Comment by telchior
2 days ago
Minor correction, expat income is deductible up to (currently) $130k under the FEIE. After that it's taxes as usual. There's also an array of other mandatory forms like FBAR for foreign accounts, and the nightmare that is form 5471, with absolutely wild allowances for the IRS to impose penalties, often with no statute of limitations and per-violation fines. For example, a US citizen with multiple bank accounts and a mistake in FBAR reporting for multiple years running will be liable for the (iirc) $10,000 fine for each bank account, and each year (e.g. 4 accounts, 8 years, $320,000 fine).
Living and doing business overseas is as a US citizen is a high risk endeavor.
FEIE is only one of the options for avoiding federal income tax. The other is the Foreign Tax Credit, which has no such limit: https://www.irs.gov/pub/irs-pdf/f1116.pdf. If the place an American lives and works has a higher income tax rate than the US one, in practice he will not face any tax liability, regardless of income level.