US TAX FOR EXPATS & DIGITAL NOMADS. Grace Taylor, Gracefully Expat LLC

Transcription

1 US TAX FOR EXPATS & DIGITAL NOMADS Grace Taylor, Gracefully Expat LLC

2 HELLO! I m an Enrolled Agent (EA) with 10 years of experience specialising in US expat tax: Previous career in Big Four Now location independent digital nomad I provide consultations and tax preparation services to US expats & digital nomads 2

3 Big picture: While becoming a digital nomad may add complexity, your taxes may actually improve. Today you ll learn how to: Get the facts, make a plan, and get out there. 3

4 US EXPAT TAX BASICS Overview of essential tax concepts for Americans living & working outside the US *Disclaimer: Information provided is for general informational purposes only and is not intended as, nor does it constitute, tax advice.

5 CITIZENSHIP-BASED TAXATION All US citizens and Green Card holders are subject to worldwide taxation & reporting, no matter where they live or work US is unique in this regard However, there are methods by which US expats may reduce or eliminate US tax on foreign source income 5

6 Foreign Earned Income Exclusion (FEIE) Primary mechanism by which US expats/digital nomads reduce US tax on foreign source income from working 6

7 FEIE - TESTS TO QUALIFY Physical Presence Test (PPT) Bona Fide Residence Test (BFR) Physically present in a foreign country for at least 330 days in any 12 month period. Must be a bona fide resident of a foreign country for a period that includes an entire tax year (Jan-Dec). Does not need to be the same country. Typically requires permanent or long-term right to live/work in that country & other supporting facts. 7

8 FEIE - BASICS $ Exclusion Amount Those who qualify can exclude up to $102,100 in tax year ($104,100 in 2018) Income must be earned from working; investment income does not apply. Limitations Does not apply to Self-Employment tax. Freelancers & most entrepreneurs will still owe US Self-Employment tax (i.e. Social Security & Medicare, around 15%) Filing Requirements Must be claimed on form 2555, which is not always well-supported or well-understood by either conventional commercial tax software, or all US tax preparers. 8

9 FEIE - COMMON QUESTIONS What if I... have US clients? work remotely for a US employer? sell products into the US? get paid in a US bank account? use a US mailing address? have a US LLC? None of these preclude you from claiming FEIE if you qualify. 9

10 EXAMPLE: A TALE OF TWO TAXPAYERS Steve Stays Static Danny Digital Nomad Income: $100,000 (W-2) Income: $100,000 (location independent business) Federal Tax: $15,410 Federal Tax: $0 State Tax: $6,654 State Tax: $0 FICA: $7,650 FICA (Self-employment tax): $14,130 Total tax: $29,714 Total tax: $14,130 Take home: $70,286 Take home: $85,870 $15,584 SAVED 10

11 OTHER TAXES TO CONSIDER US State Income Tax Varies depending on which state you re from Foreign Taxes If you are subject to non-us income taxes you may be able to claim a Foreign Tax Credit to offset Sales Tax If you are selling physical products into the US you may be subject to state sales tax 11

12 STATE TAX ISSUES What are the tax issues in your state, and what to do about it

13 State tax can vary significantly from Federal: What are the good, the bad, and the ugly states, when it comes to tax? 13

14 THE GOOD - STATES WITH NO INCOME TAX Nothing to file: Alaska Florida Nevada South Dakota Texas Washington Wyoming Interest/dividends only: New Hampshire* Tennessee* *Applies to residents only, & both states look to be in process of phasing the tax out 14

15 THE BAD - STATES YOU CAN BREAK UP WITH Nearly all other states allow you to break residency File part-year resident return in the year you leave If you qualify for FEIE, you can usually break residency in most states that have an income tax 15

16 THE UGLY - STATES YOU NEED TO WATCH OUT FOR Hard to break residency New Mexico South Carolina Virginia California Hard to break residency, AND doesn t accept FEIE, OR honour international tax treaties... California Bottom line: If you re from California, talk to a tax professional. Moving to another state before leaving the US may be advisable. 16

17 BE YOUR OWN BOSS Tax tips for when you make the leap from employee, to free

18 Track & claim business expenses Best practice: track these throughout the year Travel to clients, or to conferences (like this one, or Nomad Summit Chiang Mai!) can be a business expense Make quarterly estimated payments i.e. for self-employment tax you ll owe Consider a legal structure (i.e. an LLC) Simple to set up, doesn t complicate your taxes or cost too much to maintain 18

19 OTHER CONSIDERATIONS Trump Tax Reform, FBAR/FATCA, foreign taxes here s your executive summary

20 TRUMP TAX REFORM $ Standard Deduction Increase Higher standard deduction likely to benefit digital nomads claiming FEIE Marginal tax rates lower overall; if you have taxable income over the FEIE max Repatriation of Foreign Earnings Only applicable to taxpayers using foreign corps (i.e. an IBC) in their structure Retained earnings brought back into US tax End of Obamacare mandate No practical impact, as taxpayers qualifying for FEIE got an exemption anyways 20

21 FBAR/FATCA Foreign Bank Account Reporting (FBAR) Reporting requirement if aggregate value of all non-us bank/financial accounts exceeds $10,000 USD at any point in the tax year. Filing deadline is now harmonised with 1040 (including extensions). Filed online with Treasury Dept (FinCEN): FATCA Separate but related reporting required if non-us financial assets exceed certain (higher) thresholds; filed on form 8938 as part of individual tax return. 21

22 Foreign taxes may apply if you re staying somewhere longer term, or setting up a base. Foreign tax credits mean no double taxation 22

23 KEY TAKE-AWAY POINTS Filing Requirements All US citizens or Green Card holders must file a tax return if required, even if they have $0 taxable income after FEIE. Filing Deadlines April 17, 2019 Automatic extension to June 15 for expats Extension to Oct. 15 (file form 4868) Self-Employment Tax FBAR Many self-employed US digital nomads will owe SE tax. Should consider making quarterly estimated payments. If non-us bank/financial accounts exceed $10k. No tax due w/ this form but hefty penalties can apply for non-compliance. File at the same time as your tax return. FEIE Must be claimed via filing form 2555 to be valid. Can be claimed on amended returns or returns filed via Streamlined Filing Procedures To-Do Track your US days for PPT Track income/expenses if self employed File timely/catch up on filing 23

24 US expat/digital nomad tax issues may be complex, but don t get overwhelmed. A qualified tax professional can help you get back to doing what you do best: growing your business & enjoying your lifestyle. 24

25 THANKS! ANY QUESTIONS? You can contact me at: Or schedule a consultation at: gracefullyexpat.com/work-with-me/ Check out my digital nomad tax course: gracefullyexpat.com/courses/ 25

26 CREDITS Special thanks to all the people who made and released these awesome resources for free: Presentation template by SlidesCarnival Photographs by Unsplash 26