How to Enjoy Tax Day

Nobody likes to think about taxes, and, if you’re like most people, you probably try to ignore them altogether until tax season rolls around each year.

That strategy can cost you big time, especially if you’re living overseas or planning to move overseas this year, full- or part-time.

Wouldn’t you prefer to pay less tax? That might even make tax day…well, not exactly fun…but certainly more tolerable.

In that case, the right time for you to think about taxes is before you leave the U.S. or before you engage in any activity that could be tax advantageous.

The good news is that it’s possible to minimize substantially your tax burden if you organize things properly and in advance.

You simply need to know the relevant strategies upfront.

If you’re an American citizen, no matter where you roam…or how many days you spend there…you retain your U.S. tax liability.

You can mitigate this tax liability with the help of:

* The foreign-earned income exclusion…which exempts you altogether from U.S. tax on your first $95,100 (for tax year 2012) of employment income if you are a resident in another country for a full tax year…or if you spend fewer than 35 days a year on U.S. soil.

* Double-taxation agreements…which may allow you to count foreign taxes paid, dollar for dollar, against taxes owed in the United States…and sometimes vice versa.

* The 1031 like-kind exchange…which can allow you to defer capital gains earned from the sale of a property outside the States, maybe indefinitely, by taking them and re-investing them in another property outside the States.

In fact, with these, and other, strategies (your multiple jurisdiction liabilities notwithstanding), you could organize your situation so that you pay less tax as an American abroad than you did as a full-time resident in the States. That’s a big deal. And, for the record, yes, it’s all legal.

Everything you need to know is explained in this easy-to-understand guide to taxes for expats.

Len Galvin
Managing Editor, IL Postcards


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