Advising Potential Expatriate Clients: A Case Study

McCallum, Brent; Olson, Dennis
November 2004
Journal of Financial Planning;Nov2004, Vol. 17 Issue 11, p72
Academic Journal
• Millions of Americans work abroad, and the number is expected to grow. Planners need to be aware of the financial benefits of expatriates working in low-tax countries--and even in higher-tax nations: good compensation and benefit packages, long-term wealth-building opportunities, and enhanced career path, among others. • To illustrate the benefits and costs, the article focuses on a single low-tax nation--the United Arab Emirates, where the authors live. • Clients need to realistically assess their ability to adapt to a foreign environment by taking one of the tests that measure the likelihood of success working abroad. The client also should carefully assess the employer's attitude toward overseas assignments--is it valued and rewarded, or is there an attitude of "burned bridges"? • Federal tax savings working abroad can be significant. The first $80,000 of foreign-earned income is excluded from U.S. tax. In the case of working spouses, excluded earnings can total $160,000. It can pay to transfer taxable employee benefits to whichever spouse is below the $80,000 threshold. The taxpayer also receives a tax credit for each dollar in foreign taxes paid on earned income. • Working abroad typically eliminates numerous American taxes such as property, sales, excise, and licenses. Other expense savings typically include housing, utility, and transportation. The article shows representative potential savings for different client incomes. • Financial costs for expatriation include settling affairs in the United States such as selling one's home and return visits. • The article also addresses the physical risks of living abroad.


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