HOW TO AVOID PAYING U.S. TAXES ABROAD

Moving to a tax-free country will not exempt you from your U.S. tax obligations. However, you can take steps to reduce or eliminate your taxes.

It is important to file tax returns and pay taxes on your income to avoid penalties, interest charges, and potential passport issues.

Even when working abroad, you are still required to file a U.S. tax return. This is mandatory regardless of the source of your income. Depending on your situation, you may also be required to pay state taxes, which adds to the complexity.

Failing to file U.S. taxes while living abroad can result in serious consequences, including passport issues and penalties. However, the IRS offers a penalty-free option, the Streamlined Filing Compliance Procedures, allowing Americans living abroad to catch up on missed filings.

Citizenship-based taxation may lead to double taxation, which means being taxed by both the U.S. and your country of residence. To avoid this, you can use provisions like the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit to exclude some foreign income from U.S. taxes or provide a credit for foreign taxes paid.

The only way to avoid paying U.S. taxes is to renounce your U.S. citizenship. To do this, you must appear in person before a U.S. consular or diplomatic officer in a foreign country (normally at a U.S. Embassy or Consulate), sign an oath of renunciation, pay a $2,350.00 fee, and have a second citizenship lined up.

Before making the decision to renounce your U.S. citizenship, it is important to consider all the pros and cons based on your unique situation. If you make $126,000/yr or less and live abroad, you can still reduce your U.S. tax bill.