Consider Internationalizing Your Life
Another major topic that I get a lot of questions on is how to save a lot of taxes in a very quick amount of time. Usually, for real estate investment strategies to work towards your advantage, you need to actually go out and buy real estate. Other concepts, such as starting your own business take some time too, even if less capital intensive since you need to build up to your prior level of income as a W2 wage earner.
In my opinion, the fastest way to get your potential US taxes down to $0, or very close to it, in very quick time is to relocate and work from another country, ideally one with little to no income taxes.
Consider IRC 911, which is known as the Foreign Earned Income Exclusion. Under tax year 2023, the exclusion is $120,000, which means the first $120,000 of your income earned as an employee while employed in another country are effectively tax free to you, which is an amazing outcome. In addition, you may also exclude housing costs by your employer paid on your behalf in excess of 16% of the income exclusion. In the case above, if an employer paid $40,000 of housing costs on your behalf, the excess of $19,800 (or converely, $20,200) is excludible from your taxable income during the year.
Further, consider that the standard deduction, as a US Citizen, is still available to you which could take your taxable income to $0 under a scenario where you are married filing jointly and your total income is $147,700 ($120,000 from FEIE and $27,700 from the standard deduction). This doesn’t take into consideration the taxes in the country you’re residing in, but for simplicity purposes, this would be a typical tax outcome in a country like the United Arab Emirates, where income tax is 0%. Also bear in mind that the FEIE applies to both spouses, so theoretically $247,700 of wage income could be shielded from US tax.
So in a scenario like the above where a MFJ taxpayer is earning $147,700 (assume one spouse works), if worked in the US, would result in US federal income taxes of $17,000. Pretty good outcome, but there’s an even greater opportunity to save even more once you layer in your own foreign corp. That discussion we’ll save for another article.
-Stephen Morris, CPA, MBT, CCIM
