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Filling out my 2021 tax return and for the first time I might need to switch to the FEIE rather than using my FTC. Does anyone know if...

1. Form 1116 -- If I decide to use the FTC in 2021 anyway... can an FTC from general category income off-set taxes on short term capital gains (passive income)?
Thanks much in advance to anyone who might know 🙂
Any articles you've seen elaborating on that?
I got an answer here. As expected, you cannot do the above. Taxes on general category income can only offset taxes on general category income.

Passive income foreign taxes might can only off set passive income taxes. And so it goes.
Just the IRS publications I read
This one ?
That's the one 🙂
thanks!
Hey! I'm not sure if _taxes-us is the right place to ask, but if you are interested in house-hacking, is it possible/legal to buy a duplex/triplex/quadplex/2BR apt, leave one of the units vacant for a year, list it as your address, and live abroad for most/all of the year to take advantage of FEIE and the 5% mortgage deal for owner-occupiers?
I am looking to start investing in multi-family properties that I wouldn't necessarily want to live in myself
h1mo
Having an empty apartment listed as your home address would almost certainly disqualify you from FEIE. It's a clear sign that you have ties to the US. That being said, you can still claim FEIE. But you'd need to defend it if you were ever audited.
qjp mmm… AFAIK, that’s not true. There’s multiple ways to qualify for FEIE:





Neither mention something explicit about an address or not living in the address you own.

Do you have a source?
In terms of the possible contradiction that could be flagged, are you referring to getting a mortgage for it being your primary residence?
If I visit the US for 3 weeks end of 2022 and 3 weeks start of 2023 (6 weeks total) can I still apply for FEIE on 2022 & 2023?
Yep.
Well, if that's you're only travel, or if you keep it under the 330 days

I always tell my clients if they want to return for longer than 35 days, the end/beginning of the year is the best time
So it's 330 days in a calendar year? If I don't enter the US at all for the remained of 2023? I haven't been in the US since 2020
Perfect 👍 that's awesome!
330 days out of any 365
Being in a calendar year isn't necessary, but it's easier on the brain and gives you a higher apportionment factor
Big news if you have not yet filed your 2019 or 2020 taxes:
question 1
If your corporate is paid by a foreign company (affiliate income in this case) are you required to show anything besides an invoice in case of an audit?

question 2
If you pay a foreign entity it looks like having www.irs.gov/pub/irs-pdf/fw8bene.pdf|W-8BEN-E on file is a good idea in case of an audit () - is that correct?

Google shows a lot about question 2 but not question 1.

I guess it makes sense that the IRS would be more concerned how money flows out of the country instead of in.
What are some ways a nomad can prove their abode outside of the US as an itinerant? (FEIE)
For your first q, as long as you're counting the income, nothing else is needed

You're correct for #2
Itinerant status is saying you have no abode.

Proving you're outside of the US is usually done via a travel schedule backed up by flight receipts, airbnb/hotel bookings, passport stamps, etc
You can use a virtual address. I have a virtual address within the US
I use anytime mailbox.
Thats so annoying, because some places do not have delivery other than the PO Box. Someone awhile ago suggested telling the bank you are homeless and the PO box is all you have, shed a little tear and sob a bit. Its gotta be more of a "bank policy" thing, because it certainly isn't law. Good luck.
My US banks require this. I use a friend's address. We use the same address for taxes and driver's license. Our DL was on our virtual mailbox address for the first couple years until the state started cross checking.
I know some people rely on a family member to manage this.
Some systems pick up the fact the private mailbox service is at a business address. I’ve tried using 100 Anywhere #1234-567, and I have had banks reject the address because ‘100 Anywhere’ is a known business location.
I use ally bank, which is a virtual bank. It hasn't complained , yet, about being me using a virutal mailbox
I have also heard the Charles Schwab individual credit account is good for Digital Nomad. I'm looking into that now.
Am I stuck paying US taxes forever if the company I work from is based in the US and my tax home is in the US , but I am living abroad for the entire year?
Short answer, yes. Longer answer - lots to figure out, starting with FEIE (if you haven’t already)
You want to pay taxes somewhere, otherwise you’re a target. US taxes are pretty low for the developed world, and with the foreign earned income exclusion (FEIE) they are either zero or extremely low for most people. If you’re paying taxes in another country, you can deduct that amount from your US taxes using the foreign tax credit (FTC).
If you really want to pay zero taxes, you can renounce US citizenship, but then you probably won’t get those loaded US clients and will lose much more income than you would save in reduced taxes. I’ve yet to meet anyone for whom it’s actually financially beneficial to renounce.
You can get up to $112k of income tax free if you stay out of the US enough to meet the FEIE requirement + change your US state residency to one that doesn’t have income tax (highly recommend South Dakota for that).
Does anyone know how Brazil's "nomad visa" works for us citizens RE taxation?
As an independent contractor, when paying the quarterly estimated amount that will be owed for social security (12.4%) and medicare (2.9%) where does one do that online? On directpay.irs.gov/directpay/payment neither of those are mentioned. Maybe it’s just the “Estimated Tax” to apply to a 1040 for the current tax year, and I should just bucket it with income tax estimated payments?
That is the case. You do not break out the payments for Medicare and social security. They are all paid together as part of the estimated.

It sounds like you are estimating your payments based on your current earnings. In most cases, estimated taxes are based on the previous year. Even if you make more in the current year, you only owe the difference and not fees or penalties. This is something though you should consider discussing with your professional tax advisor.
h26d
Brazilian tax or US tax?
hey 🙂 yes just Brazil. I believe for US tax purposes I must still pay taxes unless I am not coming back for at least 18 months, which is not the case. My expectation, which may be faulty, is that Brazil does not collect such tax for less than 6 months of stay in any year. In cases where it does I think Brazil also allows a deduction for taxes you must pay elsewhere, though I am not sure... definitely worth seeking clarity! I am planning 4 months stay from December this year.
h26d
Well this chat is for US taxes, not Brazilian, so I'm not sure how much hello your globe to find here. Maybe try #brazil. However, your US taxes can be affected depending on how long you stay and how you structure some things. You can do it in a year, not 18 months.
Actually, the best way to make estimated payments is based on actual income, especially if your income varies.

The easiest way is to use the payment based on the prior year, but you could end up with a refund/balance due sitch
www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-testbr />
This is not tax advice, but I would document it and go for it with a cover letter explaining how I got to the number of days. The worst thing they could do is not send you the refund you filed for, and send you less back...
If my client wants me to go to a music festival with them, is this a valid deductible business expense? 😛
Nope. Entertainment went away with TCJA17
Well, can see why
heya- need a recommendation for a US based CPA. standard FEIE bullshit.
How can I help? 🤓
FL has zero state income tax, but NY also has FEIE and a safe harbor exemption. The PO box will likely give you issues with your banks and financial institutions though, as they don't accept PO boxes as mailing addresses
oh shit i didn't know that. thanks for that heads up
this might be out of the channel's wheelhouse and i'm not sure if anyone can answer this, but another thought of mine was if i'm filing taxes as a florida resident, am i then subject to all of florida's state laws even if not physically living there?
another option for help is Tax Queen
Hi. Is there any retirement account type (self 401k, Roth, traditional IRA, etc.) that reduces self-employment tax? I know that some reduce federal income tax but what about self-employment tax? I am starting to shift toward self employment (maybe next year ft) and knew the rules for simple FEIE before but I want to reduce self-employment tax if possible. Can only business expenses do this? In general are there any other ways to lower self employment taxes other than business expenses? I can't find a clear answer online. Thanks
I just started listening to Rich Dad Advisors Tax-Free Wealth by Tom Wheelwright CPA. It goes into Tax strategies for self-employed people like ourselves. It was recommended to me by someone who has a 7 figure digital media business. I literally got it 2 days ago. It does have some self employment strategies section in there.
Thank you. I'll look it up
Are you self employed through your own corporation? Depending on your income there are advantages to setting up an S-Corp and putting yourself on payroll with your own company.
Hey guys, I am trying to gather information about setting up my state residency in South Dakota. Are there any first hand reports someone can give about the process you went through?

I am not planning to go back to the US until around Christmas time, so I am thinking of making a trip to South Dakota at the very end of the year. I am currently a resident of PA (my parents house) and the idea would be to file as a part year resident in 2022 (and I think not at all after? but maybe as part time again?)

It seems like I need to
1. Set up a virtual mailbox / mail forwarding service with an address in South Dakota. I suppose I could use this address to forward mail to my parents house in Pennsylvania, and as my official address on my federal tax returns, as well as anywhere else I need to list an address. Would I then need to update my address with my bank? Would my bank have issues with the address being out of state, potentially?
2. Spend one night in South Dakota - could be at a hotel, etc. anywhere. And use my virtual address in registration.
3. Aquire a South Dakota drivers license - it seems it can be done with staying one night and a virtual mailbox, and receive the same day. I would be trying to do this around Christmas time to squeeze it in before the end of 2022, not sure if there are any problems there
4. Register to vote / unregister to vote in Pennsylvania
The idea would be to cut ties with Pennsylvania so that they can not make the case that I intend to return there. So I am just wondering if anyone has gone through a similar process and has any advice
Why South Dakota, out of curiosity? Trying to see if there are general advantages to doing so that I don't know about.
No state taxes. And apparently easier process to become a resident
cool, thanks!
Thanks! UMJ7P5B5W! Super helpful article
Hi llwzycyhjj I did exactly this last year in order to escape from Oregon’s income taxes while being abroad (and employed). A few notes from the experience:
• I wound up going with www.postscanmail.com/. If you send me a DM I’ll share which financial institutions I know will and won’t work with them.
• I did need to bring letters I had mailed myself.
• It was necessary to reserve a DMV slot weeks ahead of time.
• Just to be on the safe side, I got 2 appointments one day after the other, just in case something went wrong I could go back and get it dealt with. I wound up getting everything right the first time but would definitely use this strategy again since it seems impossible to get last minute reservations.
• Smaller towns seem better than the big cities for DMV appointment availability.
• Going this route saved me a ton of money in state taxes and I’ve yet to run into any downsides. Highly recommended.
Not a lawyer, but if you're getting owner-occupied financing (FHA or similar) you'll be required by the lender to sign an affidavit that you're planning to use one of the units as your primary residence for a minimum of one year after closing.

This is purely between you and the lender and the IRS won't be enforcing (or even aware of) the affidavit. However, there are certain tax advantages to having an owner occupied multiunit property and if you try to take advantage of those and claim FEIE, that might get the attention you're not looking for. And if something happens where you can't make your payments and the lender starts taking a closer look at your situation, you could expose yourself to a lot of legal liability.
Flying to SD next week for this. I went through Dakota Post. They have been great so far. You just need to stay for 24 hours in a hotel there and bring the other forms and set up a mailbox.
Agree with gnfuuqg . My experience/advice:
• I am using PostScanMail in Florida and they are great. All my paperwork (banks, IDs, IRS, etc) goes to that address.
• One catch Voter registration failed, they were the only ones that picked up this was not a real residential address.
• Before you get the mailbox, check the address with USPS Zip code checker. Look through the details to confirm it is not marked as a "COMMERCIAL MAIL RECEIVING AGENCY". If this field is "no" then you should be okay with banks/IRS/etc
• Get the mailbox first. You can do it remotely, including the e-notary.
• Once you have the address, change your address with banks/IRS/etc so you have "proofs of address" in the form of bank statements etc. This means getting the mailbox 1-2 months before anything else.
• Pre-book appointment(s) with DMV.
• Show up and knock it off in a day! :-)
Those who have already done this- have any of your changes of address to SD (especially the DMV stuff) resulted in getting added to a jury duty list in SD? And is it sufficient just to tell them "I'm out of the country right now"?
I haven’t been summoned yet. I expect it’s the same as other states where you can say you’re out of the country to be excused. SD has been making it easy for full time travelers to become residents there for a while now, so I’m sure they are used to a bunch of people not being available for it based on that.
Hey all, back with another. As a nomad, how do you justify international business expenses?

Here's one case.
We work with developers in Java indonesia. I'm based out of Portland, Oregon. We'd like to meet to discuss setup of an office.

Best flights from West Coast US to asia are Seoul and Japan. Thought to stop and adjust to timezones for a week in Seoul. Flights from NE asia to Indo all stop somewhere. I opt to stop in the Philippines, and my flight has a layover so take a couple of days in manila instead.

I fly to bali as it's closer to East Java than Jakarta, relax for a week bit then take ferry over to Java.

Is all this considered business travel or a portion of this is leisure travel as we are taking these rest periods instead of moving to java as fast as possible.

I'm working remotely this whole way of course but I doubt that's considered necessary business travel.

I see in the tax code under Travel Entirely for Business or Considered Entirely for Business there are some caveats.
See thread for those details.
_Exception 3—Less than 25% of time on personal activities._ Your trip is considered entirely for business if:You were outside the United States for more than a week, and

You spent less than 25% of the total time you were outside the United States on nonbusiness activities.
For this purpose, count both the day your trip began and the day it ended._Example._ You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. You then flew back to Seattle. You spent 1 day flying in each direction. Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you hadn’t engaged in any nonbusiness activity. The amount you can deduct is the cost of the round-trip plane fare and 16 days of non-entertainment-related meals (subject to the __), lodging, and other related expenses.

_Exception 4—Vacation not a major consideration_
Your trip is considered entirely for business if you can establish that a personal vacation wasn’t a major consideration, even if you have substantial control over arranging the trip.

Seems these two make it extremely flexible what's considered business and what's considered travel. How would you prove point 3 or 4.
Can anyone recommend an accountant - I have a U.S. / CA based business, and curious about taxes this year as I haven't been in the states at all and wondering if I can get out of paying taxes? And also looking to change to an S Corp. Thank you!
h10d
Yup, nomadtax.io|nomadtax.io is the firm many nomads use. qiqlgaijkn has been doing my taxes for years.
Absolutely avoid telling them. Do you really want them to know you actually earn 20-40% more money a year?
U02R0RBGE2Zbr />Do you currently have an LLC? Curious why you're thinking of switching to an S-corp.
BTW, did you know that an LLC can choose to file taxes as an S-corp?
I'm interested, because I have an S-corp and is considering switching to an LLC, due to the lower reporting requirements
You actually can’t form an S-Corp on its own. You form an LLC or a C-Corp, and elect to be taxed as an S-Corp.

I’m also of the belief that the S-Corp is not the end all be all, especially when it comes to nomads. There a a lot of factors to consider, and a lot of accountants who think it’s the answer to everything when it’s not.
houpfzxdqdrrorks - you’ll still have reporting requirements, but there are provisions to help lower your tax burdens. I can only help with the US side of things, but happy to chat through it with you
Yes already a LLC but know I could save money with an S corp
s corp will apparently save me money.
Not always, especially if you're a highly compensated digital nomad...
valhfpqdcfjwshfh I believe you want to switch your classification. You remain an llc but are taxed as an S-Corp. I would recommend going over that when you find your cpa. I recently made the switch and my cpa handled all the paper work. But as mentioned before you should crunch the numbers based on how much you are earning and if the additional cost of being classed as an s-corp saves you on your self employment taxes.

Switching over to being taxed as an s-corp costs me an additional 1000$ a year for payroll, workers comp (nj), and now having my cpa doing personal and corporate tax returns but it still saves me between 5000-7000 a year that would have been swallowed up by self-employment taxes.
Hey zcvpeddbcq - any chance you can squeeze me in for a 30 min call Monday? I have to make a decision about travel. Thank you!
check out tax-queen . com They also assist nomads with taxes.
What are the chances to be challenged by the IRS and really go through an audit?
FEIE (Foreign Earned Income Exemption) is the best available US tax resource for nomads as it can get you up to $112K of tax free income (if living more than 181 days out of the year outside the US). This does not apply to a company though, as the company continues to conduct trade or business in the US.
h4d
Please be careful with the advice you provide.

It's the www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion|Foreign Earned Income Exclusion>, not exemption.

The www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test|Physical Presence Test> is 330 full days present in a foreign country, not outside of the US. This is a very important distinction as it limits your ability to spend time in international waters, Antarctica, US territories, and even your flight timing can affect your eligibility. It's also worth noting that you need to be in that foreign country legally. No overstaying your visa, no sanctioned countries.
I'm not sure where you got 181 days from.
You can also qualify with the www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test|Bona Fide Residency Test> but that's difficult to do as a nomad.
There are also a number of nuances that may not matter when filing, but could be a big deal if you ever get challenged by the IRS.

However, your personal situation could greatly affect what the best course of action is for you. FEIE isn't always the best option. Talk to an accountant.
Tax free is also a misnomer. You could be exempt from income taxes, but you’re still subject to social security and Medicare taxes
h4d
Last year, not very high. But the IRS just got a few billion dollars in funding. I'd be a bit more careful. 🤷‍♂️
rnvvxagrgb but social security and Medicare taxes would only apply when working for a company in the US, not as a consultant (1099) nor on income received from non-US sources. In your experience do Nomads mostly work for US companies or as consultants/independent workers? My experience has been that most nomads work as independent consultants
That’s not true. For self employed independent contractors, it’s called self employment tax, and the only way around that is working as an employee for an international company or giving up citizenship.
I’m speaking of US citizens - I can’t speak to other nomads
I’m sure this has probably been asked before, but if you were living in California before traveling abroad for a couple of years… how easy or hard is it to set a different state (ie one with no income tax, etc) as your place or “residence” in the USA for the time period that you are outside of the US?
Totally unofficial advice, but ... do you own property or your parents own property in a more preferable location? Do you have a history of living there / filing your taxes there? Make that your domicile while you travel.
h11h
California is notorious for going after people who leave the state. Make sure you do EVERYTHING to change your residency. Voter registration, drivers license, bank accounts, etc. If it's got an address tied to it, change it.

And even then, they still may allege you're still a California resident.
Yikes, so setting up a business somewhere else likely won’t be enough it sounds
Even if you do it all right, the franchise tax board will try to collect. So cross your t’s and dot your i’s
shawnp10min
Definitely change everything to cut ties with California and make sure to follow the new state’s rules for residency. Some require living there for 6 months to gain residency but I think each state is different. My old California CPA told me the franchise tax board is far more aggressive than the IRS
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