Debt-Free World Travel: Make Money and Have Fun
7 Ingredients for a Vagabond Travel Plan
The New Year resolution bomb is starting to tick. We all will be taking stock, vowing to do things differently, and, since gyms will remain closed this January, we will be pledging ourselves to good causes endorsed by social media gods. But the reality is that we all want to see the world (especially now). We want financial means to do it, and we want to be excited about our future. Exhilarating, full of possibilities future, which does not equate to enormous financial debt or parental support after 30. We want freedom. Freedom that will take us from Morocco to Thailand, to New Zealand by way of Japan, and perhaps Siberian tundra just for the kicks. The world is there, waiting.
This is not another dreamy article to get your attention with catch-all’s such as “retire at 35” or “travel the world for free.” After working in public accounting for 10+ years, I have seen a kaleidoscope of professional choices, geographic combinations that make you dizzy, and financial strategies that go far beyond your typical SiFi plot. Retirement at 35, while possible, is frankly boring. What will you do with the rest of your life? Have you met many happily unemployed people or euphoric 50-year-olds at a hostel? This is not a Game of Thrones episode. We are going to live a freakishly long time. So what is the plan?
There is a variety of answers out there, we are not solving for world-peace after all, and while it is impossible to list everything in 1000 words, I wanted to share one simple story with the travel thirsty minds.
Helena A gypsy at heart is a U.S. citizen who continuously migrants within Southeast Asia, with many of her work projects in Thailand and the Philippines. She works for an international charity and a corporation headquartered in the U.S., making a total of $60,000 a year.
If Helena was living in Chicago, IL, her federal, state, and social tax contributions would eat away $14,000, leaving Helena with $46,000 cash. But since she is an itinerant and has met qualifications for foreign earned income exclusion (discussed later), her income taxes are reduced to zero, bringing her take-home earnings to $56,000 (Helena is still liable for social security and Medicare taxes on her W2s from U.S. employers).
We are looking at $10,000 in extra cash.
Because of privileges offered by US tax treaties, her earnings are not subject to tax in Thailand and the Philippines if she does not spend more than 90 days in either country. If Helena plans her travel wisely, she might avoid taxation altogether. Alternatively, she may need to pay a few $$$ in foreign income taxes.
The more you make, the more you might be able to save
The tax year 2021 allows foreign earned income exclusion of up to $108,700 per person (married couples up to $217,400). Certain housing costs also might be deductible for tax purposes in addition to income exclusion. For die-hard Paris fans — it is a high-cost location, and IRS might allow over $70,000 in housing costs to be deducted from your income. This sounds even less believable than infamous Emily’s adventures in Paris, but in this case, it is true. Emily could make close to 200K and pay virtually no income tax (she cannot stay in Paris for more than 183 days in any given year, however).
7 Ingredients for a Vagabond Travel Plan
1. U.S. Citizenship or green card. If you have either of the two, you are subject to tax on worldwide income, i.e., you declare what you make regardless of where you make it. Immigrant visa holders are subject to their own regime, which has a few perks of its own but does not allow for foreign income exclusion.
2. 330 Days. Commit to being outside of the United States for a total of 330 days during 12 consecutive months. The days do not have to be consecutive — you visit your hometown any time you like, just don’t stay too long. And, while it can be more than 330, it cannot, absolutely and unapologetically, cannot be less. Once you cross that threshold, the exclusion option is lost.
3. Keep Up the Good Work. If your current job or self-employed activity allows you to work from abroad — great! Keep doing it. If not, consider finding a position that will allow this flexibility. Anything that pays and allows you to move around works just fine. Do not be discouraged by low salaries, since you will end up making much more than the equivalent of the same income in the U.S. Important: consult an international tax expert on country combination and number of days you can safely spend in each location during the year.
4. Home Sweet Home. Show intent to remain abroad long-term, i.e., your new “home” for all intended purposes should be outside of the U.S. for more than 1 year or longer (preferably longer as some state tax agencies can get very clingy). You do not have to commit to a specific country; a vagabond or itinerant is a person whose home is where s/he works. These are strange and dark times. IRS evolved past white fenced house idea of “home,” alleluia. If you own a home in the U.S., consider selling or renting it out. If you are a tenant, your options will be laid out in the rental agreement. The important element is not to renew your lease and not to keep your home in the U.S. vacant and readily available for your use. Initiating a lease outside of U.S. might not be a feasible option if you intend to move a lot. But, if you plan to stay mainly in Europe or committing to Asia for a period of time, do take a look at rental options.
5. Family. If you are married and/or have children, they are better to accompany you. It would be strange to claim that you are a yoga instructor with a tax home in Bali while your husband and child are in Oklahoma.
6. Other People and Things. It might be a good idea to join a club or an organization and get involved with local communities on a general level. Why? It is fun, and you will get to know people. You will also demonstrate ties to that country or the fact that said ties are not in the U.S. Invest in a decent international cell phone plan — stay connected and save the bills. Try to obtain an international driver's license — 174 countries participate in that program, and it is super easy to register. The same goes for the bank account.
7. Have Fun and File Your Taxes. Live your life to the fullest and count your days of presence in the critical locations. File your tax return with a reputable CPA who can make accurate foreign income and /or housing exclusion claims for you. Send a few postcards, fall in love, write a book.
Before the pandemic, it was challenging to maintain U.S. employment while being abroad for so long, unless you are a high-level executive. The motherland called upon us to return. The mandatory office meetings yanked us away from Sagrada Familia, Louvre, and that shady spot on the beach. Now that remote work arrangement has finally become a norm. It is an actual possibility for many. Think about it.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate for or applicable to specific circumstances. Consult a Certified Public Accountant before making any major financial decisions.