First, do not confuse me with a financial adviser, accountant or tax authority in any way. For that expert, I can only suggest CFO2GOfor expats in Europe.
Now that I threw out that disclaimer, let me get you excited about this idea: tax free income.
Besides other obvious benefits to living overseas, there is a huge financial perk; especially when the time comes for you to efile your taxes for the year. For US citizens earning income outside the United States, their income (up to a certain amount) is tax free.
So, you’re skeptical on the phrase “up to a certain amount”? Are you sitting? For 2009, my salary is tax free up to $91,400. I think that’s a fairly high amount by most people’s living standards (including ours).
And the even better news? For whatever reason, the US government continues to raise this tax exclusion amount higher and higher every year, regardless whoever is in office. (That’s good evidence the IRS doesn’t mind having this policy in place.) In fact, every year, on average, the amount goes up a couple thousand dollars.
For this site, I made a quick chart showing the last 11 years:
This does not mean we avoid filing paperwork every year. Yes, US citizens are obligated to file the paperwork, regardless where we live. For this, you want to file the special form to declare your income is excluded from taxes: form 2555.
Some good news is, as expats, we do get an additional 2-month time extension, pushing the deadline from 15 April to 15 June. Thankfully, instructions for the form 2555 are relatively simple (certainly doesn’t require 2 months!).
So, to summarize the Good and the Bad:
- Our first $91,000 is tax free
- We get 2 months more time to file
- We must file as we always have
- One more form to fill out, the 2555