How we avoided our taxes - legally!

We just completed our tax return.  We are scheduled to receive a 100% tax refund.  Here’s how it worked for us.

Andy spent a lot of time reading the statutes and regulations surrounding the foreign earned income tax exclusion in 2017.  Of course, he has made a career out of reviewing, understanding, interpreting, and reporting to government statutes and regulations.  So this wasn’t greek to him.  As he explained it to me, if a US citizen lives outside of the country for a predetermined number of days during the calendar (tax) year, that citizen is eligible for an exclusion of 100% of taxes paid for the year.  Even if the company paying you is a US company?  Even if you are being paid into a US bank account by your US employer?  Even if my business still resides in the US and all of my contractors are there?  My questions to him just free flowed, searching for the loophole that would snare us.  But the response to each question I generated was a confident Yes.

We moved to Mexico in October 2017 so 2018 would be the first calendar year we would be able to put the exclusion to the test.  My test, would be borne out through TurboTax.  Good old TurboTax.  My tax buddy for many years past would surely assist me through this new chapter in our lives and I had every confidence that whatever the case may be we will learn the outcome one way or another once it was time to file our 2018 tax return.  So during the year, knowing the travel to US had to be restricted, Andy meticulously counted his days in the states.  We actually made several trips to see family and once visit Washington DC.  But with every trip we counted and recounted his number of days in the country.

When near the end of January arrived, I completed the checklist of all of the forms that were to be received for filing purposes including a W2, 1098, 1099, 1099 INT, and so on and a so on.  I was armed and ready to accept the consequences of what was yet to come.  When I booted up my old friend TT he went to work straightway uploading all of my info from last year with a lot of assumption that nothing had changed.  But oh, it had.  We had been living in Mexico since 2017 and sold our home in the US in 2018.  Everything was different.

Turbo Tax didn’t make it simple to find this exclusion.  We had to strip away all of the income information that we normally use from year to year.  And here’s a tip, scroll down.  Among many other types of income options down the page, you will find the Foreign Earned Income selection.  This sounds confusing to me because it seems like this is where a person would report income earned from foreign entities.   But nope.  This is where a person would enter the income received while living outside of the country.  This is where all of our income, from work, was captured.  This included his W2 and my 1099s.  Next on the process was the physical presence test.  We entered the dates for each time we traveled into the US and counted the total number of “full days” we were there.  As expected, we were within the requirements of being outside the US for a minimum of 330 days.

CONGRATULATIONS!  You qualify for the foreign earned income exclusion!  said TurboTax.  And with that, my return calculator quickly rolled and rolled to the amount of our return that was equal to all of the federal income tax we had paid throughout the year.  The hard part is over.  Now we haven’t received the actual refund yet, but I will certainly keep you posted right here.  Meanwhile, here's a look at the worksheet Form 2555.

DISCLAIMER:  I am not a cpa, or even a bookkeeper, and I am only discussing our own experience. If you need tax advice, please contact a professional tax adviser.