As I prepare to embark on my Latin America adventure, one of the major financial advantages I plan to leverage is the Foreign Earned Income Exclusion (FEIE). This tax benefit, combined with establishing residency in a tax-friendly state like South Dakota, will allow me to legally minimize my tax burden while maintaining financial freedom and flexibility. Here’s how I’m structuring my tax strategy.

Understanding the Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) is a U.S. tax provision that allows Americans living abroad to exclude a portion of their earned income from federal taxes. In 2025, the exclusion amount is $130,000 per individual. This means that if I qualify, I can exclude up to $130,000 of my earned income from U.S. taxation, significantly reducing my tax liability.

How to Qualify for FEIE

To take advantage of this tax benefit, I must meet one of two tests:

1. Physical Presence Test – Requires spending at least 330 full days in a foreign country within a 12-month period.

2. Bona Fide Residence Test – Requires establishing a permanent residence in a foreign country and demonstrating long-term ties.

Since I plan to travel full-time through Latin America, the Physical Presence Test is the most practical option for me. This means that in order to qualify for the exclusion, I need to carefully track my time outside of the U.S. to ensure that I meet the 330-day foreign stay requirement.

Eliminating State Income Tax: South Dakota Residency

In addition to reducing my federal tax liability, I also want to eliminate state income tax. The best way to do this is to establish residency in a state that does not impose state income tax. I have chosen South Dakota for this purpose.

Why South Dakota?

– No State Income Tax – South Dakota does not tax earned income.

– Easy Residency Requirements – Establishing residency in South Dakota requires just one overnight stay, a mailing address (from a mail forwarding service), and a visit to the DMV.

– No Vehicle Inspections – Unlike some states, South Dakota does not require vehicle inspections or emissions tests, making it easy to maintain my vehicle registration.

– Simple Vehicle Registration – The state allows non-residents to register vehicles remotely without requiring annual visits.

My Step-by-Step Plan

1. Establishing South Dakota Residency

To become a South Dakota resident for tax purposes, I will:

1. Stay in South Dakota for at least 24 hours at a hotel (a requirement for DMV residency proof).

2. Sign up for a South Dakota mail forwarding service, which will provide me with a legal mailing address.

3. Update my driver’s license at a South Dakota DMV using my new address.

4. Register my vehicle in South Dakota, taking advantage of its easy renewal process.

Once I complete these steps, I will officially be a South Dakota resident, meaning I won’t have to pay state income tax anywhere in the U.S..

2. Meeting FEIE Requirements

– I will ensure that I stay outside the U.S. for at least 330 days in a 12-month period to qualify for the Physical Presence Test.

– I will track my travel days carefully, using apps and documentation to prove my foreign presence.

– I will keep my business fully remote so that my income qualifies for FEIE.

3. Managing My Business & Taxes

– My business is already structured to allow me to work from anywhere, so I can continue earning income while traveling.

– Since my earnings will exceed the FEIE threshold of $130,000, I will only owe federal tax on income above this amount.

– I will also deduct eligible business expenses to further reduce my taxable income.

The Financial Impact: Massive Tax Savings

By combining the Foreign Earned Income Exclusion with South Dakota residency, I will:

• Exclude $130,000 from federal taxes  

• Eliminate state income tax completely  

• Reduce my tax burden to only what’s owed on income above the FEIE limit  

• Have a simple and hassle-free residency and vehicle registration process  

This tax strategy will allow me to keep more of my income, fund my travel and adventures, and continue growing my financial security without the burden of unnecessary taxes.

Final Thoughts: Financial Freedom While Traveling

My Latin America journey is not just about adventure; it’s about designing a life of freedom—personally, professionally, and financially. By utilizing the Foreign Earned Income Exclusion and establishing South Dakota residency, I can live tax-efficiently, maintain my business remotely, and enjoy my travels without financial stress.

For anyone considering a nomadic lifestyle, understanding tax strategies like these is essential. With the right planning, it’s possible to maximize income, minimize taxes, and live life on your own terms—which is exactly what I plan to do.