YSK that if Americans live outside of the US for more than 330 days a year, they don't have to pay taxes on $125,000 of their income that year

That's right.

The Foreign Earned Income Exclusion specifically applies to earned income, and does not apply to unearned income.

Because money keeps getting deposited in your bank account every two weeks and you're not reporting any income.

Banks hand all of that information over.

Honor system

they wouldn't know initially.

you report your income, and then if the IRS suspects foul play, they would check later.

If you're making over 125k, then you'll likely have some kind of connected web/media presence that would allow them to at least circumstances confirm your position and standing within the field.

they could also check your bank balance and international holdings against the amount you said you've been making and see if it matches up.

The US has double taxation treaties with over 60 countries. When you pay taxes somewhere else, you deduct all of that tax from your US taxes above the $125k.

Though I definitely agree the IRS shouldn't need these treaties, because if you're not living there, why should you even need to file?

They also charge you a crazy exit tax if you want to give up citizenship in order to save on taxes. They always get their pound of flesh.

"over the threshold, you're expected to pay taxes"

sort of, that's the "up to 125k" limit part of the FEIE(readjusted for inflation every year).

you still don't pay taxes on the first 125k.

earning more than 125k is not a problem most people have.

The problem most people have is not knowing that the feie exists in the first place and there are legal, straightforward ways to avoid paying income tax while saving money traveling.

"no matter if you're also paying taxes wherever you currently are..."

this is very iffy and depends on a lot of factors.

again, for most regular people, foreign income tax credits will erase most financial duties to the US.

"The US is the only country in the world..."

nearly.

"It's not normal."

nope, it's definitely weird and it sucks.

but at least there's the FEIE.

Double taxation treaties are very common. What I've been told by US coworkers makes the US stand out is that you still need to file your taxes with the IRS, even when living abroad. No idea if that's actually the case.

I have lived outside my native country for a while and only had to file taxes in my country of residence (neither of which is the US), because there's a DTAA in place between the two.

That said, if you’re making over 100k trumps tax cuts will probably be pretty nice for you.

It’s not the only country. I’ve lived in another country that was just like that. I bet other countries have the same rule to avoid some tax loophole. Or just because they can.

Well, it is on them to find me and this income.

yeah it is totally banana stacks, and nobody tells anybody else how to get around that, of course.

since nobody knows the sacred knowledge anyway.

some tax guy, not my tax guy, just a random guy who worked in taxes, offhandedly mentioned it to me like it was no big deal one day and I was like whaaaat?

most of the expats I know just don't pay taxes because they're dumb, or they're paying taxes that they don't need to because nobody told them about the FEIE.

I read somewhere that Eritrea (the North Korea of Africa) is the only other country that has this policy.

"However, since you don't pay taxes on that money, it can impact which kinds of retirement accounts you can use, if any"

The math works out in your favor.

wouldn't you rather have that money earning interest now rather than receiving a few hundred later on when you probably don't need it as much?

"Also, trying to invest as a US citizen outside the US can suck because of all the agreements with US banks."

it can suck, and it can also be awesome.

I see you're speaking specifically to Japanese banking standards, which I would agree are one of the more difficult countries for a US citizen to interface with.

but that's a great thing about there being about 200 countries.

Bank somewhere else if you want to.

try Hong Kong or China or Thailand or Portugal or Sweden or you know, a lot of countries.

you don't have to live in the country you bank in.

Do you live abroad? I'm expatting in a few weeks (long planned, not in a pure panic due to Trump) and would love ask a few questions if so!

No, as labeled, this is a US specific tax procedure that people who don't pay US taxes won't be able to take advantage of.

but lucky for them, most of them don't have to!

most countries outside of the US have a similar procedure included in their far more citizen friendly tax codes.

the us is way behind other countries on...well a bunch of stuff, but with taxes specifically, you don't usually have to declare that you're not in the country if you don't pay taxes, you just don't pay the relevantaxes and the government only bothers you if you're a big old liar.

do you mean "another option to avoid paying taxes is renouncing your citizenship?"

in which case, yeah, extreme and still an option.

but the FEIE is way simpler and you can keep the few perks US citizenship still affords its rabble.

Which isn't free btw.

"considering you deduct the taxes you locally pay off the top first"

i understood local taxation to be inclusive to the FEIE, can i see your source?

"These posts are always..."

show me.

I haven't seen any other posts about the FEIE(except for mine earlier this year).

"...it implies you were completely happy..."

not at all, in fact, the post body specifically contradicts your implication.

your "implication" is drawn entirely from your own flawed assumptions and unnecessary ignorance.

"..now you want to talk about tax avoidance?"

I've been talking about the feie for years, so in the future you might want to check yourself since you just wrecked yourself.

it's pretty great.

and it's just about as easy as you have described.

If you have any questions, I am happy to answer.

I've been doing this a long time and I've helped other people start traveling.

No, this is a legal and very straightforward IRS procedure corresponding to physical presence in the United States.

it's called the feie, Foreign earned income exclusion act.

you basically fill out one extra tax form called FEIE while you're doing your taxes, write down the dates you were outside of the country, and then since you aren't in the country and are not receiving any services from the US, you don't have to pay income tax up to a certain amount (it's a little over 125k this year).

that's it.

No apologies necessary, thanks for the clip.