This is Dan reporting. I thought I would cover some of the financial aspects of our new life here in Panama. The biggest one is what’s called the Foreign Earned Income Exclusion. For those that aren’t tied to a physical location for their income, this alone is a good reason to live outside the US. There are a couple of qualifications for it, but for the most part, if you actually earn your income from home (not dividends or passive income) and you reside outside the US for 330 days out of 365, you don’t have to pay any federal (or state) income tax. That “exclusion” applies to the first $100K of income, per person. So if your spouse also has an income, that’s up to $200K of income that you can exclude federal and state taxes from. On top of that, you can also deduct your housing expenses.
Anyone suddenly thinking of visiting us to check it out further? Ha!
Honestly, if you work from home and can earn all your income from a computer no matter where you live, you can save a LOT of money by living in a country with lower expenses while at the same time, not paying taxes on most if not all of your income. You do still have to pay your FICA and Medicare…etc. Just your federal taxes are excluded and since you don’t reside in any state, there are no state taxes either. (The state one can be tricky, however, if you own a home in a state still or have any kind of presence still there. But you’ll discuss that with your CPA, obviously.)
To give you an idea of what our expenses are, compared to what they used to be, let me give you a general overview:
Housing: $1500**/$2250 (per month now/before)
**only because we live in a fairly large home. You can find stuff a LOT cheaper if your space needs are smaller.
Utilities/Garbage/Water/Gas: $300/$800 (monthly averages)
Car Insurance: $70/$250
Cell Phones: $60/$220
Internet/Cable TV: $30/$200
Car Fuel: $200/$500
Medical Insurance: $175/$900
Amazon: Less than $300/Millions
Domestic Services: $100/$300 (but we have more of it for way less)
That Amazon one, I joke, of course. But it is significant. When you simplify your life and you make it difficult and expensive to actually receive shipments from online purchases, you tend to do it less. The savings add up over time.
And if we decide to build a home, we’ll be able to do it MUCH cheaper here, as well. A good sized lot, really close to the beach, can be purchased for as little as $25K. You can buy a decent existing home within a 5 minute drive to the beach, on a fairly good sized lot for under $200K. Sometimes closer to $100K.
The expenses that really don’t go down when you move to Panama are food and dining out. I say they don’t go down, but that’s only because we haven’t tried to make it go down yet. There are things that are cheaper here, but we really haven’t tried in that area. Perhaps we will as we settle in more. Heck, we might have already, but I haven’t really tracked it up to this point.
Bottom line… we live in a beach town, in the tropics, and the US actually PAYS us to live here. Can’t beat that with a stick.
I’ve linked to a CPA firm we’ve discussed this topic with and an article they wrote on the subject.