you to count foreign taxes paid, dollar for dollar, against taxes owed in the United States...and sometimes vice versa
• The 1031 like-kind exchange…which can allow you to defer capital gains earned from the sale of a property outside the States, maybe indefinitely, by taking them and re-investing them in another property outside the States
• Mortgage interest and real estate tax deductions are also allowable on an expat’s real property located overseas.

With these, and other, strategies, you could organize your situation so that you pay less tax as an American abroad than you did as a full-time resident in the States...your multiple jurisdiction liabilities notwithstanding. How much less? That depends on your situation…but you could organize your affairs as an overseas American so you pay no U.S. tax. That's a big deal. (And, for the record, yes, it's all legal.)

Richard Leonard
For International Living

Editor's note: Richard Leonard worked with the IRS for a commendable 28 years—eight of which were spent as an overseas employee. These days, Richard runs his own consulting firm, providing tax advisory services to American citizens, residents, and foreign aliens the world over, as well as small firms doing business overseas. Richard knows his stuff and is committed to educating the rest of the U.S. tax-paying world.

In years of looking, we've never found a reliable, current, complete, and comprehensible resource on the subject of taxes for the American abroad...so we created one ourselves, with Richard's help. You won't find a more up-to-date and user-friendly guide to how to figure your liability to Uncle Sam than the 2008 edition of The Expatriate's Tax Bible: The Complete Guide to U.S. and Foreign Taxes for the American Abroad.