Not many American taxpayers know about the Department of
Treasury's Form 2555, and even less fully appreciate the tax-free living which
this Form can offer.
Form 2555 has to do with Foreign Earned Income. And the
reason this Form is tied to retirement is as this is one of the ways the
wealthy has continued to officially avoid taxes, year after year. Is this tax
avoidance mythology, ethical? Before you can answer that inquiry, you would require
to fully understanding the loophole.
There are hundreds of thousands of Americans living aboard
and earning a living from a foreign government or basis. This article isn't
really about them. This group files taxes just like all other taxpayers, except
for one difference. They attach Form 2555 to Form 1040 and request and exclusion
in the amount of $95,100 for 2012 or $97,600 for 2013. (The exclusion increases
each year based on inflation)
Exclusion means, if granted by the Internal Revenue Service,
this amount is "excluded" from being taxed.
No big deal if you are working a job outside the United
States. No big deal when you retire and work a job in a foreign country.
Excluding the income from your part-time job or full-time job in a foreign
country can go a long ways in lowering your tax legal responsibility each year.
But when you couple the Foreign Earned Income tax loophole with an offshore
company, while living in the United States, or offshore, your tax picture can
change noticeably, based on existing tax laws.
Understanding the two-step procedure of allowing your
company to generate income, offshore, keeping the profits offshore, until you
are ready to be taxed on the income, and using the Foreign Earned Income
Exclusion to avoid being taxed on $97,600 a year, or $195,200 if married and
filing jointly, your tax portfolio benefits to a great extent.
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