Death and Taxes While Living Abroad (More about the Latter)

Disclaimer: I am not a tax advisor with advanced training and knowledge of tax law. Do not assume that any information shared in this post constitutes tax advice. Please consult the IRS or a licensed US tax advisor for up-to-date expat tax information and laws.

Now that it is nearing the end of January, many Americans (including me) are thinking more and more about rendering to Uncle Sam the things that are Uncle Sam’s—namely taxes. Did you know, of the 244 sovereign territories in the world, only two countries employ a citizen-based taxation system: Eritrea and the United States? This means that just like citizens residing in the US, with some caveats, citizens residing outside the sea to shining sea are required to pay their duty. 

So, what does this mean for me living in Qatar? (Luckily, in Qatar, there is no income tax whatsoever.) Last year, during my first academic year in Doha, I filed Wisconsin state and US federal tax returns for the income that I earned in 2017 while still living in the US. I used the same online tax preparation service that I have used for the past decade (TaxAct) to file my taxes. When it came to reporting my income from Qatar University (QU), I provided an estimate of my salary for the 3-4 months of employment during the 2017 tax year and that was it. I was ready to provide copies of my monthly salary slips, but I wasn’t asked to do this. I submitted my tax returns and received state and federal refunds. Thankfully, in 2017, I was still able to claim my oldest son as a dependent and received some credits for him attending college in the fall; unfortunately, in 2018, neither option is available to me. But that doesn’t matter.

First, according to the IRS.gov website, as a US citizen residing overseas, I am entitled to a 2-month extension to file my return without requesting an extension. This gives me a little more time to get my ducks in order. Second, while it sucks that I have to file a federal tax return regardless if I live in the US or on a dingy in the South Pacific or on Jabba’s sail barge cruising the deserts of Tatooine, I don’t have to pay taxes if, as a single person under the age of 65, I make less than $12,000 or if, with additional qualifications, my total foreign income is less than the foreign earned income exclusion ceiling. Income exclusion, you say? Do tell more.

Again, according to the IRS.gov website, to claim the foreign earned income exclusion, I must have foreign earned income, my tax home must be in a foreign country, and I must be a US citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. How does one become a bona fide resident, you ask? Elsewhere on the IRS.gov website, it says the following:

 “To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business.”

Bona fide status is not automatic; therefore, I must file a form 2555EZ: Bona Fide Residency Test and Physical Presence Test to determine if the IRS deems me a bona fide resident of Qatar and, more importantly, if my future QU income qualifies for the foreign earned income exclusion. In 2018, I was quite careful about the amount of time that I spent in the US because in order to qualify as a bona fide resident, I must spend 330 days of a 12-month consecutive period in a foreign country or countries. I spent 4 weeks in North America with my boys, but one of those weeks was in Canada. Ta-da!

But, Conan, how much could you make and not be taxed on your income while residing abroad? For 2018, the maximum exclusion is $103,900 (Note: I made well below that amount in 2018.), and as an English language instructor, I am at no risk LIKELY EVER of making more than that during my lifetime. Thus, if I qualify for bona fide resident status, I don’t have to worry about paying US taxes on my foreign income, and I will be able to visit the US more often throughout the year, should I desire to do so. With the money that I don’t have to give to Uncle Sam, I can spend it on travel, helping out my sons, and bolstering my savings and retirement funds. Furthermore, I can sleep better at night, knowing that I am not contributing a single cent to Trump’s vainglorious “Make America Great” agenda. 

This year, I finally hope to escape the US income tax sarlacc and stay beyond the reach of its flailing tentacles and avaricious maw. May the force be with me.

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