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Iโ€™m a U.S. accountant who works with Americans who live abroad, ask me anything!

 

by @olwagner | 5yr  | 100 comments

Hi everyone,

If you have a U.S. tax question or would like some U.S. tax insight on your business/structure, ask away!

I have been preparing tax returns for US citizens abroad since 2012. I can answer any question in US tax with an international flavor. I operate 1040abroad.com and I have maintained a blog at taxsamurai.com

I look forward to answering all your questions. And if you are in Ho Chi Minh City in December, letโ€™s meet !!!

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@gigigriffis | 2yr

Are you still answering questions?

Because early in the thread you said โ€œit would make sense to just stop paying SS contributions (thru one of the legal ways to achieve that)โ€ <-- I am sooooo not interested in ever being in the US again. Can you elaborate on what legal ways there are to opt out of SS? I know moving to a country with a pay-where-you-live agreement is one option. But are there others?

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@working_9to5 | 3yr

Hi Wagner,

Iโ€™m not sure if the AMA is still open. But Iโ€™ve got a question as a non US resident, which is in line with Ana0โ€™s question.

Right now merchant accounts are quite difficult for me (Stripe, Braintree, Paypal, etcโ€ฆ). They either just wonโ€™t work with me or have very strict and disadvantaged rules for me.

I was recommended to open a US corporation to accept these. Now Iโ€™ve done some research and it seems a LLC is a good option since it is a tax pass through entity and as long as I donโ€™t do business in the US I wonโ€™t have to pay tax in the US (not sure if that is correct).

But what if I do want to sell to US customers as well (I definitely donโ€™t want to exclude them if they land on our store)? Would it also be possible to open a c-corp and use it purely as a payment gateway. So it receives the payments, but my other company invoices it for these payments every month, so effectively it will always be break even?

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@anadesigner | 3yr

I am not using this structure, just wondering about use it, because I have to have a business in some place, no? Then I am researching what would be the most interesting and this seems to beโ€ฆ But not sure, I am a newbie in all of that and just trying to understand a bit more.

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@olwagner | 3yr

Yes, you wonโ€™t. And you wonโ€™t have to pay tax to Tadjikistan either. My question is why are you using this structure in the first place?

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@mule5 | 3yr

Yes - sorry for my confusion, I am a dual citizen American, so I am taxed on my worldwide income regardless. I only have the FEIE to use to offset that income.

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@anadesigner | 3yr

also this, saying same thing:

U.S. Business 100% Owned by Non-U.S. Person(s)
Q. I am a single owner of a U.S. LLC, non-U.S. person living abroad. My company provides remote services. Do I need to file tax return and pay income tax?

A single member LLC that elected to be a disregarded entity (a default election) would only pay tax based on the tax status of the owner. Since the owner is not physically present in the US and is providing services remotely there would be no income effectively connected to the US. That means the LLC would owe no US tax, except for the annual registration fee in the state of LLC registration, and there would be no US federal tax obligation (in other words there is no requirement to file income tax either).


Source:

https://www.myusacorporation.com/articles/taxation-of-foreign-entrepreneurs#bm30

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@anadesigner | 3yr

I think I was a bit confuse, sorry. My doubt was not about if I need the LLC, but if I could donโ€™t have the US Bank account from start and still work with the LLC (sending invoices but receiving payments through personal EU accounts), this would be something legal? OR if my company is in US I do need receive customers payments by US bank account?

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@mule5 | 3yr

If the US based LLC is sending invoices and generating income, wouldnโ€™t that US based LLC also be liable for business income tax as well? Even if the clients are paying your EU bank account, they would still want a W9 form from you, where they would claim to have paid that entity for service as their expense. So youโ€™d not only have that income tax liability for the LLC (if there is profit after expenses/payroll), but also in your home EU country as a freelancer, right?

I have an US based LLC with my partner (taxed as an S corp), and I owe tax on any income earned not offset with expenses (payroll and otherwise). There are reporting requirements and other obligations too. Any payroll paid out is taxed as well, unless you have deductions to offset.

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@anadesigner | 3yr

Hi mule5, this is a info that I found:

โ€œAs a non-US resident, your Delaware LLC will only be taxed in the US on income from US sources, meaning that income from other countries will not be taxed by the US. If you choose to form an LLC, any profits US-sourced income will be taxed by 30%. This 30% goes to the IRS. At the end of the year, you will file your US taxes on Form 1040-NR with the actual amount due. If the amount due is less than the 30% initially taxed, the IRS will issue a refund in the amount overpaid. To make sure the LLC is sending the proper amount to the IRS, the LLC must designate a tax withholding agent to calculate the proper amount that must be sent to the IRS before any of the money is released. Because of these difficulties, many non-US residents choose to form corporations, unless they are forming the LLC to do business strictly outside of the US, in which case, the LLC would not owe any US taxes.โ€

Source:

In my case, I would do business strictly outside of the US

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@anadesigner | 3yr

Hi opwagner,

I have a doubt that maybe you can help. I am a freelancer graphic designer working remotely and at the moment living in Europe. I am not US resident and I am thinking about creating an LLC company to sell my services through.
I know that I could set up the company without going to the US but for having a US business bank account I would need go there phisicaly.
My doubt is: I have to have this US bank account from start? Or I could (in the beginning) use a personal EU bank account? This would be a real problem?

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@olwagner | 3yr

I would need to know why you want an LLC in order to answer your question.

Whatever is occuring on your personal bank account is in your own name, not in the name of the LLC - without more context, I can not say what the downside is.

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@anadesigner | 3yr

Hi opwagner,
I am searching for a solution for incorporate my small freelancer business and thinking organize a US LLC for sell my services will be good because as long I understood, as a single person and not trading with US I would not be subject to US tax on business income.
As a digital nomad this seems interesting but I am still trying to understand moreโ€ฆ

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@olwagner | 3yr

Yes, but usually, people do that in order to have access to the US banking system. If you will bank under your own name, you donโ€™t need an LLC (this answer doesnโ€™t take into account taxation in your home country)

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@nambrot | 4yr

Im curious, are you of your clients abroad self-employed or paid as a contractor?

Iโ€™m thinking about building a service that helps companies actually employe remote international employees, by abstracting away local entities that actually do local payroll and compliance. However, I canโ€™t yet tell if that is an actual issue for many companies or not.

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@mule5 | 4yr

How does US taxes work if you are considered an itinerant, not having residency in any one place? Does it fall back to residency in the US since I will not be a resident in another country?

Itinerant Scenario:

  1. Residing outside the US for the full 365 days in 2017 to qualify for the physical presence test, January 1st 2017, December 31st 2017.
  2. US based LLC, treated as a S-Corp for tax purposes, of which I am an employee+partner starting Jan 1 2017, receiving a salary from this LLC, under $100k/year. Federal Withholding + SS tax taken from my paycheck as if I still lived in NH. (Should I claim EXEMPT on my W4 and not have any Federal tax withheld during payroll? - because although I would request the refund on tax paid, how does the LLC receive the refund on their end of the tax withheld?)
  3. Previous state was a no income tax state, NH. Still maintaining a property in NH.
  4. TBD - Living in countries under the threshold to be considered a tax resident.
    Living in Spain for less than 183 days in 2017, not filing for residency.
    Living in Italy for less than 183 days in 2017, not filing for residency.
    Living in Portugal for less than 183 days in 2017, not filing for residency.
    Living in France for less than 183 days in 2017, not filing for residency.

Are there legal issues with this scenario? Have you worked with clients who are itinerants? Any other itinerants out there?

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@olwagner | 4yr

Hi @mule5

US citizens are taxed on their worldwide income, but can exclude some income using FEIE, as previously discussed.

You can book a session with me for $100/hour at https://calendly.com/opwagner/60min
My upcoming book also covers many of theses questions https://www.amazon.com/dp/B01N6PAE5Y

All the best

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@mule5 | 4yr

Thanks for the response. I will check out the amazon book link and possibly book a session. :slight_smile:

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@dirtandrust | 4yr

Hi, Iโ€™d love to talk to you as my wife and I, we are business partners too, need a new US-based accountant! We are dual citizens in the US and NZ. Contact me through here or our website dirtandrust.com.

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@jmrtravel | 4yr

@opwagner,

Thanks for the awesome thread. Sorry if Iโ€™m posting this a bit late.

Is there anyway you could give a quick rundown of how a US citizen can reduce the most income taxes? i.e. setup a foreign corp, qualify for FEIE, donโ€™t live in the same country more than 6 months, etc.

Do you know of any legit programs where a US citizen can reduce income taxes? For example, I am aware of Puerto Ricoโ€™s Act 20/22 program. I am also aware of the USVIโ€™s economic development program. Just curious if you knew of any others that an American might look into.

Thank you for your time!

-John

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@travelingtoad | 4yr

Form 4868. I was under the impression that I needed to file for this to extend my due date of paying taxes. But on the form itself it reads:

You do not need to file Form 4868 if you make a payment using our electronic payment options. Your extension will be automatically processed when you pay part or all of your estimated income tax electronically.

I file electronically. Donโ€™t we all? So keep this in mind all.

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@olwagner | 4yr

@atoadsworld Thatโ€™s right, although a lot of people donโ€™t send money since they wouldnโ€™t have tax owing.

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@travelingtoad | 4yr

@opwagner The CPA at Greenback said this, โ€œI would file the 4868 just to be safe. Just my cautious nature when dealing with the IRS.โ€

Would you recommend this too? It says right on the form that if paying electronically of which Iโ€™ll be doing that one needs not file this form. So why would I take the time to fill out a form? I dunnoโ€ฆ

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@olwagner | 4yr

Well, it takes less time to file the 4868 (once you have the software and know how to do it) than answer this question :wink:
If you make a 1040-ES payment in error (thinking it was the 4868 payment), you wouldnโ€™t have an extension, so better safe than sorry.
A lot of people still mail checks with their 4868 btwโ€ฆ

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@travelingtoad | 4yr

@opwagner I just emailed you regarding an issue about transferring a website from someone elseโ€™s name to my name. Itโ€™s a big thing that really concerns me as I may end up technically โ€œunderreportingโ€ if I donโ€™t take the correct actions.

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@travelingtoad | 4yr

Hey @opwagner thanks for doing this. My question is regarding The Physical Presence Test to determine whether I qualify for the FEIE.

I left the US on July 3, 2015. I flew back on December 1, landing on December 2. I then left again on December 31 and will not be back until September or December.

So, from July 3 to July 3 I will have been outside of the US for 335 days. However, I just read from this page the following:

Days spent travelling between countries do not count.

What does this mean? On June 1 I just flew from Cambodia to Thailand. Does this mean I canโ€™t count this day as being outside the US? If I canโ€™t then I may have fucked myselfโ€ฆ

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@wanderingdev | 4yr

From my understanding, itโ€™s time flying from the US to other countries and time over international waters. So, for your december flight, if you departed a foreign country on the 1st, that would count as a day in the US. If when you left on the 31st, if you landed somewhere January 1, that would count as a day in the US.

However, once youโ€™re out of the US, the flights donโ€™t count against you unless you spend a full 24 hours without being in one country or another. But, a cruise in international waters could.

When dealing with stuff like this, better to get it from the horseโ€™s mouth, not someoneโ€™s interpretation of it: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

โ€œChange Of Location
You can move about from one place to another in a foreign country or to another foreign country without losing full days. But if any part of your travel is not within a foreign country or countries and takes 24 hours or more, you will lose full days.โ€

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@travelingtoad | 4yr

Ah ok this helps a lot and explains exactly what I was thinking. The article I found had zero elaboration but it scared me just slightly and I had to make sure that I was OK. And so I am. My longest flight is 15 hours.

Even if December 1 and January 2 (the date I landed in Thailand) is counted against me, thatโ€™s still only 33 days. So that is the absolute most. I guess I cut it kind of close.

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@taylorcoil | 4yr

Hi @opwagner!

Thank you so much for this AMA - itโ€™s unbelievably helpful. I hope you donโ€™t mind a couple of questions from a latecomer.

Iโ€™m new to nomadism, and will qualify for the physical presence test for tax year 2016. I started traveling full-time on Feb 2, 2016 and will still be out of the country on Feb 2, 2017 (with a very short trip to the USA in between).

Two questions:

  1. How do I report on the tax I owe from Jan 1, 2016 to Feb 2, 2016, if my 365-day period begins on Feb 2?

  2. This is a question on a tax home. Do I qualify as an itinerant if I have not paid taxes in another country, am traveling on tourist visas (~ a month in each country), and choose to travel for leisure rather than travel as a work assignment? Is it still โ€œwherever I workโ€ if where I work is another country by choice, not by mandate?

The โ€œtax homeโ€ is most confusing to me. I definitely qualify based on the physical presence test, but Iโ€™ll also definitely not pay taxes to another country. Iโ€™m not sure if the latter disqualifies me.

Thank you!

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@olwagner | 4yr
  1. You would just report all your wages either on line 7 - or if self-employment on schedule C, this would include the full year. Then on line 21 you would deduct your foreign earned income using the Foreign Earned Income Exclusion, the leftover would be your US wages

  2. Yes, your tax home is wherever you are. It is in a foreign country. You win without trying Deamer v. Commissioner, 752 F.2d 337 (2012)

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@ellen1 | 4yr

Thanks for this. I am making a run to Texas to try and set up residency there. I have TravelingMailbox but they have โ€œchanged their talking pointsโ€ on being a representation of a physical address.

Earlier this year they were incredulous that Amex was not letting me change my physical address to themโ€ฆ now they are stating officially they are not to be used as a replacement for physical address.

So, I am going to see if I can find a physical location for said physical address. I worry about renting a super cheap room/apartment with no insuranceโ€ฆ maybe I am overcomplicating but the thought of being overseas with frozen bank accounts is kinda unsettling.

Will report back!

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@ellen1 | 4yr

Hey there @opwagner, thanks for all this work! I read through the post and did not seem to be able to find the answer to my question so I thought I would toss it out there.

I am currently an Illinois resident and want to switch to Texas before leaving US. I will have no home base as soon as my house sale goes through and it seems unclear on how I establish residency without proof of physical address in the state.

I checked other areas of the forum and it seems as though there is a โ€œcrackdownโ€ of sorts with respect to Fed tax returns and establishing state residency if you donโ€™t have a physical address.

And feedback is appreciated.

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@olwagner | 4yr

@ellen1 Itโ€™s not the Feds (IRS) that would โ€œcrackdownโ€ but the State authorities, and yes, if you put an address in a state with an income tax on your 1040, you can expect the authorities of that state to contact you.
Also, yes, having an address in a state is essential to establishing residency (along with voting there and getting a driving license).
That said, there are services to get such and address. The Escapees do it in Texas with precisely that in mind: https://www.escapees.com/support/mail-service

Best

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@ellen1 | 4yr

Thanks for responding but it is my understanding that this information is no longer current. As of January 1, the enforcement of banks to freeze current and not give new accounts to people who do not have a physical addressโ€”which means no longer can people use PO box or Certified Commercial Mail Services. So escapees, which has been dealing well with this for years, will no longer work.

My concern is that if I use a physical address, say a friends house, and I am not actually living there, this will soon be sunsetted as well.

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@olwagner | 4yr

@ellen1 I do not myself have a physical address in the US but I have plenty of US bank accounts (Chase, Wells Fargo, UFB Directโ€ฆ) and even more US credit cards (the regulars, pretty much all of them).
American Express did deny me the opening of credit cards based on not having a physical address.
I have not experience any adverse action on any of my existing accounts.

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@ellen1 | 4yr

Thatโ€™s great to hear! I understand this is a new law rolling in with more enforcement as of Jan 1, 2016. Some folks are already experiencing it and it is my guess that it will continue to crop up with more regularity.

As of today, you can not use a PO Box or Certified Mail Service for submitting tax returns. I am certain people will for their 2015 returns as it seems many are not yet up-to-speed on this new wrinkle, but my accountant is one of those who is aggressive about keeping up on regs and is going slightly batty with me needing a physical address.

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@olwagner | 4yr

It is recommended to keep proof that you sent the returns, Certified mail is one way to do it.

As for the address on the returns, the IRS stance has not changed for some time.
From the instructions from 1998 https://www.irs.gov/pub/irs-prior/i1040--1998.pdf , page 18:
โ€œP.O. Box
Enter your box number instead of your street address only if your post office does not deliver mail to your home.โ€

But for those of us who are homeless, wellโ€ฆ

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@ellen1 | 4yr

Just to clarifyโ€ฆ yes one can send in their returns from wherever, or digitally. It is the listing of the home address that is the problem.

By the way, to clarify (since I am forever starting conversations midway thru and it can be confusing) for anyone jumping into this mid-way throughโ€ฆ

This conversation is in reference to the following:

Section 326 of the USA PATRIOT ACT requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account or changes an existing account. This federal requirement applies to all new customers and current customers. This information is used to assist the United States government in the fight against the funding of terrorism and money-laundering activities."

What this means to you: when you open an account or change an existing account, you are required to provide a physical address as well as a mailing address.

Why people are starting to discover that CRMA services such as TravelingMailbox are no longer working? I have copied below some copy buried in here: http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_011.htm

You will note that while this went into effect in 2003, bank compliance is just now starting to roll in, which you will see bubbling up in google searches on the topic.

[CMRA TEXT REFERENCED ABOVE]
Under the Business Security Act (BSA), as amended by the Patriot Act, every financial institution must implement a written Customer Identification Program (CIP) to prevent financing of terrorist operations and money laundering.

The CIP Rules establish the minimum identification information a financial institution must collect before opening a new account. Four data items are required for all new accounts:
Name
Date of birth (for an individual)
Address
Identification number
The CIP Rule requires a physical address because โ€œโ€ฆlaw enforcement agencies should be able to contact an individual customer at a physical location, rather than solely through a mailing address.โ€

Can be either a home or business address. The only exception is for Army Post Office boxes (APO) or Fleet Post Office (FPO).

A Commercial Mail Receiving Agency (CMRA) address is not allowed as the only address for new accounts opened after October 1, 2003.

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@robetus | 5yr

Thanks for helping out the community! I have a question. I am a US citizen, living in Europe since Sept. 1 2015. I have an LLC registered in Oregon that I will elect to be taxed as an S-corp for 2015. My income is from 100% online sales. I was a resident of California until Sept. 1st 2015. Do I need to get a payroll tax number for a state to pay taxes for 2015? If so, for what state, and a brief explanation of why I need it would be great. Thanks again!

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@olwagner | 5yr

@robetus Sorry, bad news: you will not elect to be taxed as an S-corp for 2015. Hopefully, youโ€™re just starting and it will not make too much of a difference (compliance cost would be higher for an S-corp but you would save on social security if your net income was large enough that it would not be totally be paid out in the form of wages to you).
To make the election to be taxed as an S-corp, you would file form 2553 at the latest two months and 15 days after the beginning of the tax year the election is to take effect. As such, you could elect S-corp status for 2016 but it is too late to make an election for 2015.

You would not have to get a payroll tax number for California, but you would be subject to the $800 tax for having an LLC in California (now that youโ€™re no longer a California resident, up to you to make a business decision to be compliant or not).

Whether you need to register in another state depends on where you will work in 2016. Why you would need it is because you would be subject to payroll taxes of that state.

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@robetus | 5yr

Thanks for the info @opwagner. You can elect late for a S-corp and this is a common thing so I will apply when I file my taxes. My LLC is not registered in California but in Oregon so I wonโ€™t have to pay the $800. I think because Iโ€™m currently not a resident of any state I wonโ€™t have to pay payroll taxes in any state.

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@joshua | 5yr

Hey! Great to see someone addressing this here.

Iโ€™m a US citizen living in Spain with legal residence. Iโ€™ve been paying my taxes in Spain for 2-3 years, but have an LLC setup in Wyoming for receiving and making US payments with clients/vendors.

Basically I receive payments there, and transfer myself money in Spain. Then I pay taxes on what was transferred.

I recently got asked at my Spanish bank abount FATCA data, so thought I should ask some questions.

Iโ€™ve been using greenbacktaxservices.com, and so far have not had to pay anything in the US. However, Iโ€™m wondering if this arrangement is legit.

Also, my income is under 90k so Iโ€™ve just applied for FEIE and sent proof of my social security payments here to avoid self-employment tax.

Should I be worried about anything happening from the US side?
Thanks!

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@olwagner | 5yr

@joshua I can not comment on the Spanish side of it. As far as US taxes are concerned, you would be taxed on the net income of the LLC whether distributed or not.
As far as Social Security is concerned, you shouldnโ€™t have any problem. But if you really want proof that you paid to Spain and therefore do not need to pay to the US, you could request a Certificate of coverage, see https://www.ssa.gov/international/Agreement_Pamphlets/spain.html#certificate2

Best,
Olivier

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@lightmotif | 5yr

Hi @opwagner - if you are still readingโ€ฆ thanks so much for all the helpful info youโ€™ve posted here. Iโ€™m wondering about Schedule C and 8829 deductions for traveling nomads, such as home office and utilities (like cell phone usage). Can we still deduct part of our housing expenses paid if we are โ€œitinerantโ€ (no tax home, traveling frequently from place to place) to claim a home office? I definitely worked at โ€œhomeโ€ this year. And what about cell phone usage? I do keep a U.S. line so that U.S. clients can call me on a number local to them anywhere in the world. Travel expenses to a conference? Thanks!

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@olwagner | 5yr

@suuzin In order to have a home office, โ€œyou must regularly use part of your home exclusively for conducting businessโ€. You can be itinerant, but that definition must still fit - and it is hard for those of us who live out of a suitcase with no permanent dwelling.

That said, that co-working space membership is deductibleโ€ฆ

Cell phone usage for business calls is deductible.

If you have only one phone line, it is considered a personal expense and not deductible. Additional phone lines used for business are deductible.

Travel expenses to a conference? Thatโ€™s where you get hit as an itinerantโ€ฆ you would deduct the travel expense from your tax home to the conference, except your tax home is wherever you are, hence, no such deductible expense. That said, the cost of the conference is still deductibleโ€ฆ

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@lightmotif | 5yr

Thanks for that info!

Hmmโ€ฆ but I donโ€™t really live out of a suitcase, Iโ€™ve lived out of a dwelling with a roof that Iโ€™ve always paid for. And under that roof, and always have a dedicated workspace, even if it itโ€™s just a dining room table. Couldnโ€™t I suggest that 1/8 or 1/10 of my itinerant home was my office this year?

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@olwagner | 5yr

@suuzin โ€œregularlyโ€ means that it was not used for business once, but it was used for business on a regular basis. โ€œexclusivelyโ€ means that it was not used for anything else.

โ€œeven if it itโ€™s just a dining room tableโ€: Do you sometimes eat (either by yourself or with others with whom you donโ€™t have a meaningful business discussion) at that dining room table? If yes, then it was not used exclusively for conducting business. Period. (itโ€™s not predominantly, itโ€™s not most of the time, itโ€™s โ€œexclusivelyโ€ - for the sake of completeness, there is an exception for daycare facilities). Sorry.

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@lightmotif | 5yr

Right, thanks, I know it has to be used exclusively for business. Do you think I would need something extra than I normally would (if I were not a nomad), like photos of all the home office spaces Iโ€™ve used this year?

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@lightmotif | 5yr

And @opwagner if you really think it would be a major red flag for audit, do let us know, but I have had dedicated workspaces at my temporary homes all year and it feels reasonable to me to figure something out there for a deduction. Thanks again!

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@olwagner | 5yr

@suuzin If you think that your position is more likely than not to be sustained in an audit, go for it. Taking the simplified method and deducting $5 per square feet would be reasonable - again, as long as you have a good story to explain that that space was used regularly and exclusively for conducting business.

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@lightmotif | 5yr

Thank you, @opwagner ! But argh, now Iโ€™m reading about the Foreign Housing Exclusion (I had read about it before but forgotten about it. This is the first year Iโ€™ll be tackling self-employed taxes as a nomad.) Maybe it would be better to take that? Or maybe there is something Iโ€™m not understanding about it โ€“ can we really deduct our foreign housing costs?

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@olwagner | 5yr

@suuzin Yes, the Foreign Housing Exclusion works even for personal housing - only useful if you make more than the Foreign Earned Income Exclusion ($100,800), also the first $41 or so per day donโ€™t count.

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@olwagner | 5yr

@miles Yes, the name is less important, you just need to show that you are a resident of the country. The temporary visa you describe would achieve that. If you have that visa, spend 8 months in the country, own real estate, have some identification documents issued by that country, youโ€™re in good shape to claim the FEIE under the bona fide residence test.

Yes, you can qualify for FEIE under both the physical presence test and the bona fide resident test. You would file your return using one or the other, if the IRS audits you and disagrees, they would disallow the FEIE and you would just submit another form 2555 using the other test and theyโ€™ll be like โ€œok, you winโ€ and would let you use the FEIE using that other test.

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@miles | 5yr

Thank you for sharing your expertise @opwagner this is a HUGE help!

I have a couple other questions about residencyโ€ฆ In a country that does not tax on worldwide income. They offer a residency visa based on real estate ownership that Iโ€™m considering.

Essentially, the residency visa is good for 2 years upon receiptโ€ฆ Then it can be renewed for another 2 years.

At year 3, I would be able to apply for permanent residency.

If I live in this country for most of the year (8 months/yr, more than the minimum) during the temporary visa years, can I still claim the FEIE based on bonafide residency?

I wouldnโ€™t spend 4 months in the US, probably other countries, but maybe a total of 60 days in the US visiting friends/family, mostly traveling around.

โ€ฆOr would I have to wait to get the โ€˜permanent residencyโ€™ visa to be a bonafide resident?

Also, If this residency visa is granted mid-year, lets say April or Juneโ€ฆ Would I have to wait until the following tax year to take advantage of the โ€˜bonafide residentโ€™ option?

Lastlyโ€ฆ It seems smartest to qualify on both tests, to be sureโ€ฆ Can you file based on the bonafide resident test and then have the 330 out data, just in case? Or just file based on the 330 days out, every year to be safe?

Phewโ€ฆ That was a lot of questionsโ€ฆ But I really do appreciate your insights! This is a confusing area that offers a lot of potential benefit for those who โ€˜get it rightโ€™ and getting it wrong would be annoying at best.

Thanks!

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@olwagner | 5yr

@suuzin If this is true, I am not aware of such a provision.

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@lightmotif | 5yr

OK, thatโ€™s what I was told, but it took them quite a while to give me that answer. Honestly, I still think they are ironing out a lot with Obamacare.

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@idrisraja | 5yr

Itโ€™s my understanding that Obamacare requires US citizens to have โ€œminimum essential coverageโ€, and if you donโ€™t you are charged penalties. What is the situation for those of us that are outside of the US for a large amount of time? I get travel insurance through World Nomads, but I donโ€™t think that counts as minimum essential coverage. Would I still have to pay a penalty on my income taxes if I donโ€™t have minimum essential coverage and Iโ€™m out of the country for a large portion of the year? Iโ€™ve never found a satisfactory answer for this in my searchings. I hope you can help!

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@olwagner | 5yr

@idris The IRS issued regulation REG-148500-12 to clarify that those who qualify for the Foreign Earned Income Exclusion are deemed to have health insurance. If read literally, one could check the box certifying that they have minimal coverage on the form 1040. When the IRS prepared the forms, it seems that they expect those who qualify for the Foreign Earned Income Exclusion to use form 8965 to claim an exception - code โ€œCโ€.

I wrote a blog post (a little geeky) at http://www.taxsamurai.com/index.php/2014/11/13/application-of-the-mandatory-health-insurance-requirement-the-individual-shared-responsibility-provision-in-the-affordable-care-act-obamacare-for-us-citizens-living-abroad/

Bottom line: By qualifying for the Foreign Earned Income Exclusion, you would meet the โ€œminimum essential coverageโ€ even if you donโ€™t actually have health insurance.

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@lightmotif | 5yr

I phoned the Obamacare folks about this months ago. Took many go-rounds to get an answer. Bottom line, you are completely exempt from buying Obamacare insurance if you also quality for the FEIE โ€“ so thatโ€™s the cleanest solution. But โ€“ you also have a reduced penalty, supposedly, if you can prove you were out of the country a certain amount of time โ€“ however, I have no idea how this would work in reality, as you are doing your taxes. In other words, where in your tax forms you figure in your days away to come up with the reduced penalty.

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@olwagner | 5yr

@suuzin That would be form 8965. You would claim an exception - code โ€œCโ€. The thing is that the exemption is computed on a monthly basis, such that if you are only eligible for the FEIE for part of the year, you would have a reduced penalty (i.e. only for the months for which you didnโ€™t qualify for the FEIE).

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@lightmotif | 5yr

Thanks - this gets confusing, but itโ€™s my understanding that youโ€™re either qualified or not qualified for FEIE โ€“ you have to spend those 330 within 365 days outside the U.S. (BUT, those 330 donโ€™t all have to be within a given tax year. For me, it will be easier to figure out because my 330 starts around January 1.)

But what Iโ€™m saying is, I think, even if you donโ€™t get to 330 days within any 365 days, tax year or not, itโ€™s my understanding that you still qualify for a reduced penalty of not having Obamacare, even if you donโ€™t and wonโ€™t quality for the FEIE. In other words, the U.S. govโ€™t still wonโ€™t penalize you a whole yearโ€™s worth if you only spent 2 months in the U.S. within 365 days. Does that make sense, and do I understand the laws correctly?

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@lucha54 | 5yr

Hi @opwagner! Youโ€™re awesome.

I get the thing about pro-rating the tax with FEIE, but I usually just file around March for the period Jan 1 - Dec 31 of the previous year, so thinking about prorating it really confuses me.

2 questions:

  1. Can I still do FEIE by calendar year, not by 365 day period? For example: I was in the states last Dec 18-Jan 10, now Iโ€™ll go Nov 17-Dec 3. So for 2015, it doesnโ€™t go above 35 days in the USA, but for a 365-day period it would. Can I keep doing FEIE by calendar year then, as I have been?

  2. Contradicting my last question, I actually fโ€”'ed up this year about spending 330 days in other countries, because of that stupid rule about days spent flying over international waters! (in April/June and again twice this month, October). So how could I do the prorating thing? I canโ€™t seem to wrap my head around it. I might just say forget it this year so I can make a Roth IRA contribution. I havenโ€™t made so much money that itโ€™s a huge dent, and I already paid 15% quarterly in estimated taxes, so it wonโ€™t sting so bad. What do you think?

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@olwagner | 5yr

You do not need an LLC in order to avoid paying self-employment tax, only the foreign corporation would be necessary
Iโ€™ll PM the contact of somebody who does this sort of things with Belize corporations.

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@derekmurphy | 3yr

Iโ€™d love to hear more about thisโ€ฆ I assumed Iโ€™d need to pay a self-employment tax of about 15%. If I register a foreign corporation I donโ€™t need to? What taxes would I be liable for then?

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@olwagner | 3yr

Hi @teosocrates (I know who you are :wink: )

Yes, if you are employed by a US corporation or work in the US regardless of employer, you (and your employer for half) would be liable for social security.
If you are self-employed, regardless of place of work, you would be liable for self-employment tax (which is the same amount).

If you are employed by a foreign corporation, even one you own AND you work outside the US you wouldnโ€™t be liable for social security or self-employment tax.

For that, you wouldnโ€™t just need to register a foreign corporation, you would truly need to conduct business thru it and treat yourself as an employee.
That means that the foreign corporation would bill your clients, sales would be deposited in a bank account belonging to that corporation. You would then pay yourself a fixed or predictable salary at fixed interval (no buying groceries with the corporate debit card).

If that is the case, you would only be liable for income tax (which could mean zero if you use the Foreign Earned Income Exclusion).
Given the complexity and the cost of running a foreign corporation, I would only recommend this setup to someone making more than $50,000 per year.

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@mule5 | 5yr

If I wanted to keep my clients paying me directly and not a foreign company:

  1. could I invoice clients and deposit invoices per usual?
  2. expense or hire my own foreign company to the work?
  3. draw a salary from the foreign company after my net self employment income is zero?

Does that make any sense and is it legal?

Would this be the example:
There is a $1000 job that I am doing for a client.
I bill clients via invoices - paid to me per usual - deposited per usual = $1000 (Client sees no change) [income +$1000]
I employ my foreign business to do the work and pay them $1000 [ expense -$1000]
I file my self employment income as $1000 - $1000 = 0
I draw a salary from foreign entity $1000 or less expenses/fees/reporting/operating costs.

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@olwagner | 5yr

@mule5 That would be a little too creative for the IRS. In the case of an audit, this IRS would probably invoke the โ€œAssignment of income doctrineโ€ in order to deny any benefit you would have under that structure.

Yes, you could either have an LLC being owned by the foreign corporation (but you would have to prepare form 5472 if the LLC was โ€œengaged in a trade or business in the United Statesโ€) or have the LLC being the payment processor of the foreign corporation (with the LLC remitting 95% of the receipts to the foreign corp, and 5% being the payment processing fee).

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@mule5 | 5yr

Thanks for the reply.
Thought this wouldnโ€™t fly, but totally legit if the client pays the foreign entity directly and I am employed by the foreign entity?

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@olwagner | 5yr

@mule5 Yes, that would work. I discussed it at http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/ , with specific references to the Internal revenue Code to show why it legitimately work.
If you donโ€™t want the client to be billed by a foreign corporation, you can setup a US entity to act as a payment processor. That said, if you have a foreign corporation with a US address (Private Mailbox - PMB for short, quite a few will scan your mailโ€ฆ), my guess is that your clients wouldnโ€™t mind.

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@olwagner | 5yr

@arpowers Just email me [email protected] and letโ€™s do lunch

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@arpowers | 5yr

i need a new accountant, will be in chiang maiโ€ฆ lets talk.

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@olwagner | 5yr

@miles The bona fide residence test is more subjective than the physical presence test and yes, the IRS can deny it.

At a minimum in order to qualify under the bona fide residence test, you must be liable to pay taxes in that country (even if it doesnโ€™t currently imposes it), and never identify yourself as a non-resident to the authorities of that country. Then, a permanent resident status (or some other long-term immigration status) is also a must. But then, thereโ€™s all the other things, like did you actually spend time in that country (with 4 months, I feel that you would be pushing it too much, anything over 6 months would be more reasonable). And all the other things: can you vote there, do you have a driving license there, do you speak the language [โ€ฆ]

Here are links to questionnaires the IRS has used in the past in the case of audits: IRS Audit Questionnaire 1 IRS Audit Questionnaire 2

No prorating under the bona fide residence test - you have to meet the test for an โ€œuninterrupted period that includes an entire tax yearโ€, hence you can not use it if you were not a bona fide resident for the full year (Jan 1 - Dec 31).

You can just use an Excel file to track your days. Copies of boarding passes and passport stamps in/out of the US would be the proof you want - legible scans are acceptable.
If youโ€™re running a business, the proof of your expenses will probably include transactions showing that you were physically present in a foreign country, you can add those to the mix in the case of an audit.

Thanks

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@miles | 5yr

A couple of questions about this income exclusionโ€ฆ I have a US based company that pays me a salary under $100k each/year.

If I get residency in a country where they donโ€™t tax on worldwide income, but I donโ€™t live there all year, I simply stay the minimum requirements to keep that residency visa (4 months) and then travel, but pop in and out of the US for a couple months per year, am I at risk of getting denied the exclusion?

Stated another wayโ€ฆ Is the residency visa โ€˜enoughโ€™ to get the exclusion or is there someone at the IRS that decides whether Iโ€™m actually a resident and who has the power to โ€˜denyโ€™ me this exclusion.

Sounds like the 330 day rule has a pro-rated option if I go over on my days in the US. Does the bonafide residency go pro rated if the answer to my first question is yes?

Lastly, how do you recommend I track my days in and out of the states for the 330 day test? What โ€˜proofโ€™ do I need to keep and what is the easiest way to know where Iโ€™m at with my day count since the โ€˜yearโ€™ periods can overlap?

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@chrispreynolds | 5yr

Hey opwagner, I left the us on Feb 11th and will be returning for 5 weeks on the 12th of Dec. I am then leaving again on the 16th of January. Can I use the FIEA for 2015, or 2016? And if not 2015, how long will I need to stay out of the US to use it in 2016? Thanks

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@olwagner | 5yr

@chrispreynolds Under that scenario, you would be spending 329 days in the 12 month period from February 12, 2015 thru February 11, 2016. Since days in the US are in such a cluster, using a different 12 mon period wouldnโ€™t help. The only way to qualify for the Foreign Earned Income Exclusion (FEIE) under the physical presence test would be to spend at least one less day in the US (part of a day in the US disqualifies that day).

Now, if you were to have some sort of permanent resident status in a foreign country (Spain?) and pay taxes there, both the bona fide residence test of the FEIE and the Foreign Tax Credit (FTC) would become available.

Thanks

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@olwagner | 5yr

Also, in this case, the year would be pro-rated, we have 42 days until February 12 and 323 within the excluded period. Hence, the maximum amount which could be excluded would be $89,201 ( 100,800 / 365 X 323 )

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@worldtravel | 5yr

my accountant says that the IRS is going to keep adding regulations over the next 2,4 years and beyondโ€ฆ Iโ€™m thinking it could be so extremely difficult to live abroad or outright illegal at some point as freedoms get reduced in the name of โ€œnational securityโ€โ€ฆ the decline of America is going to happen from over regulation and it already has happenedโ€ฆif there is nothing I can do about it I wonder if there is a legal way to profit off that happening. Also a slow shift between capitalist society to a socialist oneโ€ฆ

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@olwagner | 5yr

@travelguyny It is becoming more and more difficult for US citizens to open bank accounts in foreign countries (in this post-FATCA world). Thinking about opportunities that 1) would be legal and 2) wouldnโ€™t involve you becoming an accountant/lawyer yourself, that would be the one: have the right contacts in the right banks and make it happen (offer that service to the world).

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@olwagner | 5yr

@mule5: I am not referring to a Foreign Tax Credit (FTC) applied against income tax. Rather, I am referring to an exemption provided by the Social Security totalization agreements. I provided the links to these agreements in my post at http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/ - but referring to your question, you only need to contribute to the local SS system, the respective rates are irrelevant.

Yes, some guesswork involved, and if I know I would never go back to the US, it would make sense to just stop paying SS contributions (thru one of the legal ways to achieve that), but I doubt that I can ensure myself decent benefits if I have a 10 year gap in contributions. But if working in the US, there wouldnโ€™t be any legal way to avoid SS contributions (short of something really crazy like surrendering US citizenship and then coming back either as a diplomat of another country or J-1 status).

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@olwagner | 5yr

The severance pay would be taxable. Not sure what your UK tax rates would look like but if you have Foreign Tax Credits (FTC) in the general category, they could offset that. Either taxes paid this year on general category income (your wages) or carryover from prior years. If enough foreign tax paid, you might want to amend those prior years to get the FTC carryover.
That would only apply if your avg UK tax rate was greater than your avg US tax rate.

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@jp | 5yr

Hi Opwagner - Iโ€™m about to receive a severance package from a company in the UK which under the UK tax code will be tax free. Any thoughts on if It will need to be taxed in the states as well? Lets assume I go over my Foreign Earned income credit for the year.

Many Thanks!

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Hi, @opwagner thanks for the AMA!

I am a solo-preneur with a Minnesota based S-Corp. I donโ€™t have a spouse, dependents, or employees. I have been travelling outside the US since Jan 1, 2015 and will qualify for the FEIE based on the physical presence test.

I am wondering about state taxes for 2015. Basically, do I pay them? I wonโ€™t have a physical residence in the state apart from ~20 days this year, but my S-Corp has been registered in MN since 2010. I also own a condo (with mortgage) that is being rented out and is not homesteaded.

If I am required to file/pay taxes, would you recommend setting up an entity (LLC, S-Corp, etc.) in an income tax-free state? Any states in particular ideal for digital nomads? I am 100% location independent at this point and will probably be nomadic without a permanent home-base for the foreseeable future (1 to 5 years) so it would be good to avoid the $1,000s of state taxes since Iโ€™m not getting much for them being out the country! Thanks in advance.

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@olwagner | 5yr

@Chuck_Anderson : While it is best to be a resident of a no income tax state (and I would recommend Florida), states have exclusions so that you would not have to pay taxes there. In the case of MN, it is basing that on the Foreign Earned Income Exclusion.


Taxpayers who earn income in a foreign country may qualify for
the federal foreign earned income exclusion. If taxpayers qualify
for the exclusion and do not include the foreign earned income on
their federal return, this income will not be taxed by Minnesota.
Minnesota residents who earn income in a foreign country may
treat that income as nonresident income as long as they meet
both of the following conditions:

  1. Their tax home is in a foreign country and they were
    either:
    a bona fide resident of a foreign country for an
    entire tax year. or
    were physically present in a foreign country for at
    least 330 full days during any 12-month period.
  2. If they owned homesteaded property in Minnesota, they
    notified the county to revoke homestead status within
    three months of moving out of the country and the property
    remained nonhomesteaded during their absence.

Taxpayers who qualify for the federal foreign income exclusion:
Must use the nonresidency rules to determine whether
income received must be assigned to Minnesota. For
example, interest received while the taxpayer was
overseas is not taxed by Minnesota because the person is
considered a nonresident.
Are only required to file a Minnesota return if they have
Minnesota sources of income that exceed the
part-year/nonresident filing requirement level for the tax
year.

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@olwagner | 5yr

@mule5: My clients based in Europe donโ€™t move that much and contribute into the social security system of their country. As such, they use the totalization agreement to avoid paying self-employment tax.
I am actually in a similar situation (albeit that I am currently in Thailand, and as such not covered by a totalization agreement). I came to the conclusion that if I was to sign out of the US system for 5-10 years, I would not get much benefits and the remaining contributions would be essentially lost. To make matters worse, provided legislation remains unchanged, I would be entitled to 50% of my future ex-wifeโ€™s benefits. And my compliance cost would be less (I would do my 5471 myself). If you donโ€™t pay tax, you donโ€™t need a 401k/IRA since you wouldnโ€™t have to deduct it against.

I wrote a general post on self-employment tax (but you seem to have it covered): http://www.taxsamurai.com/index.php/2015/09/03/do-us-citizens-living-outside-the-us-have-to-pay-ss-tax/
This one covers this situation http://www.taxsamurai.com/index.php/2015/09/04/should-a-digital-nomad-or-other-self-employed-us-citizen-working-abroad-pay-social-security-taxes/

Also, I apologize, it seems that you did more computations, looking into the Social Security side of it. I wouldnโ€™t get too much into it since there is so much time to go - legislation will get passed (probably reducing Social Security benefits), financial situation will change (interest rates on which annuities are basedโ€ฆ)

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@mule5 | 5yr

[quote=โ€œopwagner, post:18, topic:4917โ€]
โ€ฆ My clients based in Europe โ€ฆ contribute into the social security system of their country. As such, they use the totalization agreement to avoid paying self-employment tax. [/quote]

Yes, but I am sure the local in country tax rate must be higher than the SE 12.4% tax collected, which provides the tax credit to offset anything owed after claiming the FEIE.

Yes - I think so too. We contribute and pay the tax since we donโ€™t have another system in place, even though the SS system is fluid and can change. I believe my statement indicates that at current funding/standing, they project only being able to pay 77% of projected earnings. If we are not liable for taxes in Europe, weโ€™d probably still report income in the same manner for the us, to keep paying into SS so we donโ€™t forfeit the previous payments into the system.

Thanks - I will check those out as well. Thanks for providing great insight into this topic.

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@mule5 | 5yr

While the self employed can still use the FEIE they still have the SE tax to deal with right?

I havenโ€™t seen a way to eliminate that without setting up a legal business entity and advising my clients to now pay my foreign entity. But there are trade offs to running a foreign business entity like filling and reporting costs opposed to the US qualified joint partnership that we currently use, as my spouse and I are able to maximize individual 401k plans plus the traditional IRA contributions to reduce our taxable income to only owing the SE tax, which canโ€™t be reduced.

The SE tax is calculated on the total income before the FEIE correct?

I could be wrong, but if we are operating a foreign legal entity I donโ€™t think we can contribute as much to retirement accounts to reduce tax burden, right? But there might be other ways to get that money tax free, like through the FEIE and taking it as salary. I guess that all depends on the the jurisdiction of the foreign entity, if itโ€™s in a no tax country for foreign income, and the earnings are passed through on the salary if under the FEIE limit right?

I feel like I come across as whining when I try to understand how to reduce my tax rate from around 12% of gross, since many have a greater tax burden.

We are in a no income tax state, so we only have US Federal income to deal with. For us, itโ€™s still a larger number than weโ€™d like to pay, that weโ€™d like to ultimately reduce or redirect without having to drop US citizenship and still have social security earnings reported and submitted (secondary goal). Itโ€™s the only system we qualify for and we do not have earnings or a pension in another system or country.

Without specific values I know itโ€™s hard to understand, but our federal income tax (currently only SE tax) burden is our largest expense, annually. Out of these four expenses making a 100% pie chart, our family health care is 25%, housing 35% (mortgage 22% + property tax 12%), federal income tax is 40%. We have other expenses, but those are our most expensive and the others will not change dramatically if we relocate to Europe.

So here is the scenario and a long way to get to a question I guess.

Conditions

  1. (Same housing costs) If we (US/EU dual citizens) were renting/living in Europe, our desired location our housing costs would be about the same, as we were successful with that budget for a 5 month trial in 2014 when the EUR to USD was much more expensive.
  2. (Recovery of 40% - SE Tax) If we are not considered a tax resident in any country (not staying put for more than 90 days in most instances).
  3. (Recovery of 40% - SE Tax) If we setup a legal business entity in a low reporting, low/no tax haven.
  4. (Recovery of 40% - SE Tax) If we are claiming the FEIE from income from our foreign entity that has no tax burden.
  5. (Recovery of 12% - Property Tax) If we sold our property here, we save the property tax too.
  6. (Recovery of 25% - healthcare insurance) If we are covered on our EU healthcare weโ€™d recover that expense as well.

Although the down side:
D1. No taxable income reported for the social security pension
D2. My clients would have to start paying a foreign entity. Not sure how to mitigate that.

Q1>> Weโ€™d essentially have the savings from the federal income/SE Tax and no tax burden?

Q2>> Is that a legal and viable tax strategy?

If that is legal and viable, I guess it would make sense to see what those savings would total and start crunching numbers. Here is my quick math.

How much would you have to save yourself if you decided to abandon the SS system, and to match the projected social security pension of ~$2200/mo (at full retirement age 67 for me) with a pension/annuity, if earnings continue this way for the next 25+ years since all of our credits have long been earned?

It seems that an annuity earning 2% annually and paid out over 30 years (at age 67 for SS full retirement age for full payout amount - 97) at a monthly rate of ~$2200, youโ€™d need to fund it with $600,000. Of course you donโ€™t need to use the annuity vehicle and have this invested in a diversified brokerage account of laddered CDs for deflation protection/minimal growth % where you could limit/throttle the withdrawls if you are self controlled and able.

In this scenario, it would take less than 12 years at current earnings without any interest to save from just these recovery items (SE tax, property tax, healthcare expenses), 24 years if setting this up for my spouse as well. I am 25+ years away from being retirement age qualified, my wife 35+ years away. So it seems like it might make sense. Comments? What am I missing in this quick run down?
I think there is a risk and FUD that our SS earnings would dip and our projected SS payouts would drop and it is not guaranteed by the government to be there, etcโ€ฆ

What happens to your SS if you stop contributing 25+ years before being able to pull benefits?

Does it just get forfeited or do you still get something, just minimal?

Are there US citizens doing something like this in Europe?
Instead of paying into the US SS system, but setting up their own system, to complement the standard 401k/IRA retirement savings plans?

You did say to ask you anything. :wink: TIA

EDIT: Sorry - my calculations of SS payouts were wrong. I wrote ~$1300/mo but the SSA.gov site shows me ~$2200/mo at age 67.
I changed annuity value required from 350,000 to 600,000 and ROI from 8 years to 12 years for me, and 24 years for me and my spouse to save the value required for that annuity versus paying into the SS system.
Other logic errors or shortsightedness?

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@olwagner | 5yr

Yes, legible photos taken with your smart phone would work. If you can, an actual scan with a flat scanner would beat that, however.

You really only need to substantiate the position you took in your tax return. In theory, you can skip the whole thing and have your 8 closest friends testify as to where you were ; wonโ€™t fly with the IRS, but might well fly with the tax court. Thatโ€™s the Cohan rule.

Bottom line: you need to substantiate your position, and legible smart phone photos will do.

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@rickydazla | 5yr

Hey @opwagner โ€” I am a US Resident Alien, living in CA (renting) for three years, married to a US Citizen from MI where we rented prior to that. If we were to travel we would obviously be better off โ€˜residingโ€™ in MI, where my in-laws live, or even in NV where we have friends and possibility of at least a mailing addressโ€ฆ Since we do not own a house and wonโ€™t actually be living in any of those states. We would probably pack up from CA with little intention of returning. Do you have any suggestions for making the transition and subsequently filing with the IRS? We would be leaving pretty much in the middle of the tax year.

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@olwagner | 5yr

Hi @rickydazla,
While it would be best to move to a no income tax state (cut your ties with CA, then get a mailing address, register to vote, get a driving license in that state), you can still avoid taxation in CA if you meet their safe-harbor rule (see page 3 in Publication 1031) to be โ€œconsidered a nonresidentโ€ even if you are a resident).
Thatโ€™s nice but that only affects state taxation, it wonโ€™t affect the filing with the IRS (except that if you put a CA address on the 1040, the FTB could use that as an indication that youโ€™re a resident).

When it comes to the IRS, and assuming that you wonโ€™t pay enough taxes to a foreign country to make the Foreign Tax Credit worthwhile, you will make sure that you qualify for the Foreign Earned Income Exclusion (FEIE) to exclude earned income (wages and similar) from taxation - basic rule is that you have to be in a foreign country for 330 days out of a 12 month period. If you leave mid-year, you wonโ€™t have met that requirement comes June 15 (you get an automatic 2 month extension for being outside the US on April 15), you would therefore have to request an extension in order to file your 1040 and qualify for the FEIE.
Itโ€™s any 12 month period - July 12 N thru July 11 N+1 would be one such 12 month period.

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@digimon | 5yr

This is also about the FEIE. How and how strictly does the IRS enforce the 330 days in another country rule? Whatโ€™s your experience with clients being audited for claiming the FEIE?

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@olwagner | 5yr

@digimon:
If you canโ€™t convince the IRS that you were in a foreign country for the 330 days, you would lose the audit.
On the audits Iโ€™ve been, we had a nice stack of documentation to substantiate the time spent in a foreign country, and the agent was convinced without going thru all of it.
But you want to document your time in a foreign country and you want your trips to match the information the IRS already has (hint: the airlines share this info to Homeland Security, Homeland Security can then share it with the IRS).

Thatโ€™s an audit you donโ€™t want to lose, the income would become taxable at regular rates, so weโ€™re talking about at least $20k

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@digimon | 5yr

Thanks opwagner! Iโ€™m just wondering because I might be cutting it close to the requirement. How common are audits on this? Iโ€™m guessing like other audits theyโ€™re more likely to target those with higher incomes?

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@olwagner | 5yr

Hi digimon,
I can not advise you on illegal strategies nor can I comment on the โ€œaudit lotteryโ€. What I will tell you is that to qualify for the physical presence test, you need to spend 330 days in a foreign country during a 12 month period. This 12 month period can be any 12 month period, starting any day. Also, you can have overlapping periods from one tax return to the one used the following year.
I would invite you to give me your exact days in and out of the US in 2014 & 2015 either here or by email to [email protected] and Iโ€™ll let you know if you qualify for FEIE under the physical presence test.
Of course, if you are a permanent resident in a country and would be liable for income tax there, you can use the bona fide residence test even if you spent more than 35 days in the US.

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@wanderingdev | 5yr

What kind of documentation? I would assume that my passport, with itโ€™s exit and entry stamps would work, but also bank statements with charges in other countries, airline/hotel/airbnb reservations, etc.? Itโ€™s something Iโ€™ve not really seen addressed too much.

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@olwagner | 5yr

@wanderingdev Yes, passport stamps to start, copies of plane tickets (or better boarding passes) would come next, then any receipt that required you being present (credit card receipts). I would keep passport stamps and photos/scans of boarding passes specifically for that purpose. Then, in case of an audit, you might find that some of the docs for your business expenses also serve that purpose, so you can supplement with that.

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@wanderingdev | 5yr

so photos would work? no way am I carrying around all that paper. Iโ€™d run out of space in my bag.

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@littleshiva | 4yr

What do you charge for a private (via e-mail) consultation? Just posted that question in the wrong place by accident, re-posting here.

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@worldtravel | 5yr

Thanks, I have a questionโ€ฆ how does the Foreign Income Exclusion work when you have your offshore businessโ€ฆ if FIE for people working in a job overseasโ€ฆ or is the first 98k plus or so exempt from your businesses taxes?

Thanks.

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@olwagner | 5yr

Hi travelguyny,

The FEIE can be applied to both self-employment income and wages. if you happen to work thru a foreign corporation (your own corporation), I would advise you to pay yourself a salary.
Please specify what you mean by โ€œbusinessโ€: self-employed? A US corporation? or a foreign corporation?

Best,
The Tax Samurai

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@worldtravel | 5yr

I mean by a corporation you setup somewhere elseโ€ฆ Hong Kong, Singapore, Caribbean islandsโ€ฆ and it is registered in your nameโ€ฆ I havenโ€™t tried to do anything with itโ€ฆ hell with FACTA iโ€™m having a hard time opening a bank account anywhere outside the U.S.

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@olwagner | 5yr

@travelguyny:
Yes, you would create the foreign company and the foreign company would then pay you the net income in the form of wages , so as to avoid Subpart F issues (undistributed earnings in a foreign corporation, for now letโ€™s just say that you want to avoid that).
The wages you would receive can then be excluded under the FEIE. Also, such a setup would allow you to avoid Social Security taxes (as I discussed in Do US citizens living outside the US have to pay into the US Social Security System? & Should a digital nomad, or other self-employed US citizen working abroad, pay social security taxes? - but watch out for lack of SS benefits comes retirement time.

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Read and participate in 13,970 discussions on Nomad List

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What are some nice French beach towns?

 

in France by @amin | 6h 6 hours ago | 1 comment

I'm thinking to head over to France during the winter and I'm looking for recommendations on a good French town that has beach and is warm enough during the winter.

What are your favourites? Any recommendation is appreciated.

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What is the best online insurance for digital nomads ?


by @berberos | 2d 2 days ago | 4 comments

Hi guys ! hope you are doing well.

I would love to get your feedback regarding the best insurance for digital nomads. i'm traveling around Asia since 1 year and for next 4 or 5 years. Would love to buy an insurance to cover especially :

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Driving from Italy to Croatia..how to handle passport?


in Croatia by @ld | 9d 9 days ago | 3 comments

Hello, we are US citizens that have been able to stay in Italy past our standard visa stay due to covid. Now we must leave. We want to drive to Croatia as our โ€œout of EUโ€ stay. But Iโ€™m now wondering what considerations I need to take care of for my visa. I wonโ€™t go through an airport and get my passport stamped. But I assume I need to get my passport stamped as a way to prove Iโ€™m out of the EU.

Anyone else travel in and out of Schengen zone via car? Or know what I should do to properly handle the visa situation? I get unclear answers online. Hmm.

Appreciate your help!

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Introduce yourself โ€” who are you, where are you and what do you do?

 

by @coffeeshopceo | 14d 13 days ago | 672 comments

tl;dr: introduce yourself in this thread.

We must all get sick of the same backpacker travel questions when we meet new friends, I know I do.

You know the ones - where are you from, whereโ€™ve you been, where are you going, what do you do, how long have you been doing it - etc.

The novelty of answering these questions wears off after maybe a week, but theyโ€™re nonetheless insightful and no matter how much we hate them, we find ourselves asking others.

So letโ€™s bring the dreaded backpacker questionnaire to NomadForum and introduce ourselves shall we?

**

  • whatโ€™s your name?
  • where are you from?
  • how long have you been away from home?
  • what do you do?
  • where are you currently?
  • where are you going?
  • what has been memorable for you so far?
  • will you go home anytime soon?
  • what have you learnt during your time as a nomad?
  • [insert your own question here]

**

No need to answer them all if you donโ€™t want to :smile:
But the more you shareโ€ฆ The merrier!

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Best/quickest way from Italy to Croatia?


in Croatia by @ld | 15d 15 days ago | 3 comments

Hello,

We are in Umbria until August 31. We've been here since March, but crisis-level visa extensions are over. After that we have to leave the EU. We would like to stay out of the USA (our home) due to it's covid crisis, at the same time we want to be responsible about travel. Ideally we would not travel at all, rather stay hidden in the countryside of Umbria forever until covid is more under control globally, but here we are!

So we must leave the Schengen zone. We should avoid USA. We should avoid long air travel.

We were thinking Croatia.

Do you recommend a route to Croatia? We are open to long train rides. Ideally not long ferry rides. Is there a ferry route under 4 hours? I read about it...I don't see it. If not, the other option is to make our way north and up over to Croatia via train.

I'd appreciate your thoughts and insights!

Thanks.

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Where should I set up my company as a remote worker?


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Appreciate it!

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Anybody bring their car to Mexico instead of flying?


in Mexico by @digitaldiva | 20d 19 days ago | 1 comment

Iโ€™m curious whether anyone drove to Mexico instead of flying and used their car down there. Iโ€™ve heard bad stories of people driving down there but not sure I believe them. How safe is it to drive through rural areas, and to park in cities? It would be cool to have the car to explore while there.

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Did you learn any Thai before staying in Chiang Mai?


in Chiang Mai, Thailand by @digitaldiva | 20d 20 days ago | 0 comments

Iโ€™m curious to know how many people learned some Thai before going there. Learning languages is a hobby of mine but Iโ€™m very put off by how complex the writing system is, and if I decide not to learn it Iโ€™ll probably cross Chiang Mai off my bucket list. I prefer to be at least conversational in a language before I do an extended stay in a country. Iโ€™m curious how people who learned no Thai did getting by. And Iโ€™m curious, from people who did learn some, if itโ€™s any easier than it seems? Thanks!

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What age did you start out and went location independent?


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Eager to find out what age most start out as a DN? (Me)โ€ฆ 27 and just started out in the last 6 months or so. Not presently 100% location independent, probably more like 90% as still required to visit the office from time to time

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How to get SMS verifications for banks while traveling?

 

by @jackgopack | 25d 24 days ago | 39 comments

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Unless Iโ€™m missing something, which is very possible, this appears to be the single most complex issue Iโ€™ve encountered in my preparations, and one that no one addresses. I would greatly appreciate any possible solution that works 100% of the time. Canโ€™t afford surprises in this regard. Many Thanks! Jack.

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Can Americans with EU Passports Travel to EU during COVID-19?


in France by @fqlx | 27d 27 days ago | 1 comment

I'm a dual citizen of America and France with my resident based in the America. Can I travel to the EU using my French passport?

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When will the Coronavirus travel restrictions from U.S. to Colombia be lifted?


in Colombia by @markm | 29d 29 days ago | 1 comment

I've heard travel to CO from USA is blocked until September. Any news on this and may this change anytime soon?

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Anyone know an accountant for Canadian nomads/expats?


by @noam_lightstone | 7mo 7 months ago | 16 comments

Hey guys, this was my first year as a Canadian nomad.

As far as I know of, Canadians donโ€™t pay taxes if they do not live in the country for 6 months.

But Iโ€™d like to talk to an accountant or someone who does Canadian taxes specifically for expats and nomads to get clear on the rules and for help on my return coming up.

Does anyone know someone who specializes in Canada who can help? Iโ€™ve seen plenty of US recommendations but none for us canucks.

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Anyone tried Stripe Atlas to set up a U.S.-based company?


by @adrienbetweets | 3yr 3 years ago | 16 comments

I just came across https://stripe.com/atlas and what they offer sounds too good to be true.

Has anyone used these services?

If yes, how was your experience? any cons?

Their claims are pretty high:

Atlas helps you incorporate a U.S. Delaware company in a couple of days. You just fill out a simple form; we generate the necessary paperwork and handle the rest.

Stripe Atlas opens a business bank account for you with Silicon Valley Bank, the worldโ€™s leading bank for tech companies. Thereโ€™s no need to visit a bank branch in person to get set up.

Cherry on top:

Stripe Atlas entrepreneurs will have access to guidance on U.S. law and taxes from Orrick, the international tech law firm, and PwC, the global accounting firm. Every Atlas entrepreneur will be able to chatโ€“for freeโ€“with a professional from PwC.

We set up a Stripe account that you can use to start accepting payments from customers in 100+ currencies right away. You can take advantage of the complete Stripe product suite, including Connect and Relay.

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How are Americans managing residency requirements?


by @opt | 4yr 3 years ago | 11 comments

Thanks to the forum and many hoursโ€™ worth of reading, I have a number of puzzle pieces, but am having some difficulty putting them all together as a cohesive plan.

This was evolving into an epic post (of heroes and dragons), but I think the crux of the thing is: everything basically requires a physical/street address somewhere in the US, correct? How are you doing this now, given current conditions/requirements?

For business formation, for a business checking account, and even for a personal account, itโ€™s all about the physical address. For example, I believe Iโ€™ve read here that Charles Schwab (often recommended) may no longer be accepting addresses from mailing services such as Earth Class Mail and Traveling Mailbox, street-based or not. Correct? And thatโ€™s simply for a personal accountโ€“business stuff is always more complicated.

Assuming a โ€œfriends and family planโ€ is not an option, what to do?

One thing I think would work is to rent a cheap room or apartment in some state and use that as a base, but thatโ€™s an added cost/pain, and I donโ€™t believe thatโ€™s what most people are doing.

This also has me wondering if it isnโ€™t better to simply find a cheap domestic location and give up on the international plan. (But that sux.)

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Have you ever been called to U.S. jury duty while traveling?


by @krompson | 4yr 4 years ago | 7 comments

My husband and I have residency in the state of Tennessee in the USA and my in-laws collect our mail for us there. We only pass through Tennessee about once a year.

Does anyone know what happens if weโ€™re called to jury duty? Is traveling a legit excuse to get out of it?

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Where do I pay tax as a U.S. citizen with Spanish residency making money from my book royalties?


by @chrisryanphd | 4yr 4 years ago | 1 comment

Iโ€™m an author, US passport, Spanish residency. I could live anywhere (or nowhere), but Iโ€™m unsure what the best option would be. Iโ€™ve been told I should pay tax in the country where I wrote the book, where I reside when the money is paid, where I reside when the advance is paid, etc. Nobody really seems to know. Any other writers facing these issues? Thanks.

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Can you recommend a digital nomad accountant?


by @jaemin_yi | 5yr 4 years ago | 8 comments

I know this is probably a long shot, but I wanted to ask my fellow entrepreneurial nomadsโ€ฆcan anyone recommend an accountant? Someone whoโ€™s affordable, communicative, comfortable working with remote clients, and really knows their shit!

Preferably one familiar with California tax law, but Iโ€™m open to any suggestions. If anyoneโ€™s happy with their current accountant (unlike me), Iโ€™d love to hear about them. Thanks guys!

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Do you know a digital nomad accountant?


by @curtiss | 5yr 4 years ago | 4 comments

Hello dear digital nomad comrades,

Iโ€™d love to find an accountant, bookkeeper, CPA, etc that is geared towards our digital nomad concerns:

  • online business
  • substantial international living

Ideas? Links and email addresses are especially helpful.

Thanks so much!

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