DO NOT PAY ANY TAXES ON SALARY IF YOU ARE A US CITIZEN OR RESIDENT

Does All Income Need to be Reported on My US Taxes?

All US Citizens and permanent residents (US persons) are subject to tax on their worldwide income. All income, from all sources, must be reported to the IRS on a taxpayer’s yearly income tax return. It does not matter if the income was earned outside the USA, or if all the taxpayer’s assets are held in a foreign country, by virtue of being a US person you are subject to US tax law.

Can I Qualify for US Tax Breaks?

The largest tax break you may find is the foreign earned income exclusion(FEIE). This exclusion allows for up to $102,100 (for 2017) of your earned (wages) income to be excluded from taxation. This means if your income is less than $102,100 and you qualify for the full FEIE, then you will have no income taxes due to the IRS. This exclusion also allows for an added housing deduction, using the expenses you pay for rent and utilities on your foreign housing. To qualify for the FEIE, you have 2 options:

1) The Physical Presence Test

You need to be physically present in a foreign country (it can be multiple countries) for at least 330 days within a 365 day window that begins or ends in the tax year, but does not have to be a calendar year. This is your qualifying period. Once you establish your qualifying period, you count the number of days within the actual tax year to figure out what portion of the FEIE you qualify for. This test is very strict when it comes to counting days, so you should be careful with your calendars/planning. One day off, and you don’t qualify for any of the FEIE. When considering multiple tax years, you can use different “qualifying periods” in order to figure your FEIE for each year.

2) The Bona Fide Resident test

If you are a bona fide resident of a foreign country you qualify for the FEIE for the portion of the year you qualify as a bona fide resident. Being a bona fide resident comes on a case by case basis and it depends upon your personal set of circumstances. The IRS looks at the nature of your stay while abroad. They ask questions like “Do you intend to return to the USA to live in the foreseeable future?”, “Have you integrated yourself into society?”, “Have you made any statements or declarations to the foreign government that you are not subject to their taxes or laws?”. You can change your country of residence for the bona fide test, but you must establish yourself as a bona fide resident in each country you move to.Claiming the FEIE, while using the Bona Fide Resident test, is the ideal way to go when talking about being a digital nomad. You are able to exclude income from taxation without having to closely count your days during travel back to the USA.

There are many ways to do this:

1) One can simply get a salary from a US company

2) Or you can open your own company in US and get a salary but you will be responsible for self-employment, medicare, social security taxes, etc (Consult with your CPA/Accountant before you start your travel journey)

NOTE: Not a legal advice, just a suggestion based on what I've read on IRS here: https://www.irs.gov/publications/p54