Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. My name is Joshua. I am your host. Today on the show, I'm going to talk to you about the tax obligations for Americans moving abroad.

Yesterday on the show, I apologize, I wasn't super happy with it, but anyway, it's out. But yesterday on the show, I talked about changing taxes by moving abroad and how effective that can be, and I received a very thoughtful and well-written question from one of my patrons in planning for a Friday Q&A show, and I thought that I would just go ahead and do a standalone answer to it.

And so if you are an American who would like to understand the tax obligations that you would have to the United States and also to your prospective new country of residence, then this is the show for you. I'll explain it to you. Jeremy writes in and says, "Hi, Joshua.

My name is Jeremy. I've been listening to Radical Personal Finance for several years. I appreciate the wealth of quality content you have produced, and I'm happy to support the show on Patreon." Thank you, Jeremy. "I wanted to reach out, as a supporter of the show, I wanted to reach out with a question regarding the taxation of American expats," meaning expatriates, "living abroad.

I'm not sure if you accept questions this way, but I wanted to try. My wife and I are both American citizens considering moving abroad. I am a public school teacher, and she is self-employed and works from home. She owns a single-member LLC digital marketing business. If we moved, I would take a job teaching at an international school, and she would continue to run her business remotely.

However, before moving, we want to get a complete and accurate picture of what our tax liabilities will be. This is the scenario we expect. I will be teaching at an international school, and the school will withhold income taxes to the local government for me. I will make under $106,000.

My wife will be self-employed. Her business is registered in Ohio, all of her clients will be in the United States, and all income will be deposited into U.S. bank accounts. She will also make under $106,000. Based on my understanding of the foreign earned income exclusion, all U.S. citizens that qualify can exclude up to $105,900 of foreign income for 2019 from their taxes.

Once I begin teaching abroad, I expect that I will pay income tax to that country's government, but will not owe federal income tax to the United States because of the foreign earned income exclusion. No social security or medicare tax because I have a foreign employer, and no state income tax as long as I can prove my permanent residence abroad.

However, my wife's situation is less clear. Though she will be living abroad, and doing all of her work abroad, her business will be registered in the United States, and all her clients will be in the United States. Consequently, my questions are, 1. Are my assumptions about my tax liability as a teacher abroad correct?

2. Is my wife eligible for the foreign earned income exclusion? 3. Will my wife owe social security and medicare taxes on her business income? 4. Will my wife owe taxes to the state of Ohio on her business income? 5. Does my wife owe any taxes to the country where we will be living?

What is incredibly frustrating is that I have reached out to numerous tax professionals and continually get different answers. This is information we desperately need before making such a serious commitment. Since you are also an American citizen operating a business while living abroad, I hope you can provide some guidance.

If you do not know, do you happen to know anyone I could contact to get these answers? Thanks for your help. I hope you're staying sane and healthy in these crazy times. Best, Jeremy. Yes, Jeremy, I am. Let me take care of the dogs, and then I'll answer your questions.

First, I thank you for writing such an excellent and orderly question because it will allow me in answering your question to lay out basically all of the components of what taxation is like for Americans who are living abroad. Let's begin with the first piece of data that you shared, that my wife and I are both American citizens considering moving abroad.

It is very important that Americans pay close attention to what I say, but people who are not Americans can basically ignore this show, with the exception of your abstract interest in American taxation, because the answer is extraordinarily different for Americans as compared to any other nationality on earth due to the unique system of citizenship-based taxation in the United States.

The first thing is, both you and your wife are considered to be U.S. persons for American taxes, and as U.S. persons, that means that the IRS considers that you owe the IRS income taxes on your worldwide income. Now there are basically three categories, three broad categories of people who qualify, who get taxed by the IRS.

Number one is American citizens. Any American citizen, be it intentional American citizen, be it native-born American citizen, be it naturalized American citizen, any American citizen owes tax to the IRS on their worldwide income. Number two is any holder of a U.S. permanent residency visa. So anybody who has the ability to live and work in the United States, who's a permanent resident, who's a green card holder, to the extent that their green card is valid, the United States considers them to be a U.S.

person. This is important. Say, for example, you come from Mexico and you go to the United States, you get a green card and then you move back to Mexico. Your tax obligations to the U.S. government do not end when you physically leave the United States. Your tax obligations only end when you surrender your green card.

The third category of person who owes taxes to the IRS is somebody who spends a substantial amount of time in the United States, somebody who qualifies under what's called the substantial presence test. You can look up the details of that substantial presence test, but basically if you wind up spending more than four months a year in the United States, you'll wind up owing the United States tax money based upon your substantial presence inside of the United States.

It is important to note that the IRS does not look to the immigration system as its definition of whether or not somebody is a resident. You can fully follow all of the relevant immigration laws and find yourself being a taxpayer, owing taxes to the United States, or you can ignore the immigration laws and still find yourself owing taxes.

You're not connected. So you have to, if you satisfy the substantial presence test, even if you're just a visitor visa, you may still wind up owing taxes to the U.S. government. In your case, your system is simple though because both you and your wife are American citizens and for as long as you are American citizens, you will owe the U.S.

government taxes on your worldwide income, anywhere it's earned in the world, subject to three basic exceptions. One, the foreign earned income exclusion, which is the bulk of our conversation here. Number two, the foreign housing deduction or foreign housing exclusion. And number three, foreign tax credits. So let's go on with the fact pattern.

I'm a public school teacher and she is self-employed and works from home. She owns a single member LLC digital marketing business. If we moved, I would take a job teaching at an international school and she would continue to run her business remotely. So first, are my assumptions about my tax liability as a teacher abroad correct?

Yes. If you move abroad, you will have two systems of tax authorities to think about. First is the United States. The second is your country of residence. With regard to the United States, the first question is, are you going to qualify for the foreign earned income exclusion? There are two ways that you qualify for the foreign earned income exclusion.

The first way is called the strict days test, where you count the number of days that you are physically present inside of the United States. If that number is fewer than 35 days within a rolling 12 month period, you will qualify for the foreign earned income exclusion. Simple fact pattern, you leave the United States on January 1 and you do not return to the United States until December 31.

For the entire calendar year, you will qualify for the foreign earned income exclusion. If you leave on June 1 and return on the following June 1, you will get a 50% of the exclusion that can be applied to your income for the tax year, but you don't have to be gone for the calendar year.

That's the basic point I'm trying to make. So that's called the strict days test that gives you up to 35 days inside the United States. And when you fill out that form, you just simply say, here's the number of days that I have been present inside the United States.

If it is less than 35, then you will qualify for the foreign earned income exclusion. The foreign earned income exclusion will allow you to not owe federal income tax on your first $106,000 of income. That number changes each year based upon an inflation adjustment. So it's usually about $106,000, but it will avoid your income tax on the first $106,000 of your earned income.

It will not save you money on capital gains taxes. It will not save you money on unearned income, but on your earned income, that will eliminate your tax liability to the United States on your first $106,000 of tax liability. The second way that you qualify for the foreign earned income exclusion is based upon what's called the bona fide residency test, which means do you live somewhere else?

Genuinely, legitimately, truly, are you a bona fide resident elsewhere? If you've moved from the United States to London and you own a house in London and you have a permanent resident visa in England and/or maybe you're a British citizen and all of your center of life is there and you don't really have many connections to the United States, there's a long series of tests basically, you could prove, "Look, I'm a bona fide resident of England.

I don't live in the United States anymore." Under that circumstance, you have a little bit more flexibility with the amount of time that you spend in the United States. In theory, you could spend up to a few months a year each year in the United States and still qualify for the foreign earned income exclusion.

But then again, you still need to avoid triggering the substantial presence test. So in that situation, your assumptions about your tax liability as a teacher are correct. If you have moved abroad and you're teaching in an international school in a foreign country, your wages are earned income. And as long as you qualify for the foreign earned income exclusion, you will not owe the United States any taxes on that particular, on that first $106,000 of income.

Now what about your local taxation? Because that's the other side of it. You will owe taxes to the place that you are a tax resident. So this would vary depending on the specific country that you are working in. If you moved to England or let's use the Netherlands, right?

You moved to the Netherlands and you're working in an international school as a teacher and you're there in the Netherlands all year, then of course you'll be a tax resident of the Netherlands and you will owe taxes to the government of the Netherlands due to your working in that country.

And you will owe them both employment taxes, contributions to the social security system in the Netherlands, as well as income taxes to the Netherlands government. And your tax structure with the United States does not affect that. That's based upon your physical presence in the Netherlands. Now if you moved to a lower tax country or no income tax country, say for example you moved to Dubai and you take a job at an international school in Dubai, Dubai has no income tax.

Well in that situation you would not owe any income tax to the Dubai government because they don't have any income tax. What you would want to look up is you want to look up what is tax, what are the rules of tax residency for each country that you're looking at.

Each country has a different set of rules. Some countries are very, very tight on what it means to be a tax resident and it's very easy to trigger it. For example, a country like Switzerland has a very short period of time, I think it's something like 90 days. If you're in the country more than 90 days, there's a good chance that Switzerland is going to claim that you're a tax resident of that country.

Other countries have a much looser period of time. Some countries may still have the old standard of if you're in the country fewer than six months then you don't owe any income taxes. And so in those countries it might be possible. Let's just pretend, what country should I use?

I guess we could use a country like Australia. Australia has a three-part test to qualify for whether you're a tax resident. The first part is the resides test where you actually reside, where is your physical presence, what's your intention and purpose, where is your family located, where do you have ties, where are your assets, what are your living arrangements.

The second is the domicile test and then the third is 183-day test. And so the six-month test, basically the 183-day test is the third test. If you satisfy either of the first two then they'll qualify you as a tax resident. But if you didn't do those things and you were in the country fewer than 183 days, then in theory maybe you wouldn't actually become an Australian tax resident for tax purposes.

So as an American, let's say that you went to Australia and you were going to be teaching at a school but you didn't actually take up residence there. You just rented a temporary Airbnb apartment and you were only there during the time when school is in session, which would be less than 183 days perhaps.

And you taught and then you left. Well, in theory something like that might qualify you as not being a tax resident if all of your stuff were elsewhere. And so you want to think about where you actually are. Now I understand that you're probably not a weirdo. You're going to move somewhere, live there genuinely.

But you do want to pay attention to what you're actually paying, where you actually are. So your tax obligations to that foreign government are going to be exactly that way. Now let's talk about your wife. Is your wife eligible for the foreign earned income exclusion? Well the answer is if she qualifies for the results.

But there is nothing in the, if she passes the test for the foreign earned income exclusion, yes, she will be eligible for it. There's nothing in the foreign earned income exclusion that applies to where her business is located or where she sells to. It's all about where she is physically located.

Now what's probably tripping you up is when you read the foreign earned income exclusion, the first thing is, let's see, it's called the tax home test, right? Which is basically where's your tax home. And you say, well, what does that mean? That in my understanding is just basically where do you do the work from, right?

So my tax home is my bedroom. That's my tax home. It's not a matter of where my customers are. You're listening to me in the United States right now. That doesn't matter for the foreign earned income exclusion. What matters is where am I actually working? And the tax home test is much more of a factor for people who are offshore workers, sometimes military contractors, et cetera.

But in your situation, you don't need to worry about that. So the physical location of her business is irrelevant. The fact that she does her business in the United States as a single member LLC doesn't matter. The fact that all of her customers in the United States doesn't matter.

There's no obligation to her there. The foreign earned income exclusion covers her based upon where she is. So if she satisfies the tests, the tax home test, which is easy, and then either the strict days test or the bona fide residency test, she will qualify for the foreign earned income exclusion.

And her qualification for the foreign earned income exclusion will exempt the first $106,000 of her income from federal income taxes. And it's 106 for you. It's 106 for her. So given the constraints that you laid out in your case where you said both of you will be earning less than $106,000, if you go abroad, you move abroad, and you're outside of the United States for at least 330 days per year, then you will both qualify and not owe any federal income taxes on your first $212,000 of income split between the two of you.

Now the next question, will my wife owe Social Security and Medicare taxes on her business income? The answer is it depends. It depends on how she's structured. So as things stand currently, she is working as a single member LLC in the United States. And so if she simply moves abroad, she's still going to be working for her single member LLC in the United States and owning that.

And so yes, in that situation, she will owe employment taxes based upon how she has that structured. If the single member LLC is electing to be taxed as a sole proprietorship, then she will owe self-employment taxes. If the single member LLC is electing to be taxed as an S corporation, then she'll owe employment taxes on her salary.

Nothing will change there because she's working for an American company. Now if she doesn't want to owe those employment taxes, what you could do is you could arrange for her to move her company offshore. And the simple solution here, since she already owns a single member LLC, would be for her to keep everything as it is, but simply to transfer the member interests of her single member LLC from her ownership to the ownership of a foreign corporation.

And if she does that, then she will be able to eliminate her employment tax obligations to the United States. And here's why. From the perspective of her customers, nothing will change. With a single member LLC, nothing will change. All of her bank accounts will still be there. All of her, she can run her PayPal or her Stripe account.

She can sell everything. Nothing will change. She can maintain her US-based address. Everything is exactly like a US front-facing company. And nothing has to change with regard to any of the infrastructure of her business. But if she sells or otherwise transfers her single member LLC member units from her to a foreign corporation that she owns, what will happen is the IRS will ignore the existence of the single member LLC for tax purposes.

It becomes basically a transparent entity. And the IRS will look up one level and say, "Who owns the single member LLC?" The single member LLC is a disregarded entity for tax purposes. And so she can establish an offshore corporation. She can transfer the member units of the LLC to the offshore corporation.

And now the IRS will view her as being the employee of an offshore corporation. And as an employee of an offshore corporation who qualifies for the foreign earned income exclusion, now she will not currently owe any kind of employment taxes to the IRS because she no longer works for a US-based company.

The analog for you is very simple. In the same way that you moved outside of the United States and you moved to a foreign country and you now start working for a foreign company, you no longer have to pay US-based employment taxes because you now have to pay local employment taxes.

Make sense? So the same thing applies to her. If she moves outside of the United States and she no longer works for a US-based company because of the fact that she now works for this offshore company, she will no longer owe United States employment taxes, but she may now owe offshore employment taxes.

And the answer as to whether she does or doesn't is going to depend on the jurisdiction in which you move. Again, what are the laws of that local place? What are the laws in that local area? If the local jurisdiction allows her to work online and not legally owe any local employment taxes because they don't have a system of employment taxes or because an online business working in some other jurisdiction qualifies in a third place, then she could legally eliminate that obligation.

However, if she moves to a place where they require contributions to the local social insurance programs, then of course she's going to owe those contributions to the local social insurance programs. So you've got to think about where you're leaving, which is the United States, and think about where you're going to, which I don't know, but you've got to research the laws of that local area.

And then the ideal solution is you want to be thoughtful. From the tax perspective, which most people, taxes are not how they drive their life, nor should they be. You want to move to a place because you want to live there. You might consider taxes, but most of the time you just want to move there because that's where I want to live.

But to the extent that you're doing the tax planning as a primary consideration, you want to be thoughtful and strategic about the exact place that you go. Now the fact that she works online may give her a little bit more liberty with the jurisdictions that she can work in than you have.

If you are an employee and you're working in one local place, you don't have any flexibility. Because in the same way that if a Japanese citizen moved to the United States and took up a job teaching in an international school in the United States, they would have to pay Social Security and Medicare, you have exactly the same thing if you go to Japan.

But with the online business thing, there may be a little bit more flexibility, but every jurisdiction is going to be different. So you want to think through that carefully, but that's the way the law is structured. Now is it worth it for her to go ahead and do that?

Well maybe, maybe not. What I would say is the first thing is you're going to add some additional expense. She already has a single member LLC, so she's already paying the fees to maintain that entity and to run her business through that. If she establishes an offshore corporation, she will have to pay additional fees to maintain that to the country that issues that corporation.

Those fees can range from modest to quite expensive. There are various jurisdictions that you can incorporate an international business company very easily with relatively low expenses. There are other jurisdictions that are incredibly expensive. Now from her situation, what I would say is I don't see any reason why she would need to have any kind of name brand expensive corporation.

She's not trying to start something where she's going to have physical employees all over the world and it makes all the difference in the world that she's based in Hong Kong instead of Bermuda or some Caribbean island. The only person that's ever going to know that she has an offshore corporation is the IRS because she'll have to file additional tax forms for it.

But that's the only person that's ever going to know that she actually has an offshore corporation. Her clients, it'll be invisible to her clients because all the businesses, all the bank accounts, all of that stuff is run through the US based company. But it will add some additional cost to her.

It'll add some additional expense to establish that corporation. It also will add some additional expense to preparing the taxes. If you own an offshore corporation, the tax burden, the paperwork burden becomes really onerous, really genuinely onerous. And it's probably going to require you to hire a specialized offshore tax preparation expert which would be going rates, $500 a year, something like that, in that range to file the forms for her offshore corporation.

And so you have to ask yourself how much money am I actually going to be saving based upon this? If she's only going to owe a couple thousand dollars, if her income is $30,000 and she's going to owe 15% of that, it's only a few thousand dollars of actual cost, then it may not be worth the offshore thing, especially given the fact that in theory, employment taxes are somewhat refundable.

When you make contributions to the Social Security Administration, in theory, you might get some benefit from that someday. When you make contributions to the Medicare system, in theory, you might get some benefit from that someday. I don't count on that stuff much, but I'm fairly young. But I imagine it'll be there in some way.

I just think it's a giant black hole Ponzi scheme that you have to throw money into. But for someone who's older, it may be useful, right? Someone who's earning a high income and every year that they're earning $150,000 bumps out a year where they were earning $10,000 earlier in their Social Security calculation, okay, it works out and that's a decent thing to do.

The other thing that you need to think about, depending on the country that you are going to is does the country that you're going to have a totalization agreement with the IRS? The foreign earned income exclusion does not depend upon any kind of interface with another country. It doesn't depend on it.

It's just exclusively based upon are you in the United States or not. But with regard to Social Security programs, you might want to look in, you know, you do want to look into does the country that I anticipate moving to have a totalization agreement with the United States? So if you were moving to, I said earlier, the Netherlands, right?

You're going to go and teach in an international school in the Netherlands. Well, you look up the totalization agreement between the United States Social Security Administration and the Netherlands and basically instead of having to pay taxes to both systems, you can just have access to one system. And so in her case, what you need to look at is, okay, if she's living in the Netherlands, if she's required to contribute to the local Dutch social insurance programs, can she receive credits for those under the Social Security tax system?

In which case, the idea of needing to work for a foreign corporation may be unnecessary. You'd have to ask the question of where do you reside and if you're self-employed, where do I pay the money, etc. And so look into the totalization agreement. And those are different. Those are bilateral agreements that have been negotiated between the United States and each of those countries and they exclusively affect your credits under the various social insurance systems.

And that can be quite helpful for you. So you need to understand that and that's dependent on the specific country that you're involved in. Now, the benefit that I've talked about for US citizens, there are a lot of disadvantages to being a US citizen. One of them, one big one is the citizenship-based taxation.

But an advantage for US citizens is because you're already considered to be a US taxpayer, if you want to, you can set up fairly easily a lifestyle where you just simply don't become a tax resident of other countries. Now that's not going to work if you are sitting in one place.

But let's say that you started an educational, instead of teaching inside a physical classroom, you took your teaching online and you started teaching your subject matter expertise to students online. And instead of choosing one country to move to, you chose a couple or three countries to move to, and you spent time in each of those three countries.

Well now, you can put yourself in a situation where yes, you are still subject to the US tax system, subject to the foreign earned income exclusion as we've talked about, but you now have a freedom from those other countries. You don't have to be a part of the Netherlands, of the Dutch social insurance program, if you're only in the Netherlands for three months, because you don't become a tax resident any more than any other visitor comes for 90 days.

And so if you both were working online and if you wanted to live that kind of flexible move around nomad lifestyle, then that can result in a superior tax structure for you that would allow you legally to live tax free if you have a business, an actual business. You can't do that as a freelancer, but if you have an actual business, that could allow you to live totally tax free on your first $106,000 for you and your first $106,000 for your wife.

Most people don't want to do that. Most of that's not going to be relevant for most people, but it is an option if to the extent that the taxes pay factor into your overall situation. Now before we go on to the other two questions that you asked, I want to make a comment on the foreign tax credit, because the foreign earned income exclusion and the foreign tax credit function separately.

They're not the same. You can qualify for the foreign tax credit without qualifying for the foreign earned income exclusion. So here would be a simple example. So you move to the Netherlands and you're in the Netherlands for eight months every year and based upon tax residency in the Netherlands, you owe the Netherlands a tax on your income.

Pretend that your wife owes the Netherlands tax on her income because she's a tax resident of the Netherlands. You're both enrolled in the local Dutch social insurance programs and you're quite happy to do that because you owe the tax. Well in this situation, you're going to be paying a higher tax rate in the Netherlands than you are in the United States, but in this situation it doesn't matter whether you qualify for the foreign earned income exclusion or not, because what you could do is you could take a foreign tax credit.

So what you would do is you would reduce your US taxes by the amount that you are paying in foreign taxes. So if you move from the United States to a higher tax jurisdiction and you wind up owing more taxes to that foreign jurisdiction, then the foreign earned income exclusion doesn't matter because you could actually zero out your tax obligation to the United States based upon the foreign tax credits, not based upon the foreign earned income exclusion.

So if your decision is a lifestyle decision, we want to live in Amsterdam, we love it here and we just want to live here, but we're going to go back to the United States for four months a year, doesn't really matter if you qualify for the foreign earned income exclusion or not because you're paying more to the Dutch government.

And so you can take a foreign tax credit of your foreign taxes paid and since those foreign taxes will be higher than the United States taxes, you'll wind up with a net tax liability to the United States government of basically zero dollars. Now if you move to a lower tax jurisdiction, if you were teaching in Dubai instead of the United States, then now all of a sudden that's where that tax planning really comes into play where you've got to make sure that because you're now not paying any foreign income taxes, you can't take a foreign tax credit to the United States government.

And so now the foreign earned income exclusion is your exclusive tax savings for the US government. So it all depends on what jurisdiction you're going to. Question number four that you have asked, will my wife owe taxes to the state of Ohio on her business income? The answer is depends on the state of Ohio on what the state of Ohio considers to be income and what they charge for you and also for a company that is a tax resident of that state.

And so you've got to do the research for you and also for the business. So the first thing is you look up, go to duckduckgo.com and search Ohio tax residency and you'll pull up the page for your state and it'll tell you what Ohio considers to be tax residency for an individual.

These tax residency requirements vary across the states. I don't know what they are for Ohio, easy for you to find it out. But usually many of them, if you qualify for the foreign earned income exclusion, many states will use that as a tax residency test or they might have some other test.

And so if you're physically not present in that state, generally it's easy enough for you to avoid the taxes and most states are going to be fine that way. What I'd recommend to you is if your state will easily allow you to not be a resident of that state for you for personal income taxes because you are abroad and if you're going to be abroad, then it'll be easiest for you just to keep your infrastructure set up in that state.

You already have your Ohio driver's licenses, you have an Ohio address, maybe move your address from your house to your mom's house so that she can collect the mail for you. You update, use that address on your driver's license, move your credit cards there, etc. But you can just keep all your infrastructure in that state.

The reason why you might want to do that is because it'll keep some of your other financial planning documents more in order. So for example, your will, you might have a will that was subject to the state laws of Ohio. Well, that's your will that's enforced because your domicile is in Ohio.

If you're moving abroad for a couple of years, you wouldn't want to move your domicile to another state and then put in force a will that's enforced under the laws of another state. So keep your state if you can easily enough avoid tax residency in your state for you.

However, what about for your, what about for your, well, what if they don't allow that? What if the tax residency laws in your state are really onerous, right? You live in California or New York and they're just totally, they're going to get you even if you don't qualify. Sorry, Californians and New Yorkers, just my mouth gets ahead of me sometimes.

But it is true, super aggressive states. Well, in that situation, move to another state. So you would move to a no income tax state would be the simplest and most obvious solution. You know, South Dakota would be good. Texas would be good. Florida would be good. Wyoming would work.

Just move to a Nevada, other no income tax states. The easy ones, if you're going to be truly abroad, you'll find that South Dakota and Texas and Florida work really well for you because they allow nomad residency in those states. But move yourself and all your stuff to one of those states.

And if you do that, then you can properly move out of the state of high taxes. And you want to do that before you go abroad. Now what about the business? Well, again, check the laws of business residency in the state. If the business is being taxed at the entity level, then yes, if the business is located in that state, then it's going to be taxed.

And so the same thing applies. Find out what tax residency qualifies for in your state based upon the business being there and how the state imposes taxes on that. And then move your business to a no income tax state. So you can move your business from a state like from Ohio to Nevada or to Wyoming and just simply move your LLC outside of the state of Ohio to one of those states.

And then you would avoid needing to owe taxes to that state in which the LLC is there. Now for a digital business, if she's a digital marketing consultant, that probably should have been done probably in the first place. If you have a business that has physical property in a certain state, then you almost always need, it's almost always easier to register that business in your actual state of residence.

Because when you go to register, you know, you've got a pool company. When you go to register your vans with a local DMV, they're going to pull up the local state corporate filings and say, "Are you registered in our state?" And you've got to be registered in the state in which you do business.

But with something like a marketing consulting business or a digital business, it should be fairly easy for her to just use one of those other business friendly states that don't impose taxes in the first place. And so that's what I would do from the very beginning is make sure that her business income is being earned in a state that doesn't charge taxes at the business level.

And so she might need to move, if Ohio is unfriendly to that, she might need to move her Ohio single member LLC to a single member LLC from another state. Number five, does my wife, so that's the answer to number four, would my wife owe taxes in the state of Ohio on her business income?

Number five, does my wife owe any taxes to the country where we will be living? Answer is, it depends on the laws of that country. For most countries, the vast majority of countries, the answer is yes. If you move to that country and you live in that country, you're going to owe taxes to that country because most countries are going to impose income taxes on you.

Now there are a few exceptions to that and your wife may or may not qualify to one of those exceptions based upon where she's earning her income. So if you move to Canada, you're not going to qualify because Canada has a very similar tax system to the United States, except it's residency based.

You're going to owe taxes on your worldwide income. And so her offshore company is not going to save her any money in Canada. In fact, it could make everything more complicated. However, if you move to a country that has a territorial system of taxation, either no taxes due, the Bahamas, Dubai, Cayman Islands, et cetera, or you move to a country that has a territorial tax system, then it should be much more doable for you to establish the ability for her income to be earned offshore.

So the big premier territorial tax jurisdictions would be places like Hong Kong, Singapore, close to the United States would be Panama, Costa Rica, Nicaragua, what else? There's Malaysia, there's a bunch of them. There's Paraguay sometimes, Uruguay, you could set up a zero tax residency in Uruguay if you don't sell to Uruguay.

And so there'd be a number of different ways that depending on the country that you're going to where you can set it up. And so let's say that she has her company in a foreign country and let's say you move to Singapore, right? But she runs her business through a Panama IBC.

Well, in that situation, because her income is being earned outside of the jurisdiction of Singapore, she wouldn't owe the Singapore government any taxes on her income because she's not earning any income in Singapore. You would because you're earning income in Singapore, but she would not. And there are bunches, about 25 territorial tax countries in the world that you could consider that have those kinds of laws.

I think that's the most just system of income taxation. So I think those are good signs of a good place to go, but that's the answer. So I think I've answered all your questions. They are complex though. And the reason why you're getting a lot of different answers on this stuff is because it's extraordinarily complex.

You've got to deal with basically four different sets of tax codes. You have to deal with income taxes and employment taxes in the United States. And then you have to deal with income taxes and employment taxes in the country, in your destination country. And those are all very intertwined and it's very unusual that you would find somebody who is competent in all of those things.

I'm not even competent because there's so many countries in the world. So I'm giving you broad brush advice. But what you would want to do is you would want to get advice from the US perspective, which I've just given to you, and then you would want to get advice in your local perspective.

And so you'll need to speak to somebody locally because the Irish laws are going to be very different than the Dubai laws. It would be very different than the Panama City laws. And so you do need that local expertise, but that's why you're getting a bunch of different answers.

The most important thing that you're going to need to home in on is what country you're actually going to be working in because that's going to make all the difference in the world in terms of what tax treaties does that country have. So if you were a Brit, right, and you come to me and I'm doing tax planning, well, what you do, the first thing you do is sit down and say, "What are the tax treaties that each country has?" And so this makes all the difference in the world with where you go.

For US citizens, it doesn't. And that's why I'm zooming in on, and I made very clear that this structure was very different. But because for US citizens, it doesn't matter where you go. And for US citizens, you can live totally tax-free if you're willing to move around and not become a tax resident of another place.

But that's very different than if you for other people. And so what would happen is depending on the country you go to, that's going to drive the exact taxes that you're exposed to. You could move to, I mean, there's so many little tax havens that you could do. I can't give more examples, otherwise I'd just go too far off.

But it matters where you go to. So let's say that you say, "Okay, I'm going to move to Portugal, and we're going to become non-habitual residents for Portugal. And I'm going to teach in a local school, but she's going to maintain a non-habitual resident scheme so that she can enjoy the tax exemption in Portugal." Great.

That can work out really well. In which case, everything is simpler, though. But it's because of the wrinkles within the Portuguese system. It's a really good option right now for many people around the world who want a chance to live in Europe and who don't, again, for non-Americans or if you're trying to create a tax-efficient thing locally.

If you want to live in Europe, but you want to live in Europe tax-efficiently, applying for the Portugal Golden Visa program and becoming a non-habitual tax resident gives you access to the European Union, gives you the ability to live there, and you can eliminate your taxes or keep them very low, depending on the deal that you set up, for 10 years.

And that's really powerful. But that's a unique thing to Portugal that Spain does not offer. So clarify the country you're going to and then research that country's taxes. And then part of your research will then have to go to what tax treaties does that country have. At the end of the day, what I would say is don't make your decision based exclusively on taxes.

I think, you know, I'm a nerd about taxes. It's important to me. I see the value of saving money on taxes. At the end of the day, though, if saving money on taxes causes you to try to have to live somewhere where you don't want to live or causes you to try to have to do something that you don't want to do or live a lifestyle that you don't want to live, then it just doesn't seem worth it.

It doesn't seem worth it. Now as a balancing factor, let's say you're trying to choose between do I want to live in Moscow or do I want to live in London? And I can live in Russia and I can pay 10 or maybe 13% on my income. Or if I live in London, I'm not going to be a non-domiciled.

I'm going to, you know, oh, 50%. All of a sudden now Moscow is looking a little bit better. You know, Russia is a very, very reasonable low tax place. And you know, I want to live in the culture. But it can't be just the only thing. If you don't want to live in Russia and you're just moving there for income taxes, it's not going to work.

But if you want to live in Russia because you like the culture and you enjoy, you know, the city and you enjoy everything about it and the taxes is one, you know, cherry on top, then I think it makes sense. I just don't think it makes sense to start with tax planning as your primary solution.

Most people who leave the United States don't leave for the purpose of tax savings. Most people leave the United States move to higher tax jurisdictions, right? They move to Canada. They move to Mexico. They move to the UK. They move to Australia. All of those jurisdictions are higher tax jurisdictions in the United States.

Very few people live in the Bahamas full time just because they can do it with no tax. Now that varies depending on the amount of income that you're earning. If you're making, you know, I remember a year or so ago there was a guy who called into the show who had been living in the Cayman Islands.

I think he was making half a million, $700,000 a year, something like that. Well, the US taxpayer is paying a couple hundred thousand dollars per year of taxes to the United States and for what? For what benefit, right? So he can hold a blue passport, didn't go back to the United States, lives in the Cayman Islands.

In that situation, it's stupid. I think it's silly. Stupid was too strong. In that situation, it's silly. Why should you pay the United States $250,000 a year of taxes when you could just simply go and buy yourself a, you know, a citizenship with any of the Caribbean citizenship by investment programs, Dominica or St.

Kitts or Granada or St. Lucia, any of them, right? Buy yourself a citizenship from any of those for $100,000 to $200,000 and renounce your US citizenship. And now every year going forward, all of your income is now income tax free from the benefit of living in the Cayman Islands.

Because if you are a, you know, a Dominican living in the Cayman Islands earning $700,000 a year, the full $700,000 is going right in your pocket instead of siphoning off $250,000 to go to the US government. In that kind of situation, it makes a lot more sense to think carefully about tax planning because the numbers are big.

But if you're earning $50,000 as a teacher, as a classroom teacher, the tax obligation of $50,000 as far as income taxes is not so substantial that it's going to be life-changing for you. And so in that situation, I think you go, "Where do I want to go?" And so hopefully that gives a little texture to the advice, but I think it's a great question.

Hopefully my answer helps you. And I would say good luck. Hope you enjoy it. Thank you all for listening to the show. If you'd like more information, remember I have a course on a lot of, which is based on international relocation called How to Survive and Thrive During the Coming Economic Crisis.

You can find that at radicalpersonalfinance.com/store. Check that out there, radicalpersonalfinance.com/store.