At the 2026 US Expats Financial Conference, Brandon Olson, senior tax manager at Online Taxman, discusses tax-saving strategies for American expat entrepreneurs in 2026. Online Taxman specialises in US tax preparation and planning for Americans living abroad, helping expat business owners stay compliant while structuring their affairs to minimise their US tax liability.
The following transcript was generated by AI and may contain inaccuracies.
Hugo: Hello, everyone. Welcome to day two of the 2026 US Expats Financial Conference, sponsored by Expat Focus, Wise, Global Citizen Solutions, and Advanced AI Services. We have a fantastic schedule for you, consisting of 17 sessions over four days, covering multiple aspects of financial information for Americans living abroad, with perspectives from some of the world’s leading experts in their fields.
Today is the second day of the conference, and for our second session of the day, I’m delighted to be joined by Brandon Olson, who’ll be discussing tax optimisation strategies for American expat entrepreneurs in 2026. Brandon is a senior tax manager at Online Taxman. Having started his career at Klein, Campbell & Associates, he has been working with overseas Americans to help them become and stay compliant since 2018.
He has a master’s in accounting from Union Commonwealth University, and he holds EA, ChFC, CTFA, and PMP accreditations. Before we start, please bear in mind that the information presented is for general educational purposes only, and you should always seek your own personalised financial advice. Brandon will be answering your questions at the end, so please add them in the Q&A pop-up at the foot of your screen anytime, and we’ll try to answer them all, time permitting.
So without further ado, over to you, Brandon.
Brandon: Thanks for having me. We’ll talk about everyone’s favourite topic, which is tax-saving strategies. Maybe not paying tax themselves, but tax-saving strategies are always good. This presentation has a mix of some individual topics and some business topics, because most of the clients we work with have a business in some form — whether it’s a US-based business, a non-US-based business, or some kind of hybrid, which we’ll talk briefly about.
As a disclaimer, no tax advice here is intended to be used, as Hugo mentioned. One of the things we often encounter when we start working with clients is, “Why am I living abroad but still paying taxes in the US?” Which is unfortunate. It’s one of only two countries — the other being Eritrea, a country in Africa — where you have citizenship-based taxation, at least currently.
So these tax-saving strategies for US expats generally come in handy. Some of the more common things you’ll find — and maybe some of you are aware of — are the foreign earned income exclusion and the foreign tax credit. The foreign earned income exclusion changes from year to year. For this year, it’s $130,000, and essentially what it does is allow you to exclude—
Hugo: Sorry to interrupt — your slides aren’t changing. Are you moving them along? The slideshow.
Brandon: I was. Let’s see. How about now?
Hugo: Yeah, that’s great.
Brandon: Okay. The foreign earned income exclusion is $130,000 for this year, and essentially what it means is, broadly speaking, the first $130,000 of earned income is not taxed in the US, at least at the federal level. That depends if it’s investment income or something like that, but earned income means wages or compensation.
The foreign tax credit is probably something many of you are familiar with. It’s basically a dollar-for-dollar credit of foreign tax paid. So I’d say in 99% of cases you would never be subject to double taxation. You should be able to utilise foreign tax credits to offset taxes. In some cases that’s using taxes paid in the US to offset taxes abroad, but more commonly using the taxes paid abroad to offset US taxes.
There are some exceptions, which is why I said 99% — there are situations where you could pay double taxes. The other common thing we’ll see is the use of treaty benefits. The way the IRS and the US see things is that much of the taxation of income is dependent upon sourcing — where the income is earned, where the services are performed.
So let’s say you’re a UK resident and you’re claiming UK treaty benefits. In most cases, the US is going to say, “Okay, the UK has the right to tax this particular income.” That’s pretty much true with the majority of countries the US has a tax treaty with. For the most part, that ends up being countries in Europe, countries in North America, and then a few others — Australia, and some in Asia.
But not every country has a tax treaty, and that can lead to some interesting situations. There’s a lot you can do in addition to this, and we’ll talk about that, especially for those who have businesses in the US.
One of the things unique to the expat tax world is we’re not just dealing with taxes — we’re also dealing with FATCA, which is a banking regulation. Essentially it’s to avoid people offshoring too much money without the government knowing. So there are bank account reporting requirements at the individual level, and also for US financial institutions — they have to comply.
It can create banking issues and nightmares for clients in some situations. But it’s something we can help to navigate. It’s unique to cross-border clients. There are also local taxes and potential double taxation. Like I said, 99% of the time there won’t be federal double taxation, but depending on what state you’re a resident of or moving from — particularly California, New York, or Virginia — there can be state and city taxes.
Those can be double taxes because you might be fine at the federal level, but on the state and local level you may still be required to file and pay. In a lot of cases, we find that the standard accountants clients have are not equipped to deal with these. In some cases they’ll refer them out to us or a similar firm. In other cases they’ll work through those cases on their own — sometimes they do it well, sometimes they don’t.
There’s something to be said about making sure you’re getting the right advice in this space, because the standard accountant may not have run into these issues before. Realistically, the question of how to take advantage of tax laws and lower your tax bill is the driving factor behind pretty much what I do almost every day at this point. Coming up with different strategies that will reduce taxes, minimise taxes, help people operate their businesses effectively, and in some cases restructure their businesses to be more tax-efficient is something we do on a regular basis.
Those generally go beyond the standard foreign earned income exclusion and foreign tax credits. There are things like different retirement savings options, investments, and estate tax planning. In some cases it involves a trust or pursuing a different type of retirement savings plan — a solo 401(k), a SEP IRA, or something altogether different.
There are various investments — US and foreign real estate, different types of investments to maximise those things — and estate tax planning as well. Trusts can be really powerful, both from an asset protection perspective and in some cases for tax savings, and we’ll get into that.
One of the more high-level common areas we’ll start with when we have entrepreneurs living abroad is making sure their business is structured the right way so they can use tax-saving tools like accountable plans. We’ll talk about that. Some examples of the high-level things we may do: in one case there was a situation where a client was able to save $8,000, $10,000, $12,000 just from switching their state of residence from, say, California to Florida or Nevada before moving abroad.
Structuring a trust for asset protection and estate planning, tax-free Roth IRA conversions — we’ll talk about that, because usually a Roth IRA or IRA-to-Roth conversion results in taxes, but as an expat you have an opportunity there. In some cases, by switching filing statuses for clients, we’ve been able to get them pretty large refunds — $12,000, $15,000, $20,000, even more. In some cases that’s been retroactive.
We’ve met with clients who maybe have been paying double taxes for the past few years and shouldn’t have been. So once they find out, “Hey, I have these different options available,” in some cases these options are retroactive, and they can amend their tax returns to go back and claim a refund from the past few years. One of the bigger strategies for proactive planning is picking the right structure to save on employment taxes.
We’ll cover that today. There are a few things we’ll cover: the backdoor Roth IRA, investment loss harvesting, gift tax exclusions, and real estate. But focusing primarily on the entrepreneur side — S corp elections, accountable plans, qualified business income deductions, home offices, and what tends to be a really popular option, offshore structures.
For a high earner, Roth IRAs can be tricky. They may make too much income. There may be no standard way to contribute. But what a backdoor Roth IRA does is allow you to contribute the max amount to what we’d call an empty 401(k) or IRA — essentially something that’s just set up but isn’t holding any money from year to year.
You then convert it to a Roth IRA, and in that sense you’re only paying taxes on gains earned from the point of conversion on. So the sooner the better, because the value won’t change that much. And when you’re using the FEIE, you’d need unexcluded income for the IRA and 401(k) contribution.
Like I mentioned at the beginning, the $130,000 or so foreign earned income exclusion — if your income is $100,000 and you’re excluding all of it, then the IRA contribution isn’t allowable because you don’t have what’s considered earned income. There are some strategies for that.
One is using a sliding year for the foreign earned income exclusion, because unlike most tax provisions that apply to individuals, the FEIE doesn’t necessarily require a calendar year. It can be a sliding year. So let’s say you leave the US on March 2nd of 2026 — you could potentially use March 2nd of 2026 to March 1st of 2027 and at least get a prorated foreign earned income exclusion.
You might not get the whole $130,000, but you’ll get whatever portion of the year you are outside the US. In that situation, the tax return itself is done on the calendar year basis. So if you had income in those first couple of months that’s not excluded, you could use that to contribute to the IRA.
The next one is a common one whether you’re an expat or not: selling underperforming investments at a loss to reduce taxable income. If you have some investment losses during the year, especially if you have some gains to offset, that can be helpful. You can use any additional losses to reduce your regular income up to $3,000 per year.
One thing to be aware of is the wash sale rule. You can’t buy those same stocks within 30 days. So if you have Amazon stock and you sell it at a loss and you want to buy it back, you have to wait at least 30 days or you won’t get that benefit. Currently the wash sale rule does not apply to cryptocurrency — that’s a whole different area, but the wash sale rule doesn’t apply at this point to that.
Investment loss harvesting is something we generally look at towards the fourth quarter of each year with the clients we have. In some cases it’s, “Okay, I’m going to have a loss this year. How can I capitalise on this? Is there anything I can sell?” In some cases that involves going through the portfolio and looking at — okay, you have these losses, you have some potential gains — and making sure you use any losses to offset as much of the gain as possible.
The next thing is the gift tax exclusion. A lot of people aren’t aware that as a US citizen you can gift up to $19,000 per year to any person, and it’s not taxable to that person, and it doesn’t apply towards your lifetime exemption of $15 million. I’d note that might get reduced in the coming years, but for now it’s $15 million.
Those limits are individual, so if you’re married, each spouse has their own limit — you can double that. You could make a $38,000 gift if you elect for gift splitting with a spouse. And that’s not limited to one person — you can give multiple people that $19,000 gift, and it’s not reportable. Even if you go over that — let’s say there’s a $50,000 gift made — as long as you haven’t used up the $15 million lifetime exclusion, you’d have to file a gift tax return, but it won’t result in any tax consequences.
From a standard perspective, that’s helpful. But from a strategic perspective, when we work with clients, in a lot of cases we see them giving gifts to non-resident spouses to save on taxes, or gifting to avoid exit tax. One of the things we help with a lot is US citizens and green card holders who want to renounce and move abroad.
There is a gift tax, which could be a whole topic unto itself. But in order to avoid gift taxes, if you gift to a spouse, or to children, or in some cases to an irrevocable trust, those are not considered as part of your estate anymore and wouldn’t be subject to gift taxes. That estate and exit tax trust planning is really important.
I can think of a situation where someone had several million dollars in appreciated stock, they were renouncing, and they didn’t want to pay the gift tax — which in that case was about 23.8% of the value without selling it. So we were able to set up an irrevocable trust. They used the gift tax exclusion to gift it to that trust. While it’s slightly complicated in structure, it did help that person avoid exit tax. It’s a known strategy, and it’s viable.
The one thing I would say is that if you’re looking to renounce or exit the US, you really want to look into these options prior to doing so, because most of these things — particularly the gift tax exclusion gifting to a trust — you really need to do in the calendar year prior to renouncing or exiting the US. So that’s important.
When someone moves abroad, in some cases they sell their residence. If you’re abroad, you can still take advantage of the primary home exemption. You can exclude up to $500,000 if you’re married filing jointly, $250,000 if you’re single filing. It’s the same as it would be if you’d sold the real estate in the US, as long as it’s been your primary home for two of the last five years.
That’s actually a common question we get. In some cases, people think they have to sell their home before they move abroad. That’s not necessarily the case. As long as you’ve still met that two-of-five-year test, you can sell your home and receive that abroad. The caveat would be that depending on the country you’re in, if you’re a tax resident there, you could have taxes that are applied in your new country of residence. But that’s something we can assist with.
Inheriting property is also important, because there’s what’s considered a step-up in basis. When somebody passes away, there’s a step-up in basis to the fair market value of that property at the time of inheritance, and it reduces — in most cases, eliminates — the capital gains.
If a parent has a property worth a million dollars, and they purchased it for $100,000, when they pass away, whoever the property goes to doesn’t inherit the $100,000 basis. They’re able to use the stepped-up basis, or the fair market value on the date of death — or six months later. If it then sells for a million dollars, that’s the fair market value. So you’re able to retrieve that appreciated value tax-free.
Along with that is something called a 1031 exchange with real estate, which is a like-kind exchange. If you have a rental property and you’re looking to avoid paying capital gains on that, you can do a 1031 exchange if it’s rolling into another like-kind property — let’s say another rental property, or in some cases into what’s called a DST, a Delaware Statutory Trust. A DST is essentially a conglomerate of real estate investments you can invest in.
Rather than buying a new home or apartment complex, you can invest in a DST. These trusts are essentially investing in multiple pieces of real estate. It takes the burdens of owning real estate away, but allows you to still execute the 1031 exchange. That’s important in order to get that step-up in basis, because you could essentially have a portfolio of rental properties where you continue to do 1031 exchanges over decades, and then when you pass away, your beneficiaries receive the step-up in basis on all of it.
You defer it, defer it, defer it, and then it sort of magically disappears as you pass away and your heirs receive that property. So that can be a really viable option.
Depreciation as well. Cost segregation studies are essentially where you break down a property into its different component parts. If you have a home and you’re renting it out, you depreciate it each year, which reduces your taxable income. The standard way is to take the basis in the house and depreciate it over a few decades. But with a cost segregation study, you look at the different components — okay, this part of the house is a five-year asset, this is a ten-year asset — so you accelerate the depreciation up front, reducing taxes up front.
Bonus depreciation is similar. When you’re accelerating depreciation, especially when you pair it with something like a 1031 exchange or a trust or some other advanced planning option, you can realise significant tax savings in the current few years, and then eventually when you sell, you can defer or avoid taxes as well. Stacking some of those strategies can be really effective, and that’s something we help our clients to do.
We talked about the 1031 exchange. Another option is a short-term rental. If you have your home and you’re using it as a short-term rental, and the average stay of guests is less than eight days over the year, and you’re materially participating in that activity, the rental may not be considered passive income. If there’s a loss on it, it could be used to offset your active income, say from a W-2 or other type of compensation.
So determining whether or not you have a short-term business rental can be helpful. Airbnb is a classic example, but there are other structures that allow it as well. There’s also a real estate professional deduction where, if you spend enough time managing the real estate during the year, that can turn it into active income as well, and losses can offset other active income.
The cost segregation study comes into play again. If you’re considered a real estate professional or you have the short-term business rental, and you stack that with a cost segregation study where there are huge amounts of depreciation in the next few years, that could offset a lot of tax for you, because it could offset a lot of active income. There are nuances to that, but there are a few different ways to qualify for both of those statuses.
The biggest deduction we see for most clients who have an LLC — a single-member LLC in the US, or in some cases an LLC taxed as a partnership — is simply electing to be taxed as an S corp. The primary reason is you’re able to lower your self-employment tax, so the Social Security and Medicare portion is reduced.
The downside of the S corp is it has to be owned by a US person. A non-US resident can’t be one of the S corp owners. But generally speaking, if you have over $40,000 in profits, it starts to be a potentially attractive option. Certainly, if profits are $60,000, $80,000, $100,000, then an S corp is really a logical thing to look at.
It’s pretty easy to do. There’s a form filed with the IRS — Form 2553 — and you’re electing to treat your LLC as an S corp for tax purposes. Then you set up payroll and run payroll, and you’re still excluding that salary under the FEIE, but it’s also not subject to Social Security and Medicare taxes. So you’re able to save potentially several thousand dollars on self-employment tax alone.
When you’re moving abroad, depending on the country you’re looking at, you do have to be a bit careful, because the S corp designation is really a US-centric tax election, and it’s viewed differently in different countries. Spain, Portugal, Germany may look at the S corp a little differently. In some cases, some countries see it as a foreign corporation and then tax the business income as foreign dividends. In some cases they ignore it, and it still passes through as income.
So it’s really dependent on the country you’re moving to, and coordinating that to make sure it’s the right election. In some cases it’s not, and we’ll talk about some other options. But generally, whether the S corp election makes sense for you is one of the first things we’d look at.
To give you some numbers — let’s say there’s a situation where somebody has a single-member LLC, and they have $140,000 in net profit. By default, you’re going to pay self-employment tax on all of that. That comes out to just under $22,000. Assuming you have income tax on top of that, you’re looking at upwards of $30,000. Whereas if you simply switch to an S corp with what’s considered a reasonable salary — in this case we’ll say $60,000 — you’re saving $12,000 or $13,000 just by making this S corp election.
In many cases it’s a no-brainer. There are a couple of hassles — you have to set up payroll and file a separate tax return each year for the S corp — but that’s minimal. In our analysis, we’ll factor that in and say, “You have to pay for payroll, and here’s an additional return, but beyond that, here are the savings.” Also with the S corp you can continue to contribute to solo 401(k)s and other retirement plans, so you can really get those savings up even more.
The next thing we’ll look at for S corps is an accountable plan. What that does is allow you to reimburse an employee — including an employee-owner — for business expenses. That lowers your taxable business income and avoids income tax on those expense reimbursements.
This is something we set up often for clients. You set up the accountable plan, you establish it, you put it into motion, you define what the eligible expenses are, and then there’s a reimbursement. One of those things is health insurance, which is a big cost for most people, especially self-employed people. So the business deducts it, and it doesn’t go into the W-2 as taxable for income taxes.
The accountable plan is a powerful tool. It’s something to consider, especially if you’re already electing an S corp or you’re already thinking, “Hey, the S corp obviously would save me money.” Looking at an accountable plan at the same time makes a lot of sense, because it can compound the effects of having the S corp.
The qualified business income deduction is for pass-through businesses — an LLC, a partnership, anything pass-through. It allows up to a 20% extra bonus deduction for people who are self-employed or have a pass-through business. It’s only on certain types of income, and in a sense a lower salary can increase the qualified business income.
But the reasonable salary standard — there are a few different ways to arrive at it. For clients with a “reasonable salary,” it’s dependent on the type of work they do, the type of business they’re in, the size of their business. A reasonable salary analysis can really be effective. That’s something we offer — figuring out what salary is justified and reasonable enough for the IRS, but also results in the most tax savings, especially when you pair it with an accountable plan and the S corp, and the FEIE in particular.
If you’re trying to figure out those numbers, in some cases you want a higher salary because it’s a higher foreign earned income exclusion. It’s really finding that mix. We can run different scenarios to find out what the best mix is to come up with the lowest tax bill possible. And you generally have until December 31st to make a lot of these changes, so even late in the year it’s worth looking into.
Another thing is home office and the Augusta Rule. We have a lot of clients who, if they’re expats, work from home. In the past, home office has been a red flag for people, and a lot of clients we have are a bit wary of taking advantage of these. But if it’s done properly and it’s documented, it’s really not as high of an audit flag as people assume.
For S corp owners, if you have an accountable plan, it makes a lot of sense if your home is your business as well. There’s something called the Augusta Rule, which is essentially where your business rents your home to you for up to 14 days during the year. You’d be able to deduct it as a business expense, but also not report it as income. So it’s a way to shift that income.
You’d look at a similar property on Airbnb, or a hotel or something. It allows you to say — okay, if you had to set up a business conference or an annual shareholders’ meeting for the year, and you had to rent a space, what would be the cost of that? Let’s say it’s $10,000 for 14 days. That’s something you can deduct as a business expense and have it not be taxable to you. It’s a way to make $10,000 non-taxable fairly quickly.
This actually came into practice from the Masters Golf Tournament, where a lot of people for those two weeks out of the year will rent their homes out. So there’s a tax break, and it’s informally called the Augusta Rule because it’s tied to the Masters Golf Tournament. Many people don’t know about it, and it can really save a lot of money fairly quickly.
For people in a country where the S corp is not favourable, or who are making a lot more money — or potentially want to reduce self-employment taxes as well — we offer offshore business structures. This is a big driver for clients to come in and have consultations with us, to look at these as options.
There are a few different variants of this. In some cases it’s just setting up an offshore company — whether it’s Hong Kong, the British Virgin Islands, Belize, Dubai, or other options. You can set up an offshore company, and if that offshore company is the one paying your salary, you can avoid not only income taxes with the FEIE, but also Social Security and Medicare contributions.
In some cases the variant is establishing a US C corp holding company to own that business as well, so that there’s a preferred rate. Instead of paying the 21% corporate rate, until this year it was 10.5%. It was called GILTI, which is a silly acronym, but that was what the US called it. Now it’s the OBBA Act — it’s 12.6% rather than 21%.
That C corp and offshore holding company can give you better asset protection, and you can exclude the salary under the FEIE and avoid paying Social Security taxes on it. There are clients in these situations where their total effective tax rate, even if they’re making $300,000 or $400,000 a year, can drop to 10%, 12%, 13%. So you’re looking at significant savings compared to 37%.
There are different jurisdictions, different setups, different ways we can structure this. It’s really unique to the situation, but these options are out there, so it’s important to cover them.
Going back to the S corp example: let’s say that $140,000 in net profit. If it was a single-member LLC, the taxes are roughly $30,000. Whereas if you introduce this structure — a C corp that owns a foreign corporation — you can see the numbers there. If you set the salary at $100,000, you’re taking advantage of the FEIE, you’re not paying Social Security and Medicare tax, and you’re getting that GILTI rate deduction. Your tax drops to $10,000.
Even on that $140,000 of net profit, you’re saving $20,000 in taxes just by setting up this structure. It’s commonly accepted, it’s commonly done, so it’s not foreign to the IRS — they’re aware of it. In most of these situations, it’s really dependent on what situation you’re in. For some people the S corp makes sense. For some, just staying the LLC makes sense. For others, setting up the C corp or the offshore corporation really makes sense.
It depends on where you are in the world or what type of business you have, and what your plans are. One of the things we try to do when clients come in for consultations is obviously look at the tax consequences, because that’s their number one driver for inquiring. They don’t want to pay 37%, or with state taxes, 49% of their income in taxes.
But you also want to take into consideration investment goals, estate planning goals, lifestyle goals. A lot of those things factor in. What I’ve found to be really good for our clients is tailoring these plans, giving them the options, and tailoring those plans to whatever their goals are so they’re not stuck. Not everybody has the same goals — everybody wants to save in taxes for the most part, but not everybody has the same overall goals or situation.
Having clients come in and really know their options, and helping them work through those and pick the best option for them, is really empowering for them. It’s a core part of our business and what we do. There are obviously a lot of scenarios and questions, but we’re happy to field those as well. For now I’ll stop sharing, and if there are any questions, we can go through them.
Hugo: Thanks very much, Brandon, for that excellent presentation. To our audience, please drop any questions you have for Brandon in the Q&A window. If you scroll near the foot of your screen, it should appear. We’ll answer them on a first-come, first-served basis, so the sooner the better. Brandon, if that’s okay, we’ll jump straight in.
Brandon: Sure.
Hugo: Somebody says, “I’m American, my wife is Japanese, we live in Japan. Basically my wife cannot inherit my dollar assets. My advisor suggests creating a QDOT from which she can live off my dividends and bank interest, but she cannot touch the principal without paying 40% inheritance tax. Why are tax authorities punishing non-Americans who are married to Americans?”
Brandon: Why are they punishing them?
Hugo: Yeah, you can answer on behalf of the US government there, I think — if you have a view on that.
Brandon: I think in a lot of cases, these rules were written decades ago, before people were more mobile. I think that’s true for businesses as well. Some of the tax rules haven’t necessarily kept up with the lifestyle changes that people have. So there’s sometimes an incongruency with the way that other countries will tax it.
There are also geopolitical factors. Some countries tend to get more favourable treatment than others. Japan is one that’s actually difficult. We’re dealing with a client now that has a similar situation, and Japan was not playing nice. So we tried to examine some different structures for them. It’s unfair, but I think a lot of it is just legacy rules in place, because US people tended to stay in the US 30 or 40 years ago. So that’s how it evolved.
Hugo: Thank you. Somebody says, “For a US and UK dual citizen resident in the US for tax purposes, selling a house in London, UK — what’s my capital gains responsibility? I’m retired with virtually no income.”
Brandon: It would really depend on whether it could qualify as your primary residence in two of the past five years. If it did still qualify as primary residence, you’d still get that exclusion. It doesn’t have to be a US-based property. If not, then the max capital gains would be 20%, and there’s also a net investment income tax of 3.8%, so the max would be 23.8% — anywhere from 15% to 23.8%.
But I would look to see if there’s that exclusion. And also, potentially, if there’s not, looking at whether you could take advantage of something like a 1031 exchange. Is it a rental? Could you do the 1031 exchange? Could you somehow get a step-up in basis potentially? There are a few strategies to offset it. But I’d look first to see if it was a primary residence at some point, and then potentially use that.
Hugo: Thank you. From the UK side, there’s a capital gains tax unless it’s been your primary residence in the last two or three years, I believe. So if you had a liability there, I suppose you could claim tax credits against the US ones.
Brandon: You could. Also, there’s the stamp duty in the UK, right? Which is separate, and that goes into the basis for US purposes. So that’s added to the basis to reduce the capital gains on the US side.
Hugo: That’s interesting. And that’s paid when you purchase, right?
Brandon: Yeah.
Hugo: Interesting. So Kathy says, “Can a US person residing and working in Germany pay into an IRA of any type?”
Brandon: An IRA, yeah. If you have earned income and you’re not excluding it all under the foreign earned income exclusion, then you can contribute to an IRA. It’s a good question, because in a lot of cases people think you can’t — or maybe with the providers or banks they’re setting them up with, they may not be advised properly. But yes, you can contribute to an IRA even if you’re living and working abroad.
Hugo: Is that the case whether you claim the foreign earned income exclusion or foreign tax credit, or is there some nuance there?
Brandon: If you claim the foreign tax credit it’s easier, because it’s still all considered earned income. If you use the foreign earned income exclusion and exclude all of it, you’re essentially saying by default you don’t have any earned income, so you can’t contribute. But if you earn over that, or you’re using a foreign tax credit, that’s fine — you can still contribute.
Hugo: Thank you. So Doug says, “Can I get the slides? Are they available?” The way to get the slides is to reach out to Online Taxman at onlinetaxman.com and request them, and I’m sure they’ll be able to send them to you.
Is avoiding the self-employment tax always advantageous? No tax paid, no credit towards Social Security retirement benefits.
Brandon: That’s a good question. That’s why we ask a lot of holistic questions sometimes. Avoiding self-employment tax — while it sounds great and it can be — does come with the trade-off that you’re not contributing to Social Security and Medicare. If you haven’t maxed that out yet, or you’re worried about that not being there, then yes, that is a consideration.
In some cases it’s a situation where maybe you want to elect to still have a salary where you pay some, and have that structured so there’s still something being paid. Or, if you don’t, and you’re excluding it all and getting those tax savings, one option is to put that in a brokerage account — so the money that would essentially be going for Social Security, you’re investing yourself. Looking at that holistically is important, because you don’t want to be surprised in 20 years when you retire and find that Social Security is not there.
Hugo: Can you please elaborate on the impact of totalisation agreements on SE tax?
Brandon: A lot of countries have tax treaties with the US for income tax purposes. Totalisation agreements are for Social Security and Medicare contributions. If the US and a foreign country have a totalisation agreement — I think there are 26 of them, if I’m not mistaken — then those agreements dictate where you’d pay those contributions.
Let’s say it’s the US and Italy, or the US and France. It’s going to spell out when you pay which country into that system. If you’re paying into a foreign system, generally speaking, you obtain what’s called a certificate of coverage, and then you don’t pay into the other system. If you’re paying in France, you’d pay in France. If you’re paying in the US, you’d pay in the US.
Those totalisation agreements also allow, when you do retire, that if you don’t have enough credits in one system — let’s say you’ve worked eight years in the US, so you don’t necessarily qualify in the US for Social Security, but you’ve worked the rest of your career in the UK and qualify there — you can request that the US send those credits over to the foreign country, and they will honour those in part of their calculation.
It’s actually interesting. No money actually changes hands, but the credits are used to obtain coverage in those countries. In some cases you can end up getting Social Security or the equivalent in two different countries, if you’ve worked long enough in either, so it’s not uncommon.
Hugo: Thank you. A gift tax question: “I’m a US citizen, my wife isn’t. She has an expired green card. What are the limits on my gifts to my wife? We both live in Germany.”
Brandon: There’s unlimited gifting between US spouses. For a US spouse to a non-US spouse, it varies. I believe right now it’s $169,000 as the annual limit. So it’s a lot higher than the $19,000, but it’s still not the unlimited version.
Hugo: Thank you. Leticia asks how Spain treats S corps. That’s probably not a question for you — Spanish tax treatment — unless you have some insights.
Brandon: Spain generally will treat the S corp — from what I know, from the clients we work with — as a pass-through entity, and ignore it for tax purposes. So it doesn’t always work out too well in Spain.
Hugo: All right. Leticia, just to know, we have a session later on as part of the conference where there will be a Spanish tax pro. It was postponed from yesterday where we had technical issues, so that is later on today if you want to register for that at usexpatconference.com.
Next question: When does net investment income tax apply?
Brandon: Generally it’s going to apply when your total income is over $250,000. Once you reach that $250,000, the 3.8% net investment income tax is going to apply. That tax is interesting because it came about during the Affordable Care Act, with the Obama administration, and they never really declared whether it was Social Security or an income tax — so the IRS basically just said you can’t claim it.
You can’t claim foreign tax credits against it. There was a court case recently where the US said that if it’s paid in France, you can use it. So it’s slightly changing, but generally, over $250,000, that 3.8% net investment income tax is applied.
Hugo: Thank you. Somebody asks, “Any general strategies for an American starting a US-based remote business after moving abroad to reduce tax obligations with set-up and deductions?”
Brandon: Yeah, you have a lot of options. One — you could do the standard S corp option potentially. Another would be to set up a non-US business. Let’s say it’s a British Virgin Islands or Belize entity, or Hong Kong. They generally aren’t going to tax those businesses unless you’re performing the services there. So essentially you have a combination of an offshore entity and a US LLC, where that US LLC is owned by the offshore company.
The money goes from the US LLC to the offshore company, and then the offshore company pays your salary, so you can take advantage of the FEIE and not pay self-employment tax. There’s also, if it’s more than the FEIE, you can look at having a C corp own the offshore entity as well. You don’t necessarily have to start with the C corp — you could start with the offshore entity, and if the income warrants it, you could layer in the C corp holding company later. We do have an incorporations team that helps with those things as well. So you don’t always have to go for the biggest savings first — you can do it in layers.
Hugo: Right. Just to mention, the US entity-establishing company related to onlinetaxman.com is called [unclear — entity.com?], I believe. So have a look at that.
Don says, “We currently spend 180 days each year in Italy and don’t file Italian taxes. Should that change to more than 182 days a year, we would need to file Italian taxes as well as our worldwide income and assets. Would placing our US real estate in a revocable trust avoid needing to report it in Italy?” Again, I’m not sure — that might be an Italian tax question.
Brandon: Yeah, I’m not sure in terms of how Italy would view that or not.
Hugo: I’ve heard — and don’t quote me on this — I don’t believe that most European countries recognise the benefits of trusts, other than the UK and one or two more. So I’d be worried about that, and definitely seek advice.
Brandon: If you do live in certain parts of Italy though, they have a 7% tax regime, where all of your income is taxed at 7%. It’s an incentive to retire there. So it does depend on where you are in Italy locally.
Hugo: Oh, interesting. Another question: Can treaties between the US and other countries completely eliminate double taxation on a state and local level, in addition to FEIE and tax credits?
Brandon: On a state and local level, generally no, if you’re still considered a tax resident of that state. That’s why a lot of clients will move before they move abroad, so they obtain a residence in Florida or Texas. The easiest state to get that residency in is actually South Dakota. You can spend only one night there, and they will grant the residency, which is an interesting situation.
There are ways to plan around it so you can break the ties with the state. But if you don’t break the ties with the state, getting around those state and local taxes is pretty tough.
Hugo: And international tax treaties don’t address those, right?
Brandon: No. They’ll address it at the federal level, but most of the states still look at themselves as a separate jurisdiction for tax purposes.
Hugo: And just to clarify — the FEIE and foreign tax credits can’t alleviate state and local taxes either?
Brandon: Well, the FEIE in some states can. Some states acknowledge the FEIE. Oddly, New York is one of them. There are a lot of states that will. So if you do qualify for the FEIE at a federal level, that generally translates up to the state. There are only a couple where that doesn’t happen, so that’s actually plausible. The foreign tax credit — it would seem that it should, but it doesn’t always apply.
Hugo: So often with these situations, if your circumstances are anything but very simple, it’s worth seeking advice. Online Taxman you can reach at onlinetaxman.com. Thank you very much for all your questions. Thanks for joining us today, and thank you to Brandon.
Our next session is in just half an hour’s time, on international currency transfer considerations and strategies for expats in 2026. So if you haven’t already, you can register for that at usexpatconference.com. For now though, thank you, Brandon, and thank you to everyone for joining us, and we hope to see you soon.