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Do US Expats Have to Pay Taxes?

07 December 2019

All American citizens are subject to tax on all of their income and required to file in the U.S., even if you are living overseas. However, as a remote entrepreneur you have a few options available that will help you legally reduce your tax burden...

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Today we're going to talk about — do American expats have to pay taxes when they live and work abroad?

Someone recently reached out about saying "I live in Japan and I run a services business from Japan. Do I owe taxes to the U.S. on the income that I am making in Japan?”

Well, the answer is maybe


U.S. tax obligations

All American citizens are subject to tax on all of their income, and they are required to file in the U.S. — no matter what. Regardless of whether you’re based in Chicago or Tokyo.

That being said, if you are living and running a business overseas, there are certain situations where you can legally pay very little to zero taxes.

Some ways to legally lower your tax burden

First off, if you are a freelancer — a graphic artist, programmer, marketer — and you're simply offering your services online, then you will at minimum have to pay self employment tax in the United States. Self employment tax can get quite high, so it’s worth exploring some ways legally minimizing that.

The best way is typically to setup a company within the country that you're living in. So in this case, we’d suggest our community member to open their company in Japan, and then be sure make themself an employee of that entity.

Foreign earned income exclusion

The “foreign earned income exclusion” allows you to legally avoid paying income tax on up to $100,000 per year if you incorporate your business in the country you’re residing and paying local taxes there.

So if you are living and paying taxes in Japan and you are contributing to social security in that country, then you won't be double taxed in the U.S.…up to the point of $100,000. That is one extremely effective way to lower your tax burden as a remote entrepreneur.

What if you own a U.S. business?

Now, if you are living abroad but own a US business, you are still eligible for the foreign earned income exemption. However, you will have to pay into social security taxes to the U.S.

Next steps...

If you don't own a business and you're not an employee, you'll have to pay self employment tax. So, the ideal situation is to own a business in the country you're living (of which you are an employee).

The other key takeaway — be sure you are taking full advantage of the foreign earned income exclusion as that is one of the surefire methods to legally reducing your tax burden as an expat earning abroad.




Remote Ventures is an open investment platform for buying and selling fractionalized real estate all around the world. It gives everyday investors a simple way to access the global real estate market and build a truly diversified, cash flow generating portfolio.

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