How Not to Pay Taxes: Four Legal Ways to Not Pay US Income Tax

Move outside of the United States

One of the fastest and easiest ways for tax deduction is to live outside the United States the vast majority of the time.

This is called the Physical Presence test of the Foreign Earned Income Exclusion(FEIE). This test has been well covered, and it’s a very common tax strategy for most expats.

Establish a Residence Somewhere else

Obviously, one of the things I always tell people to do is to get a second residency. It makes sense on so many levels and for so many purposes.

Reducing your US income tax is one of these purposes. However, there are only certain types of residencies that qualify (although that’s an entirely different subject). In general, I don’t think this is a great idea. This is for people who want to spend more time in the US and can actually establish residence outside the United States.

Move to one of the US territories

Another legal strategy that is widely talked about is moving to a US territory like Puerto Rico. Of course, Puerto Rico is bankrupt and, personally, I don’t really trust them.

Renounce your citizenship

For some people, renouncing US citizenship doesn’t make a lot of financial sense, even with the tax savings. If you renounce, you will have to pay an exit tax on all unrealized capital gains, from your business (which can be hard to value) to real estate to Bitcoins.

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