How to Save Tax When Traveling Long Term
When most people think about traveling and tax, the first thing that comes to mind is whether they need to declare any income they earn while on their trip. The answer to this question depends on several factors, including how long you are staying away and what type of work you are doing. If you need to continue filing tax returns while traveling, there is a way to reduce this charge.
Do you need to file a tax return while traveling from the United States or living abroad? So long as you retain an American address, the answer is generally yes. However, you may be able to take advantage of the Foreign Earned Income Exclusion (FEIE). The FEIE allows you to exclude a certain amount of your earnings from US taxes. Generally, the maximum exclusion is a little over $100,000. This means that if you make less than this amount, you will not owe any US taxes on your earnings.
To qualify for the FEIE, you must meet one of two tests: the Physical Presence Test or the Bona Fide Residence Test. The first test requires that you be physically present in a foreign country for at least 330 days during a 12-month period. The second test is a bit more complicated and requires that you prove that you are a resident of a foreign country.
If you meet either of these tests, you can claim the FEIE on your taxes. This can be a substantial saving, especially if you are in a high tax bracket…but what if you need to file and don’t qualify for the FEIE?
South Dakota Residency
When traveling abroad, some people choose to obtain residency in a foreign country to take advantage of that country’s tax laws. However, you don’t need to do this when many states offer much better tax benefits.
One such state is South Dakota, which has no personal income tax, no corporate income tax, and no capital gains tax. So, if you are a resident of South Dakota, you can take advantage of these tax benefits regardless of where in the world you earn your money. Rather than losing your retirement or working income to taxes, you can keep more of it by having residency in a state with no income tax.
Of course, you can’t just move to South Dakota and declare yourself a resident. The state does have some requirements, but they are not difficult to meet. What’s more, you’ll find lots of services willing to assist you. With an Expat Residency for Tax, you can keep your hard-earned money and enjoy tax-free travel.
Fortunately, these services are often combined with mail forwarding. After you’re registered as a resident of South Dakota, you can have your mail sent to your representative company. Using an online portal, you can review your mail and decide which to have sent on and which to have shredded.
If all this sounds like lots of hassle, this couldn’t be further from the truth. After signing up with a mail forwarding company, you will need to spend one night in the state (even if this is in a hotel). After this, get a local driving license and you will have a residency in South Dakota. When you file taxes, this will be your address (and you won’t have to pay any income tax).
Of course, there are a few more things to consider when changing your residency. These include getting new car insurance and registering to vote (if you want to). But, overall, it is a relatively easy process. And, once you have your residency, you can travel the world without having to worry about paying income tax.