{"id":15809,"date":"2017-12-04T09:00:42","date_gmt":"2017-12-04T14:00:42","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=15809"},"modified":"2020-04-29T06:54:15","modified_gmt":"2020-04-29T10:54:15","slug":"maximize-value-foreign-earned-income-exclusion","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/maximize-value-foreign-earned-income-exclusion\/","title":{"rendered":"How to Maximize the Value of the Foreign Earned Income Exclusion"},"content":{"rendered":"

In a year that started with more than 4,400 Americans <\/span>renouncing their citizenship<\/span><\/a> and the nation being more politically divided than ever, great things are ahead for Americans who decided to move themselves and their businesses to another country. In 2018 the <\/span>Foreign Earned Income Exclusion<\/span><\/a> will increase from $102,100 in 2017 to $104,100. <\/span><\/p>\n

Here\u2019s how you can take advantage of this increase and maximize the value of the Foreign Earned Income Exclusion . <\/span>
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\n<\/span>The first thing you need to do is move to a country that will grant you an easy and fast residency. The most important component in selecting your country of residency is to find one that <\/span>won\u2019t tax your worldwide income<\/span><\/a>. If you\u2019re going to make the jump, no need to land in a high tax jurisdiction. <\/span><\/p>\n

There are many options but the one that stands out is <\/span>Panama<\/span><\/a>. Panama only requires you to make a $20,000 investment in an approved reforestation project and you get immediate residency. This program also covers your wife and your dependent children 18 and under. <\/span><\/p>\n

If you\u2019ve got the cash, and want to live in the European Union, consider <\/span>Portugal<\/span><\/a>. You can get residency with a deposit of 1 million euros in a local bank or by purchasing real estate worth more than 500,000 euros. Living tax free in the EU is more complex than Panama, but it can be done if you don\u2019t spend more than 180 days in any one country. <\/span>
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\n<\/span>The next thing you need to do is cut most of your ties with the United States. Visit the country for personal reasons and never overstay your welcome, sell your house and every other business with your name on it. Stay in the United States for one more day than the predetermined 183 and you will lose your FEIE and all your money will be taxable by the United States. <\/span><\/p>\n

If you\u2019re operating a business, close your US corporations and open new ones offshore. These offshore structures should be set up in a tax free zone to minimize worldwide taxation and thus maximize the value of the Foreign Earned Income Exclusion. <\/span><\/p>\n

Your offshore corporation will be reported to the US <\/span>IRS on Form 5471<\/span><\/a> and your salary from this business on <\/span>Form 2555<\/span><\/a>. Also, you\u2019ll probably need to report your foreign bank account to the US treasury. <\/span><\/p>\n

As you\u2019re leaving the United States, you should become more and more involved in your new country country of residency. Donate to local charities, hire local workers, and generally become a valued member of the community. <\/span><\/p>\n

How much time you\u2019re <\/span>required <\/span><\/i>to spend in each country will depend on your Visa. For example, Panama and Portugal don\u2019t have physical presence requirements. I suggest you spend a few weeks a year in these countries to keep up appearances. On the other hand, Nicaragua requires you spend at least 180 days a year in country. <\/span><\/p>\n

The <\/span>Foreign Earned Income Exclusion<\/span><\/a> only covers $104,100 of your income in 2018 – each dollar more will be taxed. For example, if you made $200,000, $95,900 is subject to US taxes. It is highly recommended to set up a salary that nears that amount and invest any other remaining amount into the company.<\/span><\/p>\n