At the 2025 US Expats Financial Conference, Vincenzo Villamina, CPA, founder of Online Taxman, shared insights from more than a decade at the forefront of US expat taxation. Alongside his team of specialist CPAs, he has helped thousands of Americans abroad navigate complex IRS requirements, optimise their tax positions, and stay confidently compliant—so they can focus on life overseas, not paperwork.
The following transcript was generated by AI and may contain inaccuracies.
Hugo: Welcome to everyone. We’ll just give everyone a couple of minutes to join. I’m here with Vincenzo Villamina from Online Tax Man. And whereabouts are you today?
Vincenzo: I am in Rio de Janeiro, Brazil.
Hugo: That sounds nice.
Vincenzo: Yeah.
Hugo: You can see you’ve got slightly different weather.
Vincenzo: Yeah. We could see the difference between I’m too hot and you’re too cold.
Hugo: Yeah. How cold is it there?
Vincenzo: There’s two seasons in Rio. There’s hot and very hot.
Hugo: Right.
Vincenzo: So we’re in the very hot season, like 80-something.
Hugo: Sounds like a good problem to me.
Vincenzo: Yeah. I don’t mind it. It’s just being strategic. You go out in the morning or the evening, it’s perfect. The hot peak seasons are a lot.
Hugo: Right. Southern Spain’s like that in summer. Just kind of indoor during the day.
Vincenzo: Yeah, exactly.
Hugo: Are you based there now?
Vincenzo: I am based in Rio. Yeah. And we have a team around the world, five continents. And we do taxes for Americans abroad and foreigners that invest in the US, and really get into the offshore structuring and tax saving strategies, optimization strategies. Obviously that’s what we’ll be talking about today.
Hugo: That’s great. Well, I think lots of people have joined. So what I’ll do is I’ll just read my little intro and then hand over.
Vincenzo: Yeah.
Hugo: Hello. Welcome to day three of the 2025 US Expats Financial Conference, sponsored by Expat Focus, the web’s favorite destination for anyone moving or living abroad, and Wise, the leading provider of fast, low-cost international money transfer services, and multi-currency accounts for individuals and businesses.
We have a fantastic schedule for you consisting of nine sessions over three days, covering lots of aspects of financial information for Americans living abroad with perspectives from some of the world’s leading experts in their fields. Today is the third and final day of the conference, and for this our second session of the day, I’m just delighted to be joined by Vincenzo Villamina, founder and CEO at Online Tax Man, who will be discussing tax saving strategies for US expats in 2025.
Before we start, please bear in mind the information presented is for educational purposes only and you should always seek your own personalized financial advice. Also, while the conference is free to attend, if you’d like to leave a tip for the organizers, you can do so using the PayPal link. I’ll drop it into the chat window at the foot of the screen. Vincenzo will be answering your questions at the end, so please add them in the Q&A popup whenever you think of them and we’ll try to answer them at the end, time permitting. So without further ado, over to you Vince.
Vincenzo: Yes, thank you for having me, Hugo. I appreciate that. I’m gonna share my screen.
Okay. Let’s get into it. As you just said, nothing is advice. I do think that it’s really important to seek advice, in particular talking about these strategies and knowing that every situation is unique and different.
I know there’s been other providers that have covered this notion of the fact that an American living abroad obviously still needs to file their taxes. Of course, there are some more standard strategies that are great. The Foreign Earned Income Exclusion is an important one. If you qualify, you can earn $126,000 of earned income tax free.
Again, the Foreign Tax Credit is also important so that you are getting a dollar-for-dollar credit for any taxes that you’ve paid outside the US, whether it’s on earned income, whether it’s on passive income. Making sure that that’s buttoned up is important. And then of course, looking at the tax treaties—things like income sourcing, where you should be paying tax, whether it’s locally or in the US—and using that to your advantage from an optimization standpoint is also super important.
I know things have been covered in these areas. I’m happy to take questions on these as well when we do the Q&A, but I really wanna focus on what else can be done. And a lot of this stuff is obviously for people that are both outside the US but also Americans living inside the US. These things can be used for both, for the most part.
Everyone knows US expat taxes are very complex. You have to do an FBAR, which is reporting things to the IRS like bank accounts, foreign pensions, foreign companies, etc. Again, you have to deal with local taxation, as I alluded to before, and potential double taxation, and getting the credit in the US for taxes paid outside.
And I mean, a lot of really good US domestic accountants just aren’t familiar with a lot of these expat tax benefits. I’ve seen people be discouraged about “oh yeah, you shouldn’t be investing abroad, it’s illegal,” and all that. And obviously that’s all incorrect. I think living abroad, investing abroad is a great thing to do if you’re up for it. But of course you do have to do the filings for that.
There’s a lot of strategies just beyond the Foreign Earned Income Exclusion and Foreign Tax Credit. For individuals it’s things like retirement savings options, investments, estate tax planning. For entrepreneurs even more so, especially when it comes to setting your business up the right way and the use of tax saving tools.
Generally speaking, the US tax system really does encourage investment and entrepreneurship. And you really should be using these to your advantage. And of course, when it comes to setting up a small business, setting up in the right way is important.
We’ve helped thousands of expats around the world saving money. Things like switching states from California to Florida—I think that’s important for both individuals that are actively working and also retirees. Because if you do move abroad and you’re from a high-tax state like California or New York, you do wanna switch to a low-tax state or no-tax state like Florida before you actually move.
We’ve set up trusts for asset protection and estate planning. We’ve done things like the Roth IRA conversion, rolling taxable savings into tax-free savings. Upon taking out of your Roth IRA it would be tax-free versus a traditional IRA where taking it out is taxable.
Things like getting a better tax rate from switching filing status from somebody who’s married to a non-resident spouse—that would be Married Filing Separately. If you have kids that are American, it could be Head of Household. And then of course self-employment tax, which we’ll get into.
Our focus obviously is on doing the tax compliance, but also finding ways to optimize. And we have over 20-plus strategies, a few that we’ll cover today that go into that optimization.
Just to give you a background on me so you know what I’m talking about: I am a CPA from New York. I used to work at PwC in New York City. Then over 15 years ago I started Online Tax Man, and it’s obviously grown significantly, and it’s been beautiful. And we’ve advised many expats, been published of course in articles and different entrepreneur groups. My passion truly is helping people with the optimization. Of course staying in compliance, making sure that people feel good about what they’re doing and knowing that they are really paying as low taxes as obviously legally possible and can sleep well at night.
A lot of people come to me with problems having not filed in a while, etc., and it really is a pleasure to help people through this sort of thing. So this is my passion.
Let’s talk about what we’re gonna cover today: both looking at individuals—back to the Roth IRA, investment loss harvesting, gifting, real estate—then for entrepreneurs—the S-Corp election, accountable plans, QBI, home office stuff—then we’ll get into offshore structures. And like I said, I will leave the end for questions. So if any of these topics or any of the things you want to talk about aren’t covered, I want to make sure that everyone gets value from this.
So the Backdoor Roth IRA. Let’s step back. You have two types of IRAs. You have something known as a Traditional IRA or a Roth IRA. What’s the difference? The Traditional is you contribute pre-tax, so you actually do get a deduction, so less taxable income. You put it into an IRA, it grows tax-free, and then upon retirement or whatever, you could take that money out and it’s taxable.
The other one is a Roth IRA where you put the money in post-tax. So you don’t get any sort of deduction on your taxable income, and that grows tax-free. And then you take that money out and it is tax-free.
The issue is with Roth—there’s limitations for high-income earners. So then you can’t contribute after a certain threshold. It’s like $150K USD or whatnot, depending if you’re Married Filing Jointly. But the point is there’s still a way for people that are high-income earners that say, “Hey, listen, when I’m older, I’m actually going to be earning more money than I’m doing now. So it makes sense for this to be tax-free upon distribution or upon taking it out. So what can I do to do the Roth IRA?”
The answer is you could do a Backdoor Roth, which is contributing to a Traditional IRA, not getting a deduction, and then converting it to a Roth. You could do this every year. Part of it is that you pay tax on the gains before the conversion. But of course, if I contribute $6,000 to a Traditional IRA, then two months later I convert it to Roth, I’m not gonna pay tax on that because I put in six and then I rolled it over and it was six.
You can do that and you could even do something called a Mega Backdoor Roth. So if you contribute even more through your employer—because the $6,000 is the contribution limit for individuals—but if you are able to contribute more into an employer-sponsored plan, then you can even make it a Backdoor Roth for even more than just the $6,000.
I think this is a good financial planning tip for people that want to have this Roth IRA but are above that limit.
I think when using the FEIE you need excluded income versus un-excluded income. So you get your first $126,000 free. But if you only earn $90,000 and you exclude all of that $90,000, you can’t do it. So you need to do a calculation where maybe if you’re in the States for 30 days, you say, “Okay, well actually only $84,000 of my $90,000 income is excluded under the Foreign Earned Income Exclusion, which means I have another $6,000 of un-excluded income or taxable income.” And so then let me contribute that to an IRA and roll it into a Roth. So there’s a lot of ways to go about this. I just want to give people the knowledge and the tools to know what they could do.
Same thing with the Investment Loss Harvesting. At the end of the year you look and you have a bunch of gains, and then you have a couple stocks or funds that are down. What you do is essentially sell those stocks by the end of the year, then you wait 30 days and if you wanna rebuy those stocks or those funds, you can—under the wash sale rules.
Every year at the end of the year, we look at our client’s portfolio, say “okay, what’s up, what’s down, we wanna sell this and buy this back in 30 days.” And again, reduce your cap gains by selling these assets and what’s known as loss harvesting. So this should be again an annual thing where you do look at your stock portfolio and look at how much capital gains you have, can you reduce that, etc.
If you have more losses than gains, then you can reduce regular income up to $3,000. So if I had $35,000 of gains and I currently have $40,000 of losses that I could take, I take the $40K in losses to offset the $35K, and now I have $5,000 of losses more than gains. Well, $3,000 could be used to offset your regular W-2 or consulting income. And then the remaining $2,000 of that is rolled over into the following year.
At the end of the year, good to do this. Another nice important point is that with crypto you can do the same thing, except you don’t even have to wait 30 days. Right now the wash sale rules don’t apply to crypto. I think at some point they will, but so you can literally look at your portfolio, what’s up, what’s down, sell said crypto and you can buy it back the next day. And because of that, you can also tax-loss harvest for crypto and not even have to risk waiting 30 days and seeing what happens with said stock, because you could do it pretty much immediately.
Gifting, I think is another tax strategy that people don’t always think about. As a US person, you’re allowed to gift up to $19,000 per year to people. And up to $14 million per lifetime—and that number can change. Ten years ago it was only $5 million, now it’s up to $14 million. But the point is that we see a lot of people that strategically gift, especially people in international tax situations.
Where they can gift a crypto portfolio or a stock portfolio to a non-resident spouse, and then have the spouse sell it so that they can not have to pay US taxes. If your non-resident spouse—like they’re not a US green card holder, they’re not a US citizen, of course they don’t live in the US—you’re not filing them, they’re not filing US taxes ’cause they’re not American. You could gift a portfolio of stock, crypto, whatever to them, have them sell it, and then not pay tax to the United States on that. And then as long as you—if it’s of course over $19,000—you can use your lifetime exemption of $14 million. So let’s say I gifted $100 million worth of stock. Of course I have to file that gift tax return with the US every year, but I mean, that could be a major way to save US taxes.
Same strategy applies to people to avoid exit tax. People that are looking to renounce US citizenship—if you wanna renounce, and you’re worth more than $2 million in net worth, you could potentially pay exit tax. So what do you do? You gift assets to get under the $2 million. You can’t do that in the same year that you gift and renounce. But with the proper planning, you can give it to your children, you can gift it to your spouse, whomever, and get under $2 million to avoid the exit tax.
And then of course there’s estate planning, where you know that your lifetime exemption is $14 million, but you’re gonna run into some money or you have an investment in a tech stock or startup that you work with that’s going to go bananas and push you over the $14 million exemption. So you gift it to a trust and then you no longer own those assets, which means that even if they go above the $14 million, you’re not gonna be hit with estate tax.
I think gifting is underappreciated as a good strategy, especially for people in international tax situations to take advantage of.
Real estate again, I think is another great strategy. As I mentioned, the US encourages entrepreneurship and investing. In particular, investing in real estate I think is a great investment and also has a lot of tax benefits.
One—selling your primary residence. If you live in a home, whether it’s US or abroad, you live in it more than two years out of the last five years, you get this exclusion of up to $500,000 Married Filing Jointly, or $250K.
The other question is, well what about inheriting a property? Well, when you inherit a property it gets stepped up in basis. So let’s say my parents bought a house for $100,000, passed away, and it’s worth $700,000. Well, all of a sudden I get that step up in basis. So it went from $100,000 to $700,000. Then I could sell it the next day for $701,000 and only pay tax on that $1,000 capital gain. So you get the step up in basis.
I’ve seen it the other way actually, where I had a client that really—unfortunately there was not proper tax planning. His father had gifted him half of the house years ago, the father passed away. The house was in California, so there was big appreciation. But because he was gifted the house during the father’s lifetime, he inherited the lower basis. ‘Cause when you gift something, you actually inherit the basis of the giftor, the donor. When you inherit something, you get the step up in basis. So in this case, half of the house was his father’s and had the step up, the other half of the house was his and didn’t get the step up. So it was very tax unfortunate for this fellow.
Depending on the property, depending on the asset, you might wanna wait till one passes. And that’s a common strategy in real estate. I keep on buying real estate and I either flip it to another real estate and roll over the gain tax-free—which is called a 1031 Exchange—or I borrow against the real estate, but I don’t gift anything or sell anything until I die. It’s called the “Buy, Borrow, Die” strategy.
There’s a lot of things that could be done when it comes to real estate and inheritance.
The other aspect is what’s known as depreciation. You buy a property, let’s say the property’s worth $270,000, it’s rental property. You get to depreciate it over 27.5 years. So in this case, a $270,000 property, the actual building worth $270,000, you get to depreciate basically $10,000 every year. Depreciation obviously works in your favor when it comes to real estate.
In fact, you could do a cost segregation study to get even more depreciation. So like I said, a house depreciates over 27.5 years, but in a cost seg study, they look at the furniture and the fixtures, the improvements to the yard, etc. And they say, well yes, $200,000 worth of this house is the building, but $70,000 is the light switches, the doors, the kitchen appliances. And rather than 27.5 years, that $70,000 is depreciated over five. So you’re breaking it down into different components. And doing this with bonus depreciation really can front-load the depreciation and save you some money.
Especially if you converted it into either a short-term rental or you become a real estate professional, which all of a sudden all this mega depreciation can be used to offset your ordinary income—your income from a job, from your business, earned income.
There are a lot of ways to benefit from real estate by basically taking the depreciation, doing this sort of front-loaded, accelerated depreciation and bonus depreciation, and then qualifying for the real estate professional status—which means that you spend over 500 hours every year being a real estate professional: managing a property, studying real estate, etc. Or doing a short-term rental on Airbnb and essentially making it a short-term stay like under eight days so that it qualifies as a business that’s not considered passive income. And again, taking all that depreciation against that business, which will result in a loss, then the loss could be offset against any other income that you have from a job, consulting, etc.
In either scenario, the real estate professional status is important because you do need to really document the 500 hours. You also need to spend more time in real estate than your regular job. So for example, in a household where one spouse is the primary earner and the other spouse is not working or working part-time, have the spouse that’s not working or working less be the real estate professional.
As I also mentioned, 1031 Exchange—you have an investment property, you wanna sell it, and then within 180 days you buy another investment property with the proceeds, that gain could be rolled over. It’s a deferral. And this also applies to real estate outside the US. You could have a house in Panama, you sell it, you buy a house in Colombia. And you could defer that gain as well. You can’t do US to foreign. So I can’t sell a rental property in the US and buy rental property in Italy. I can’t do that. But you could do foreign to foreign.
I’m gonna get into now some of the tax saving strategies for entrepreneurs. One thing is being taxed as an LLC versus an S-Corp. I think this is a big question that I see a lot of entrepreneurs asking. When they first start their business, they’re an LLC, but there’s this notion of, well, when should I file to be an S-Corp? What even is the S-Corp?
So first, if you’re about $40,000 or $50,000 in net profit, it’s time to convert to an S-Corp. And there’s three things you do: One, you obviously run the numbers. Two, you file Form 2553, which actually is due March 15th if you wanna become an S-Corp as of January 1st, 2025. You can file it late, but you just have to make sure it’s done correctly and there’s a late filing election. And then of course setting up payroll.
One thing to beware as expats is S-Corps are great for Americans—and they’re actually only for Americans. You can’t be a foreigner on an S-Corp. Like if you don’t live in the US or you’re not a green card holder or a citizen. But S-Corps might not work elsewhere. So for example, living in Portugal, actually having the LLC is more beneficial. So I’d always, if you live outside the US, check with your local provider to get their interpretation.
So what’s the savings? We have somebody at $140,000 net profit. They pay the income tax, etc. That’s all the same. But if you have a sole member LLC, you also have to pay 15.3% self-employment tax. This is Social Security tax for self-employed individuals. So as a sole member LLC, you would have to do that. And in this case, you’re paying around $29,000 tax all in.
So you make the election. And of that $140K you have to break it down into what is salary and what is what’s known as a profit distribution. The thing is, on the salary, you still do have to pay the 15.3%, but on the $80K net profit out of the $140K, you don’t. So in this case, basically you’re paying or you’re saving 15.3% on this $80,000 in profit distribution. You’re achieving a $12K tax savings.
So the more you make on the S-Corp, the more you save. I think the break-even, like I said, is around $40K-$50K depending on the situation, because at that point, sure, you’re gonna have to pay an extra thousand or plus for the S-Corp tax return. Sure, you’re gonna have to set up payroll and do payroll. So you want to be at least saving a couple thousand dollars to justify the setup and the cost of the S-Corp. But once you do, again, the more you make on the S-Corp, the more you save.
And then with the S-Corp, there’s all other sorts of cool plans and tax saving strategies that you could do.
One is called an Accountable Plan, which allows your S-Corp or your C-Corp for that matter to reimburse for employee expenses. So it could be things like your home office. The fact that you have a portion of your home—let’s say you’re renting a home. I pay $2,000 a month in rent. Well, 25% of my home is dedicated to my home office. So every month let me be reimbursed $500 from my S-Corp to me personally for a portion of my home office.
I’m paying a healthcare plan personally. Well let my S-Corp reimburse me every month for my healthcare expenses.
It’s really about setting up—literally doing the paperwork for the accountable plan—defining the eligible expenses, and of course every month documenting this stuff via expense reports and reimbursement. There is a level of bookkeeping, but the cost of course saves you money and is validated here.
The other big aspect of working and having an S-Corp is you get this Qualified Business Income (QBI) Deduction. I think a lot of accountants actually miss this when you’re doing an optimization for the salary on the S-Corp. ‘Cause that’s a big aspect. As you saw in the previous example, the whole notion is, well the lower the salary, the better. And there is this notion of, well, what’s a reasonable salary for an S-Corp?
Of course you can’t be earning $200,000 on the S-Corp, only take a $20K salary. And in reality it’s actually more beneficial to take a bit of a higher salary because you get this Qualified Business Income Deduction.
What this means is you can—you wanna be able to have a salary that optimizes the QBI (Qualified Business Income Deduction) while also optimizing for self-employment tax. This is a good question to ask your accountant if you do have an S-Corp: “Hey, am I optimizing for QBI?” ‘Cause it’s either 20% of the net income of the S-Corp or 50% of the salary—whatever the lower number. So it does make sense to really optimize for QBI as well as the self-employment tax.
A lot of this is I want to present these concepts to everyone so they understand. And obviously if you wanna work with us, we’re happy to give a consultation and analyze your situation for these type of tax saving strategies, or really just go to your accountant and throw it out there. Make sure they’re doing this optimization. ‘Cause like I said, I really do see a lot of accountants that miss the QBI deduction optimization.
Home office, again we mentioned it before, for S-Corp owners. You should be deducting part of your home office, reimbursing yourself through an accountable plan. But another one I think that’s not as used and also missed is the Augusta Rule.
The Augusta Rule says you’re allowed to rent your house up to 14 days without paying tax on the income. So what you could do is, of course, if you’re okay with Airbnb for 14 days, that 14 days could be tax-free income. If you go away for two weeks and wanna rent it out, fine.
Or you could rent your house to your business. If you have a team and maybe have a team meeting or a barbecue, maybe you’re renting your house to take pictures for a showroom if you have products that you’re selling, or a photo shoot for whatever. But the point is that your S-Corp pays you to rent your home, and you can do this for up to 14 days a year. You get the deduction on the S-Corp and you do not pay tax on that income. Of course, you need to make sure it’s arm’s length. You need to get some comps and ensure that whatever amount that you’re renting your house for is in line with what the market is.
I think this is an area where we see a lot of people that don’t take advantage of it. Of course, there’s documentation, etc. that’s important. But again, this is the sort of blocking and tackling basics of tax savings that we see people missing. It adds up. It’s $20,000 of deductions here, $40,000 deductions there, and then before you know it, you’ve saved $10,000 to $20,000.
So let’s go into the final part of this presentation, which is on Offshore Business Structures.
A lot of the things that we just discussed do apply to expats and of course people that live in the States. However, when you really look to structure your business outside the US, you really need to be living outside the US.
I think the big thing on offshore is that you can’t have any management in the US, you can’t have any employees, you can’t have any offices, you can’t have any warehouses.
Of course, if you were managing and living abroad, and maybe you had US employees or you have an e-commerce company and you’re selling to the US and have a 3PL or a warehouse in the US, you could potentially do something where you have an offshore company—like for example, in the e-commerce, a Hong Kong company—that buys the products from China, then sells it to a US company, and then part of the profits is outside the US and part is in the US. Something like that.
But the point is that if you do an offshore structure like Hong Kong or British Virgin Islands and you have that structure owned by a US C-Corp, you can one, pay 10.5% tax on that income. So normally a C-Corp income will be a 21% tax rate, but you’re getting a 50% reduction, so you’re only paying 10.5%.
Two, of course, having asset protection outside the US and international diversification I think is important.
And three is that if you take a salary from a foreign corporation of that $126K, of course that’s excluded from the Foreign Earned Income Exclusion, but also you do not have to pay any Social Security, any self-employment tax. So sort of alluded to the question before—the scenario before the S-Corp—you don’t have to care about any reasonable salary, any sort of self-employment tax, ’cause it’s zero self-employment tax. You are an employee of a non-US company, hence you’re not subject to self-employment or Social Security, FICA, etc.
And then again, once you pay the 10.5% corporate tax, you have the option of either taking the money out and paying a dividend tax or keeping it in the company. So there’s even a tax deferral level if you just decide to keep your money in the foreign company to expand and grow, etc.
Let’s do the example here with the offshore structure. Same thing, single member LLC pass-through. They make $140K net profit. Of course they’re paying their self-employment tax on all of it. Sure, they’re taking the $110,400 income exclusion. But even the $30K above that is subject to income tax. So they’re paying roughly $29K in tax.
Now, let’s say they convert to this structure. You have a C-Corp that owns a foreign company. Again, you pay a $100K salary, that’s subject to Foreign Earned Income Exclusion, you’re not paying any Social Security or Medicare tax ’cause again, you’re an employee of a foreign company, so it’s not required.
The corporate tax on the $40K profit is 10.5%. So you’re paying the $4,000 or so of corporate tax. And then if you want to take out that $40K profit as a dividend, then you’re gonna pay 15%, so an additional $6K.
And FYI, you don’t have to take out that $40K profit as a dividend. You don’t have to take out that dividend. You could keep that $40K in the company as retained earnings and not pay any additional tax. You’re still gonna pay always the corporate tax.
So again, even on the non-conservative scenario, you’re saving $20K in tax savings. And if you do wanna keep and retain the $40K profit in the company as retained earnings, you can, and then you’re really only paying $4,000 of taxes. So then you’re looking at $25,000 in tax savings.
This structure is really powerful for entrepreneurs, global entrepreneurs, like I said, that live outside the US that don’t have any US business presence. And this is really what the Googles and the Apples of the world are doing. But even as an entrepreneur you could do this as well.
If you qualify, I think it is a very strategic tax savings scenario for people that live outside the US. Of course, as I said, every situation is different. It also depends on your residency. How is your potentially local jurisdiction gonna look at it? And even, that’s where I mentioned opening up in BVI, Cayman, Hong Kong, Dubai was hot, but now Dubai is 9% tax.
It really does depend on where you live. If you live in Europe, I’d probably set up in Estonia or Malta. If you live in Latin America, maybe the BVI. So it really is dependent on your local taxes as well.
Obviously we do this as our business, and so if anyone wants to really get in depth into your specific situation, which one of these strategies can apply—again, there’s also 15 more strategies that we go through and talk through—things on capital gains. You could invest in solar partnerships and reduce your tax. You could invest in some real estate rental companies and get depreciation.
So this is the tip of the iceberg. I wanted to put this together as a presentation that’s fairly straightforward, although I know that this is super heavy stuff. But if you wanted a more tailored call, you can scan the QR code that goes to a link and you could set up a consultation.
Normally it’s $254 for the half-hour consultation, and within that half hour we will focus and know if we could save you money and how much. But for purposes of people attending this conference, it’s $197 for the half hour. So spend a little to save a lot.
Like I said, I’m gonna open it up to questions. Again, this is how you scan for the QR code. I’ll even leave this on as we answer the questions. But of course you could find us at Online Tax Man. That’s for US Expat Tax Preparation. This sort of structuring and tax planning is also under Global Expat Advisors, which is another firm that we run.
We have multiple brands for our different types of clients. But again, all you have to do is scan the QR code and schedule a consultation. And of course there’ll also be an email link. So that being said, I think I’ve talked enough. I’ll open up to questions.
Q&A Session
Hugo: Just a thank you very much for that. Really in-depth and interesting presentation. Lots of interesting ideas in there, and we’ve got lots of questions come in, so I’ll dive right in.
The first question is regarding Foreign Tax Credit, which you mentioned at the beginning of the presentation. Can that be claimed with taxes if somebody’s paid foreign taxes that aren’t necessarily income taxes, e.g., Spain’s wealth tax? Can you claim US tax credits against those kind of taxes too?
Vincenzo: You cannot. In Spain, I’m not sure, but I mean I know that—that’s a great point—wealth tax, we talk about foreign tax credits, wealth tax does not count as an income tax credit. It’s actually a wealth tax. So things like wealth tax or even VAT, which is sort of like sales tax, if you paid that in the country you’re living in, that actually does not count as a foreign tax credit on the US side. It has to be an income tax.
Hugo: Nice. Somebody else asked, do you have to report income on sales of personal items such as clothes or things like that? Is that income reportable?
Vincenzo: Generally not. I think when it’s something like a collectible or if it’s something that was used in the business, like for example a car that you’ve depreciated but there’s a salvage value if you sell it, that’s the sort of thing you actually would need to report as income. But if it’s something small like clothes for personal use or something like that, you wouldn’t have to report that.
Hugo: Okay, thank you. A couple of people have asked about the Augusta Rule you mentioned and whether that works—do you have to be a US resident or does that work wherever you’re resident?
Vincenzo: No, you could do that outside the US. So if you have a house outside the US that you rent out for 14 days, you could still claim that income tax-free.
Hugo: Okay. Can a gift to a non-resident spouse be cash? That’s interesting. I’m not sure what the implication is.
Vincenzo: Yeah, you could definitely do cash. Again, if it’s over $19,000, then you have to report it on the gift tax return and use that lifetime, that $14 million lifetime exemption.
I think the takeaway is if it’s over $19K, you would just have to report it. But also to be clear, this is a non-resident spouse. If you’re a US spouse, then you could gift it to them actually unlimited. So for example, an American couple wants to give money to their children. One person gives $19,000 and the other person gives $19,000. So then you have $38,000 that you could give to each child.
Hugo: Somebody has said, could I read this question in full and not paraphrase? So let’s do it. “If you’re married to a non-US citizen, you know, for need to file as Married Filing Separately. However, using that filing status, your income limit for direct Roth contribution is basically zero. Can you do a Backdoor Roth conversion via a Traditional IRA?”
Vincenzo: You could, but if you’re Married Filing Separately, and if you have US children that are dependents, then you should be filing Head of Household, and that will be way better.
Hugo: Interesting one. A couple of other people have asked what the—when to file Married Filing Separately versus Head of Household. And I think maybe does it depend on the circumstances and need to seek advice to see which is more beneficial?
Vincenzo: Between Head of Household versus Married Filing Separately—I would say generally speaking, Head of Household is better, like nine times out of 10. But of course the analysis is always important. And even like Married Filing Jointly versus Separately, again, 95 times out of 100 joint is better. But there are times where filing separately is better as well. Like if two spouses are high-income earners.
Hugo: Okay. Excuse me, somebody says, “I plan on leaving the US at the end of the year. What could I do now to prepare?” In tax terms they mentioned, for example, Foreign Earned Income Exclusion, but I guess that’s a nice general question. What would you advise?
Vincenzo: Yeah, no, I think that’s a good point. One thing I would do is if you are in a high-tax state, really go through the motions of switching your residency to another state. Getting a mailbox, even if you could go there and get a driver’s license—which we help people do all the time—in Texas, right, get them the documentation so they could get a driver’s license, voter registration, etc., so that they’re not registered anymore in California, not taxable in California.
So I think that’s a good thing. Of course, like getting your visa paperwork, everything in the other country, so that you can show that you are a bona fide resident of the other country, not the US, for qualifying for the Foreign Earned Income Exclusion. So just going through that paperwork stuff. I think it’s never too early to start that process.
Hugo: Thank you. As a US expat, what is the best country to set up my business in order to minimize taxes?
Vincenzo: Yeah, I mean, I think again, it depends on where you’re gonna be living. Generally speaking, we do like British Virgin Islands because it’s sort of a lower-cost alternative, pretty easy with the regulations and whatnot.
Hugo: Okay. Somebody says, “I live in a high-tax country in Europe. Do many of these strategies apply to me as I pay more tax in my country of residence than in the US?”
Vincenzo: I think that at some point it’s true if you’re paying a lot more taxes in your home country, maybe not as much. But I think it’s also about being able to optimize on both sides. And trying to figure out the play for optimizing locally as well as the US and how that could work together.
Hugo: So you’d advise consulting with both a US and a local accountant, correct?
Vincenzo: Yeah.
Hugo: Somebody says, “If C-Corp taxes move to 15% next year, does it make sense to change to S to C? In what case would it?”
Vincenzo: It could. I think there’s other things that we covered. I mean, if you’re gonna sell your business, for example, it’s better to have a C-Corp. You have this Qualified Small Business Stock (QSBS). So if you hold on to a C-Corp for over five years and you sell it, then you can be—your first $10 million in capital gain is tax-free. So there’s a lot more strategies too on capital gains. But yeah, it could make sense.
Hugo: Okay. Regarding foreign real estate investments, what are available tax strategies? Can foreign mortgage interest be deducted and can you leverage lower US mortgage rates?
Vincenzo: If you have any properties in the US you can definitely leverage that to get the cash to buy the foreign property. I see people do that all the time, or their stock portfolio. And you could still of course deduct that mortgage interest, whether it’s in the US or foreign, against said rental property. And even like the cost segregation studies and things like that, they would apply to foreign real estate as well.
Hugo: Thanks. Somebody says, “With the Foreign Tax Credit, what’s the sequence? Would you file your non-US first and then US or reverse?”
Vincenzo: Yeah, I would file the non-US first, get the full picture of the foreign taxes paid, and then file the United States after.
Hugo: Arif says, “Does a business in Puerto Rico or another US possession count as outside the US? Is it a foreign business?”
Vincenzo: Yes. Puerto Rico also has some really unique tax strategies. We talked about the 10.5% for setting up outside the US, but if you set it up in Puerto Rico, it’s actually less than that. It’s like 5%. So Puerto Rico. And then there’s also things with no capital gains in Puerto Rico. So you just need to spend at least six months out of the year in Puerto Rico. So everything sort of comes with a price or sacrifice. But Puerto Rico’s also a great tax savings jurisdiction.
Hugo: Somebody else asked, “What advantages would changing a small LLC to an S-Corp or C-Corp if you live in Switzerland have?” And they say high revenue, but low profit.
Vincenzo: I’d have to double check on how that works with the Swiss tax treaty. I think also depending on what canton you live in Switzerland, you could be paying 8%. So it’s like, is it even better just to set it up through Switzerland or in Switzerland?
Hugo: Yeah, a lot of these are case by case and you need to get some advice for your circumstances.
Vincenzo: One person asked, “Can you repeat the best states to set up residency?” And so the no-tax states are Florida, Texas, Nevada—those are sort of like the top three. Washington State’s another one.
Hugo: Hmm. Nice. You mentioned that an S-Corp is not as beneficial as a regular LLC in Portugal. Why is that?
Vincenzo: I think the way that they tax the S-Corp has to do with—it’s not considered transparent. So I think that you ultimately would pay corporate tax in Portugal on the S-Corp, something like that, I forget what it is. I think it’s also the LLC is—you pay the 15% self-employment tax under an LLC, but that’s actually a lot less than what you would pay like Portuguese equivalent. So that’s another reason why an LLC actually works better there.
Hugo: Somebody says, “Can you take the Foreign Earned Income Exclusion and Foreign Tax Credit? Or is it one or the other?”
Vincenzo: You could take both—but you can’t double dip. So for example, let’s say I make $150,000. I take the $126K Foreign Earned Income Exclusion. And then that leaves me with roughly $24,000 un-excluded income. Now, if I paid the proportionate amount of foreign tax on that $24K, yes I could get that foreign tax credit, but I couldn’t get the full credit on the full $150K ’cause I excluded most of that income.
Hugo: There’s an interesting one. There are countries with different tax years, such as the UK, Australia. I think there are quite a few of them. In terms of claiming the Foreign Tax Credit, if you’ve paid for example UK tax from April to April, how does that calculation work or how do you prove the tax you’ve paid within the calendar year to claim the Foreign Tax Credit?
Vincenzo: Yeah, there’s a couple ways to do it. If you do cash basis on the Foreign Tax Credit, then it’s literally whatever you paid in said calendar year. Or you could do accrual and then you have to sort of accrue and calculate for each year what the accrued taxes were and do it that way. So it’s always a little tricky candidly with, the UK being a shining example ’cause it’s April to April, but you have some options. You just have to look at it on a year-by-year basis. Calendar year.
Hugo: Thanks. We’re coming on to the hour, but just maybe do one or two final questions. Somebody says, “If I was gifted property in Costa Rica and it was valued at, for example, a million dollars and I sold it for $1.1 million, not having lived in it, is the capital gain $100,000?”
Vincenzo: Yeah. I mean, if you sold property in Costa Rica and you didn’t live in it, yeah, you’d be subject to capital gain.
Hugo: ‘Cause it was valued at a million, you sold it for more. So yeah, that’s the capital gain is the difference. Yeah. And I saw another one just before, just to finish off. Have you seen expats get in trouble ’cause they kept a US address on US financial accounts?
Vincenzo: No. And I think a lot of times that’s a fair point, which is that Americans, I mean, I live abroad so I understand that we face certain challenges. So having a US address or things like bank statements or brokerage—it’s okay.
What I would be cautious of is making sure that address is in a no-tax state. Because I’ve seen this all the time where somebody, they have their brokerage statements or even a tax form linked to a California address and then California says, “Oh, you’re still a California resident.” So I think that’s another preparation as far as like, hey, getting your addresses correct in a low-tax state and whatnot, getting ready to move abroad.
I’ll do two more just ’cause I see them in the chat. One is, “Are US citizens required to report physical precious metals held overseas?”
So you’re not, if the precious metals are in like a vault that you don’t control. So any sort of precious metals or even real estate that’s in your name but overseas, you don’t have to report it. Of course, the capital gains are reportable, and if it’s like jewelry, it could be considered a collectible or whatever, so it’s taxed at a higher rate. So be aware of that.
And then there was one more about gifting to non-citizen children. Yeah, you could gift to them. Of course, if it’s over $19,000, you would have to report it on the gift tax return. Yeah.
Hugo: Alright. Well thank you very much for taking the time. I appreciate it. It’s a busy time of year.
Vincenzo: You’re welcome.
Hugo: Our next session is in just under an hour, and the final session of this year’s conference is on “What is the new Residency Based Taxation proposal? How would it benefit US expats?” So quite an interesting topic by somebody involved in that. I think they’ll be joining us from Washington where they’re working on that.
So yeah. But thank you everyone for joining us. We hope to see you at the next session shortly, and thanks very much, Vincenzo.
Vincenzo: All right. Thank you.