Author Topic: Living abroad for fun and profit? ( To FEIE or not to FEIE )  (Read 8796 times)

tpac

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Living abroad for fun and profit? ( To FEIE or not to FEIE )
« on: December 26, 2015, 03:42:57 PM »
My SO and I started our own web business this year while globetrotting about 50% of the time. We're newish to the concept of early retirement, but have really dug in recently now that we’ve successfully hit our first year business income goals and we have our travel routines down. We’ve recently started considering spending 330+ days outside of the US to make us eligible for the Foreign Earned Income Exclusion and minimize our tax burden and we're hoping to get some mustachioed advice!

Financially our business brings in 60-80k/yr and we have 30-40k set aside for a downpayment on a home or other major investment / opportunity. Our only current investments are ~10k in retirement savings. Our only debts are ~50k of low interest student loans. Finally, we have some US exclusive nontaxed income opportunities (average ~20k / yr in cc cashback). If we gave up this opportunity by spending more time outside of the US (330+ days) then the time invested to generate that income could be put back into the business and those earnings in theory would be similarly untaxed due to the FEIE.

We believe that we’ve identified our two core options.

(1) Ramp travel to 330+ days this year while building our business, keeping our expenses low (primarily more China / SEAsia) and dividing our savings between investments we can draw on in ten years (or less) without tax penalty and roth i401k contributions for later on.

(2) Purchase a townhome or other property that would offer a decent airbnb / short term rental return (family will manage it for a small cut) and travel ~6 months / yr. Keep expenses low and tax advantaged savings high to keep us under 200% FPL for ACA subsidies, Saver's Credit, etc.. Plow cashback earnings into near term investments. Spend more time with family.

Thanks for any insight you might have!

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #1 on: December 26, 2015, 07:40:37 PM »
What will make you happier?

I would hold off on buying property, that's a big commitment.  Try both of them (substituting "rent near family" for "buy" in #2 for the moment).

A big key, IMO, is to keep as much flexibility as possible for the moment.  You're young. Explore, love, enjoy.

Sounds like you're setting up the lifestyle you want. That's awesome. Congrats on your success so far!
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tpac

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #2 on: December 26, 2015, 08:22:07 PM »
Thanks for the encouragement!

We really value the flexibility to travel when convenient so oddly enough the idea of renting with a 6-12 month lease where subletting would be tricky or impossible seems like a much larger commitment than the idea of purchasing a property that could more than cover it's costs when rented out via airbnb during stretches when we're out of country. I think if we were in the US >50% of the time this would be the best option, but if we were in the US anything less than that we'd just stick with our current routine of housesitting / subletting / hotel award nights.

I'm really hoping for insight into the financial ramifications / opportunities of (1) and (2) and a bit of affirmation that after a lot of reading I'm at least on the right track with these two rough concepts ;)

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #3 on: December 26, 2015, 08:46:48 PM »
No reason why you can't be an AirBnB tenant when the the US (same, I presume, as you do overseas).  No need, necessarily, for subletting, long leases, etc.

Owning a property is always a big commitment, and expecting it to "more than" cover its costs while only being rented out half the time (6 mo, for your use the other half) seems wildly optimistic to me.  Have you run any numbers on this scenario?
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john c

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #4 on: December 27, 2015, 02:53:13 AM »
There are some complications to your plan vis a vis Foreign Earned Income Exclusion.  There are a couple of tests to see if your income can be excluded from US income tax, and it sounds like the way you're going is the Physical Presence Test.  However, it sounds like the source of your income is from the US, and therefore would not count as Foreign Income. 

The other issue you face is that if you're excluding your foreign income, under what country's tax jurisdiction are you paying income tax?  The IRS doesn't like it when taxpayers live in a magical place where they're excluded from US income tax, yet don't have to pay local income tax.  Not that it's impossible, but you need to document under what tax regime your business is operating, if not in the US.  A typical option is to incorporate in a country with no or low corporate income tax.

You probably should consult with a CPA who is an expert on this subject before you start executing your plan.

totoro

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #5 on: December 27, 2015, 03:29:37 AM »
I don't know much about the FEIE but gocurrycracker does: http://www.gocurrycracker.com/  It seems like it works for income earned from a US employer while physically present in another country?

I do know a lot about running Airbnbs.  If you have a good support system for it this and you buy in a desirable area it could work well.  You need cleaners, maintenance people and general on-call help plus someone to get supplies on a regular basis.  If you don't have this don't do it - you need to be able to address concerns by renters immediately.  I run three Airbnbs from a distance and it has been worth it.  We appreciate being able to block off time for family vacations - we are up skiing and staying in one now.  The rental income more than covers all the costs and has from day 1.

I personally would buy before renting if I knew I wanted a home base to return to in the future and the numbers worked - but renting is a fine option too.

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #6 on: December 27, 2015, 07:41:00 AM »
I'd second the advice to consult a CPA.  All due respect to GCC, his experience is with passive income and paying zero US tax.  I've had FEIE in both Norway, paying local tax and having a huge US exclusion as well as carryover, and I paid zero income tax in Dubai and thus had no FEIE, so I paid regular US income tax (except I did then get to use the Noway FEIE carryover - but also I was tax equalized by my US employer, so independent contractors might get different US tax treatment.  For instance, independent UK contractors paid no income tax at all).  Let me tell you, it is a lot of paperwork both times, and probably gets special treatment from the IRS if you are avoiding large tax bills.

At 60 - 80k income, your US tax liability and FEIE should not be the deciding factor on what lifestyle works best. 

Getting a US rental will complicate things even further.

Maybe our resident tax expert CheddarStacker will swing by or maybe PM him.  I'm no expert.

Good luck though, I applaud your adventurous spirit living and working overseas together so soon out of school!
« Last Edit: December 27, 2015, 08:07:06 AM by EscapeVelocity2020 »

totoro

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #7 on: December 27, 2015, 08:47:46 AM »
It seems fairly straight-forward - there appears to be no requirement not to have US income from a rental (although it would not qualify for the FEIE) or not to be paid by a US-based employer (except the US government).  And there is a guide and forms.

The FEIE does not apply to passive income from investments so that is not gocurrycracker's use of this planning tool.

Tax treaties would come into play if you are resident in another country and earning income, particularly from that country.  For someone travelling from country to country and earning income from the US like the OP plans I do not believe the Dubai/Norway example applies.

Not saying you shouldn't get advice - you should, there is some accounting and remitting for mandatory deductions -  but the information is available confirm if you enjoy that type of reading. 


https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

https://www.irs.gov/publications/p54/index.html

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #8 on: December 27, 2015, 08:59:22 AM »
From experience, just the documentation to pass the physical presence test is laborious, and that was for a single country.  You have to document where you were every day of the year. 

Just saying that reading a GCC article (which seemed based on theory, I totally got that he was not describing his own situation in his post) is a little light on actually researching the issue.  There is no 'Turbo Tax' option for this situation, so a CPA might be worth the time and cost. 

I'm subscribed to the thread to get actual advice (since this also interests me), not just opinions.  Sure, in theory, this sounds easy peasy.  But I'd like to hear from someone who has actually done this globe-trotting and used the FEIE to avoid paying US income tax.

Edit to add:  Just looking at those links you provided should give a good impression that this is no walk in the park.  I'd love to share my Forms 1116 and 2555 from a past FEIE return to start a real discussion, but I don't have time to scrub them sufficiently.  If you were hitting a multitude of countries, these forms would be quite a headache.  Not trying to pour cold water on the idea, just need to be aware of what you are getting your self into, to evaluate if the income tax savings are worth the effort and potential risk (getting audited would probably really suck).  My tax return that year was 63 pages (including all the supplements and extra AMT calcs).  I would imagine about a week was spent by a professional after I submitted all the documentation (a few days work), this could easily be four weeks of work the first time you do it.  And the tax laws seem to always be changing around foreign income and reporting... 

I hope I'm helping, like I said I'm not an expert, just someone with a little firsthand experience.  Also, an interesting point, the FEIE is multiplied by a ratio of days out of country, so 330 days gets you 90.4% of the max FEIE...
« Last Edit: December 27, 2015, 09:29:06 AM by EscapeVelocity2020 »

totoro

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #9 on: December 27, 2015, 06:21:33 PM »
I didn't say someone should just read gocurrycracker - if you look at his comments he responds to questions on this topic and he has an advanced understanding of US taxation. 

If you are someone who likes to do research, this topic has plenty of information on it online and in guides.  As far as proving where you were each day you'll need to have tickets/transportation docs and potentially receipts.

YMMV, I practice tax law (not in the US) and this particular exemption does not seem particularly difficult but does seem extremely useful for some.  I wish we had it in Canada.  There are some things to be aware of (how travel days are counted for example) and I agree getting expert advice in advance is a good idea.

And FWIW there is a Turbo Tax option for this: https://ttlc.intuit.com/questions/1901203-form-2555-foreign-earned-income-exclusion

"Form 2555 can be one of the most complex forms to complete when preparing your return. But TurboTax will figure out how much you can exclude and fill in the right form for you."

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #10 on: December 27, 2015, 08:38:57 PM »
Have you used this option in Turbo Tax?  I'd love to hear how well it works.  I have 7 years of FEIE tax filings and even the experts screwed up the reporting more than half of the time (leading to amended tax filings well over 100 pages).  I'd be on my own if I try this in the future, and I'm nervous about it.  I do appreciate your comments.

totoro

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #11 on: December 27, 2015, 09:36:34 PM »
No, I'm Canadian so I've never used that exemption - all I know is that it is included in what Turbo Tax covers. 

What I do know is that the experts doing taxes often have juniors doing the majority of the work, including filling in information and sometimes stuff gets mixed up a bit.

I myself would be tempted to go through a dry run with turbo tax and use the answer exchange and expert support (https://support.turbotax.intuit.com/contact/) until I understood everything.

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #12 on: December 28, 2015, 06:37:26 AM »
Wish I was anything but a US citizen when it comes to FEI.  If you worked in the UAE for a year you can easily pay zero income tax (as long as you don't have tax equalization).  There are also games engineers play by setting up a 'one man company' and managing their taxes.  Not as common or easy in the US since our health insurance system is still pretty screwed up... but I digress....

StetsTerhune

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #13 on: December 28, 2015, 07:04:31 AM »
Not going to comment on the FEIE tax stuff, but I'll say from my own experience that life really gets a lot cheaper and simpler if you give up on owning or renting your own "residence." Get a mail forwarding service (I have one in south dakota, where you can be resident as traveler and has no state income taxes). I got rid of most of my stuff, and the rest is in my mother's basement. I may move it to a storage unit soon, as my nomadism is looking more permanent than I expected when I started.

If you want to get an airbnb property purely as an investment, go for it if the numbers work for you and you want that commitment.  But I think that should be an unrelated decision, you can always rent someone else's airbnb or VRBO when you want to be somewhere for a while. I haven't had a lease (traveling mostly in the US) for well over a year now, and I'm averaging about 2/3rds of what I was paying for in rent in Chicago. Traveling is so much cheaper when you don't have any fixed bills 'back home' that you're paying.

zephyr911

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #14 on: December 28, 2015, 08:47:47 AM »
Maybe my gauge is skewed because I did tax prep for a while, but I don't think the FEIE documentation is hard unless you've crossed a large number of borders in a year. For several thousand dollars I'd gladly transfer more than a few dates from passport stamps to a tax form.

I paid zero income tax in Dubai and thus had no FEIE
I'm not sure what you're saying there. Was there no tax on your income or did Dubai exempt you from taxes because you were US? And how exactly did that negate your FEIE?

FEIE is multiplied by a ratio of days out of country, so 330 days gets you 90.4% of the max FEIE...
It's also prorated for each calendar year if the 330/365 is split between two of them.

There are some complications to your plan vis a vis Foreign Earned Income Exclusion.  There are a couple of tests to see if your income can be excluded from US income tax, and it sounds like the way you're going is the Physical Presence Test.  However, it sounds like the source of your income is from the US, and therefore would not count as Foreign Income.
Possibly. By the IRS's definition of foreign earned income, you can be paid by a US entity and receive payment in a US bank, but if you're doing the work overseas it's still foreign earned income. A web business could be ambiguous - if it were me, I'd call them up for a clarification.
Quote
The other issue you face is that if you're excluding your foreign income, under what country's tax jurisdiction are you paying income tax?  The IRS doesn't like it when taxpayers live in a magical place where they're excluded from US income tax, yet don't have to pay local income tax.  Not that it's impossible, but you need to document under what tax regime your business is operating, if not in the US.
Tax Home rules.
I can't find anything in there about how foreign taxes affect US taxes. Got any sources?

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #15 on: December 28, 2015, 09:09:16 AM »
I'm typing on a phone Zeph, but Dubai has zero income tax.  Norway had an automatic income tax (and wealth tax if you are a resident, so I'm not gonna stay there too long ever..).  When I applied for a work visa at the police station, I got a 'Fodselnummer' and was subsequently taxed on my reported income.  Similarly, I had an ID number in Dubai (to get a drivers license, as well as meeting their national ID requirement and work visa) but nary a tax form ever.  They could've cared less and I didn't even have to open a bank account there.  I had to in Norway to use their 'Giro' system to pay automated bills (like utilities, barnehage, taxes...).

This is a good discussion, I'll try to type more later...

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #16 on: December 28, 2015, 09:49:42 AM »
I'm typing on a phone Zeph, but Dubai has zero income tax.

From what I understand, you still get FEIE.  Just no foreign tax credit (to offset taxes you pay elsewhere).  If you claim FEIE you can't also claim FTC.  But since you didn't even have any foreign tax paid, you wouldn't care.

So I think this quote is wrong:
I paid zero income tax in Dubai and thus had no FEIE

Unless you meant FTC.  You should still have FEIE.  If you didn't... is it too late to go back and amend the tax returns? ;)
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EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #17 on: December 28, 2015, 10:18:38 AM »
As I've said, I was tax equalized (to my advantage in Norway and disadvantage in Dubai, if what you think is true about FEIE).  But I'm hoping a US citizen that has used FEIE to reduce taxes can share their experience....

john c

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #18 on: December 28, 2015, 08:59:11 PM »
GCC got his FEIE the old fashioned way, he worked for a company that moved him overseas.  It's not clear in the article whether they paid him through a local subsidiary or not. 

I would definitely NOT call the IRS for answers on whether your web business is FEI or not.  I would contact a CPA and pay her/him to research the relevant tax case law.  The IRS is notorious for giving out bad advice.  The case law is what the ultimate decision will be based on, or if this is new, you'll be making your case in tax court based on the existing precedent.


shadowmoss

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #19 on: December 29, 2015, 02:44:29 PM »
I worked as a civilian contractor to the US military in Central America for 2.5 years and do my taxes with Turbo Tax.  All I did was enter the start date for the 365 day block I claimed to be out of the country for 330 days and the end date along with any time I spent back in the US.  So, of the 365 days I usually came back for about 2 weeks twice a year, and made sure I had at least 330 day out each 365.  The first year I had to get an extension because I hit country on 9/29, so that was the start date and I couldn't get the exclusion until I had 330 days in country out of 365.  Luckily, the extension went until Oct. 1.  The other years it was a no brainer.  Honduras didn't make us pay taxes under the visa we were on.  I did not have a bank account there, I was paid by a US company to a US bank.

Not sure how it would be complicated other than keeping track of the dates you enter and leave the different countries to add up to your 330 days OCONUS.  If you are not in a country long enough to have a tax home there, as defined by them, then you shouldn't owe taxes in the other country.  But, that is logic talking, not experience.  Consult someone who would actually know the law.

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #20 on: December 29, 2015, 07:21:46 PM »
I worked as a civilian contractor to the US military in Central America for 2.5 years and do my taxes with Turbo Tax.  All I did was enter the start date for the 365 day block I claimed to be out of the country for 330 days and the end date along with any time I spent back in the US.  So, of the 365 days I usually came back for about 2 weeks twice a year, and made sure I had at least 330 day out each 365.  The first year I had to get an extension because I hit country on 9/29, so that was the start date and I couldn't get the exclusion until I had 330 days in country out of 365.  Luckily, the extension went until Oct. 1.  The other years it was a no brainer.  Honduras didn't make us pay taxes under the visa we were on.  I did not have a bank account there, I was paid by a US company to a US bank.

Not sure how it would be complicated other than keeping track of the dates you enter and leave the different countries to add up to your 330 days OCONUS.  If you are not in a country long enough to have a tax home there, as defined by them, then you shouldn't owe taxes in the other country.  But, that is logic talking, not experience.  Consult someone who would actually know the law.

Thanks for contributing.  Did you do your own taxes and claim the FEIE?  Can you explain the visa you were on (not a standard work visa?).  I had a CPA do my taxes and had to fill in a calendar documenting all my flights and what days were work and non-work days (making sure I didn't accidentally count days incorrectly, even if they were to other countries than the US).  If you do it yourself, you are right that you only have to report the tax country and days (and earnings when you are in the US), but if you get audited I'm sure they will ask for all the travel and documentation to match up with your passport.  I'm just hoping to get some reassurance from someone who has done their own taxes and claimed the FEIE in order to reduce their US tax liability.  It does sound tempting and exciting, not paying taxes to a foreign country AND reducing your US liability significantly while running a web business from abroad - I can totally see myself trying this out.  I suspect most Americans abroad avoid FEIE because they don't have much earned income tax liability, don't want to bother with the paperwork or flagging the IRS, don't want to deal with a CPA, or maybe other reasons.  If we can get a good thread going with experience (like maybe which countries are better than others - I'd put the UAE high on that list), maybe this thread can become a good resource.

tpac

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #21 on: December 29, 2015, 08:52:32 PM »
I wouldn't want to run a web business out of the UAE exclusively, but I did spend about a month in the UAE this year. I seriously can't get enough of the indian food / chaat scene in Abu Dhabi. Easy access to delicious spicy snacks is a primary capital resource for our business ;)

Thailand, Uruguay and Belize all look interesting for tax residency. Hong Kong  / Singapore would be agreeable as well, but the COL is high for both.

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #22 on: December 30, 2015, 04:35:34 AM »
I also have strong doubts about qualifying for FEIE in your situation. Before I'd seriously contemplate claiming FEIE in this situation, I'd consult an accountant or attorney who specializes in taxes for expats.

As others have said, one of the requirements is that your tax home be in a foreign country throughout your period of physical presence or bona fide residence. I suppose you would attempt to qualify as an 'itinerant' due to your web-based business (IRS Pub 54: "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."), and thus you would claim that your tax home moved with you from country to country.

However, Pub 54 also says "You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. ... “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. It does not mean your principal place of business. “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home.” The location of your abode often will depend on where you maintain your economic, family, and personal ties."

If you are a pure tourist hopping from country to country for 330 days of the year, I suspect the IRS would say your "economic, family, and personal ties" ultimately point back to the US. That could be true even if you don't have a property back in the US.

BTW, you said your business is bringing in 60-80k/year. After taking advantage of business expense deductions and HSA/401k contributions, isn't your taxable income, and thus your ultimate tax bill, extremely low already?

shadowmoss

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #23 on: December 30, 2015, 07:46:54 AM »
Hmmm.  I lived in Honduras, worked as a contractor to the US military, our company had been in country for 25 years.  Things just happened for us.  In the situation, I didn't ask a lot of questions.  Honduras didn't ask me for taxes.  I was a resident on a yearly basis, as in we showed up as a group at immigration one day every year and renewed our residency cards.  I do know that after 5 years of this, the rules changed and the guys who were there longer term had other hoops to jump through.  I have no idea of the details our company worked out with immigration, as I left it all to them. 

I did my own taxes, and all it asked me was if I was out of the country for 330 days of a 365 block.  Yes, I had records of my flights in and out, and I didn't cut too close to the margins because a few hours over and I'd have owed a lot of money in taxes.

I can't imagine that the IRS gives contractors that much more leeway than others who are working outside the US.  My take at the time was they were interested to know that I was physically not in the US for the time I said I was gone, not where I was or why.  But, I'm only an expert in my own experience, so check with others who have done this AND with those who actually know the laws.

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #24 on: December 30, 2015, 10:15:19 AM »
I did my own taxes, and all it asked me was if I was out of the country for 330 days of a 365 block.
...
I can't imagine that the IRS gives contractors that much more leeway than others who are working outside the US.  My take at the time was they were interested to know that I was physically not in the US for the time I said I was gone, not where I was or why.  But, I'm only an expert in my own experience, so check with others who have done this AND with those who actually know the laws.

There are definitely requirements beyond the 330 days for the physical presence test in order to claim the FEIE. If you still have your tax returns from those years, look at your form 2555 or 2555-EZ. The question about tax home is explicitly asked, along with your foreign address.

I imagine a form that lists dozens of tax homes during the period (claiming to be an 'itinerant' so your tax home is wherever you work as you travel around) will raise red flags with the IRS. In an audit, they can definitely ask you to justify the tax home you've claimed in order to take the FEIE.

I'm just hoping to get some reassurance from someone who has done their own taxes and claimed the FEIE in order to reduce their US tax liability.  It does sound tempting and exciting, not paying taxes to a foreign country AND reducing your US liability significantly while running a web business from abroad - I can totally see myself trying this out.  I suspect most Americans abroad avoid FEIE because they don't have much earned income tax liability, don't want to bother with the paperwork or flagging the IRS, don't want to deal with a CPA, or maybe other reasons.

I expect many people live abroad, do their own taxes, and claim the FEIE. Understanding the rules and getting the details correct can be complex, but it's not impossible, and the tax savings can be substantial. The problem is that the OP's plan does not seem to meet all the requirements for claiming the FEIE, specifically the tax home requirement.

shadowmoss

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #25 on: December 30, 2015, 10:30:30 AM »
You could check Paul & Vicki Terhorst's website.  I'll try to find it again.  He and his wife have lived outside the US for decades after they retired early.  Also the whole location independent movement has numerous blogs written by folks who are doing exactly what you want to do.  Tim Ferris may or may not have links to others (I don't follow any of his stuff), but a search online should show up some of them.

EDITED to fix spelling and add at least one website:
http://www.liveandinvestoverseas.com/the-experts/paul-and-vicki-terhorst.html

EDITED again:  here is a podcast on just this topic, from a few minutes of searaching location independent on a slow day at work:
http://www.tropicalmba.com/tax/
« Last Edit: December 30, 2015, 10:44:58 AM by shadowmoss »

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #26 on: December 30, 2015, 10:35:52 AM »
You could check Paul & Vicki Terhorst's website.  I'll try to find it again.  He and his wife have lived outside the US for decades after they retired early.  Also the whole location independent movement has numerous blogs written by folks who are doing exactly what you want to do.  Tim Ferris may or may not have links to others (I don't follow any of his stuff), but a search online should show up some of them.

EDITED to fix spelling and add at least one website:
http://www.liveandinvestoverseas.com/the-experts/paul-and-vicki-terhorst.html

Here's their site: https://sites.google.com/site/paulvicgroup/

Although this isn't really what the OP is talking about--Paul & Vicki retired.  The OP is talking about being location independent and still working, and asking about FEIE, which doesn't apply to ER'd people.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

shadowmoss

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #27 on: December 30, 2015, 11:07:26 AM »
Reb:

Yeah, but they have lots and lots of link love on their site(s) and something probably goes someplace that will have tax info.  They link to lots of folks who are making a living writing those type websites.  Taxes are a part of those folks' pictures.  I was just trying to get the OP in the general area of the blogs/sites that cover international living and day to day issues.  Paul and Vicki are the pros at that. 

There seems to be an entire culture of US ex-pats that write blogs/websites on how to live like they do, and seem to make the money to live that way by telling others how to live like they do.  Doesn't seem to be a sustainable business plan to me, but at one point I realized that there are soooo many sites out there I couldn't even begin to read them all.  They almost all with have the same tax concerns, and someone will have had to write about it.

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #28 on: December 30, 2015, 12:36:51 PM »
Ah, gotcha.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Able was I ERE

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #29 on: December 30, 2015, 02:07:28 PM »
If you claim FEIE you can't also claim FTC.  But since you didn't even have any foreign tax paid, you wouldn't care.

You can definitely claim both FEIE and FTC, just not on the same income.  For example, if you paid foreign taxes via a mutual fund or have additional income over FEIE limits (see expatforum thread Claiming FEIE and FTS concurrently).  This doesn't apply to OP, but hopefully will help someone else reading this thread later.

arebelspy

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #30 on: December 30, 2015, 02:29:40 PM »
Got it. Thanks for the clarification!  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SunnySaver

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #31 on: December 31, 2015, 05:16:11 AM »
EDITED again:  here is a podcast on just this topic, from a few minutes of searaching location independent on a slow day at work:
http://www.tropicalmba.com/tax/

Thanks for the link! I read the transcript, and his position is that your tax home can travel with your 'itinerant' status. It still seems like a risky move to me, and I'd consult an expert about my exact situation before attempting it. Filling out the FEIE forms isn't my concern, being confident that I meet the requirements is. I'd also want to have all my documentation/evidence well organized, because I think it's likely the IRS would request it. The cost of getting it wrong (back taxes and penalties) is just too great.

BTW, state taxes may be a concern as well, and I don't think anybody mentioned that here. Some states make it incredibly difficult to become a non-resident by moving overseas. CA is one notorious example. OP, if you are currently a resident of one of those states, you might consider establishing residence in a more favorable state, e.g. one without a state income tax, before pursuing the FEIE.

There seems to be an entire culture of US ex-pats that write blogs/websites on how to live like they do, and seem to make the money to live that way by telling others how to live like they do.  Doesn't seem to be a sustainable business plan to me, but at one point I realized that there are soooo many sites out there I couldn't even begin to read them all.  They almost all with have the same tax concerns, and someone will have had to write about it.

It may not make them a lot of money, but if their business revolves around overseas travel/living, it may allow them to move a lot of expenses from the 'personal' column to the 'business' column...

EscapeVelocity2020

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #32 on: December 31, 2015, 08:16:59 AM »

Filling out the FEIE forms isn't my concern, being confident that I meet the requirements is. I'd also want to have all my documentation/evidence well organized, because I think it's likely the IRS would request it. The cost of getting it wrong (back taxes and penalties) is just too great.


I don't know if I came across clearly in my earlier posts, but that is what I meant.  The form itself is a breeze as long as you have a detailed account and documentation to substantiate when and where your income was made (which is pretty much true of all tax forms).  It can be a headache when you are on flights that pass through several time zones and deal with currency exchange, but easy as long as you are internally consistent and can stand behind your methodology, you should be OK.  I still hope someone who has filed their own taxes claiming the FEIE can contribute with their experience.  Linking to folks that are retired or filing ordinary US taxes while they are abroad doesn't contribute much, other than to highlight another benefit of FI (that you don't need to even consider resorting to FEIE)...

SunnySaver

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #33 on: January 01, 2016, 12:55:32 AM »
It can be a headache when you are on flights that pass through several time zones and deal with currency exchange, but easy as long as you are internally consistent and can stand behind your methodology, you should be OK.  I still hope someone who has filed their own taxes claiming the FEIE can contribute with their experience.

I've done my own taxes and claimed the FEIE for several years, but my situation is relatively straightfoward. I have no tax equalization to consider, my tax home is clearly in one foreign country that has no tax treaty with the US (where I live and work year-round with a residence permit, local driver's license, etc.), and I am a regular employee (not self-employed). In the OP's contemplated situation, or the one you described, I can easily imagine wanting/needing some expert advice or even complete tax preparation service.

I use software (H&R Block), but I also carefully study the underlying publications and forms. I trust the software to do arithmetic accurately, but I verify everything else manually. The software's "interview" is less comprehensive for the FEIE parts, and it just dumps me into the raw forms for certain entries with very little explanation. Someone uncomfortable with the raw forms would probably want to get professional help.

Date tracking for the physical presence test does require an attention to detail. It's critical to understand the "full day" rules and apply them correctly. I save my ticket receipts/itineraries and boarding passes for travel to/from the US as supporting documentation.

gerardc

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Re: Living abroad for fun and profit? ( To FEIE or not to FEIE )
« Reply #34 on: August 16, 2018, 08:09:12 PM »
Here is a CPA's take on the tax home requirement for claiming FEIE for a digital nomad:
From https://www.expattaxprofessionals.com/Foreign-Earned-Income-Exclusion
Quote
TAX HOME, ABODE, AND THE DIGITAL NOMAD
In the case of the digital nomad working abroad, assuming the individual satisfies the bona fide residence test or physical presence test (often the latter test is satisfied so an inquiry into the former is not necessary), the critical tax issues with respect to qualification for the FEIE then become the “tax home” and “no abode in the U.S.” requirements.

With respect to “tax home,” it may be difficult to establish that the individual has established a home in any particular foreign country if, for instance, he or she works in multiple countries during a single year abroad.  The claim of a tax home abroad could be strengthened if the taxpayer stayed in a single location for more than a year on a work assignment if it were shown that the move was employer-motivated and not solely for personal reasons.  Alternatively, taxpayers who are permanently on the move throughout their career may be able to argue that they are “itinerant” workers whose tax home follows them to wherever they work.  This may be particularly apt in the case of a freelancer, as opposed to an employee who works at a specific location in the U.S. both prior to and subsequent to spending a year working abroad.

With respect to “no abode in the U.S.”, an individual’s claim will be strengthened if they can show that they have weakened their economic, family, and personal ties to the United States and strengthened such ties abroad.  This may prove challenging for those spending just a year working abroad before returning the United States.  The strength of the position will depend on the particular facts and circumstances.  In this regard, every case is unique and should be analyzed as such.

Not super conclusive but I'd say as mentioned in this thread that hopping from country to country for 330+ days/year without filing income tax returns in those countries and otherwise maintaining ties in the US (bank accounts, networking) would make it risky in the case of an audit.