first 80k tax free?

[riverspecialist]

My friend told me that US tax payers who live and obtain residency somewhere outside the US arent expected to pay taxes on their first 80k each year. Is this true? If so where are the easiest/best places to get such residency? How do you do it?

[Kurn, son of Mogh]

Your friend is wrong. If you work outside the US, you have to fill out a US tax return, but are able to offset your US tax liability by deducting foreign taxes you'll be required to pay.

[MiltonFriedman]

Kurn is off the mark. Your friend is closer.

It is close to what your friend describes. Generally, if you establish residency overseas, you can take the $80K ($81K maybe ?) off the bottom of your taxable income. In effect, this saves you only the lower-tax-bracket amount of US taxes you would otherwise have to pay.

You DO have to file your US return and pay any US tax due based upon your income. Also, you likely would face an income tax abroad, which Kurn is right, you maybe can offset that versus your US taxes.

There are countries where you can earn income tax free within that jurisdiction, but as a US citizen, you would need to file in the US, getting only the break your friend outlined.

If you are thinking of this, get professional advice.

[Tappy Tibbons]

To obtain a residency, you have to live in another country. The IRS allows 2 tests to determine residency. The physical presence test means you must remain outside the US for 330 out of a 360 day period. The bona fide presence test is a bit more vague, but basically, you need to prove that you your primary residence is outside the US, and you only return to the US occasionally for business. Renting a PO box from some guy in Somalia and claiming that's your primary residency isn't going to work.

The IRS calls this the Foreign Earned Income Exclusion, if you want to research it further.