The anxiety that plagues many U.S. yacht crew—that persistent, low-grade fear of a tax misstep resulting in catastrophic penalties—stems not from the complexity of the rules, but from the lack of a professional system. As the CEO of your global career, a "Business-of-One," you require an operations manual for compliance.
This framework provides that manual. By shifting from a defensive posture of uncertainty to an offensive position of control, you can navigate the Foreign Earned Income Exclusion (FEIE) with the same precision you apply on deck. It’s not about finding loopholes; it’s about professional execution.
Your entire claim to the FEIE rests on a single, powerful concept: proving your "tax home" is outside the United States. Get this right, and you have a defensible position. Get it wrong, and your entire compliance strategy crumbles. This requires a deliberate shift in mindset, moving from the conventional idea of "home" to the strategic view of a CEO establishing a foreign headquarters.
First, understand the IRS definition of a tax home: it is your principal place of business or employment, not where you maintain a personal residence. This distinction is your primary strategic advantage. Since your workplace is a globally mobile vessel, your core mission is to document that vessel—and its foreign home port—as the official headquarters of your career. If you have neither a main place of business nor a regular place you live, the IRS considers you an "itinerant," and your tax home is simply wherever you work. For a professional yachtie, this means the yacht itself is your operational base.
Your employment contract is the cornerstone of your evidence. An auditor will look for objective proof, and your SEA provides it. To make it a powerful tool in your defense, ensure it explicitly contains:
This contract transforms your presence abroad from a temporary visit into a formal, work-related assignment, directly supporting your foreign tax home.
Even without a traditional apartment lease, you must create a web of financial and personal connections that anchor your life to a foreign location. These are the small, consistent actions that demonstrate your life is genuinely centered overseas. Actionable steps include:
While you build foreign ties, you must actively and demonstrably sever domestic ones. The IRS will deny your foreign tax home if you maintain an "abode" in the United States. An abode is defined by your personal and family ties—your home, habitation, or place of dwelling. Maintaining a U.S. abode makes you ineligible for the FEIE.
This means you cannot have a house or apartment continuously available for your use, hold a U.S. driver's license with a family address, or remain registered to vote at a previous U.S. residence. This isn't just about being physically absent; it's about methodically dismantling your stateside life to prove your new headquarters—and your life—is truly abroad.
With your foreign tax home established as a solid foundation, you must shift from strategy to execution. This is where your claim is won or lost: in the disciplined, day-to-day management of your calendar. For professional yacht crew, the Physical Presence Test is the most direct path to qualifying for the FEIE. Mastering it requires you to operate with the precision of a navigator, because every single day matters.
To pass, you must be physically present in a foreign country or countries for at least 330 full days during any consecutive 12-month period. A "full day" is a strict 24-hour period from midnight to midnight.
This is the single most powerful tool in your tax toolkit. The IRS defines a "foreign country" for this test as any territory under the sovereignty of a government other than the United States. Your goal is not to prove you were in a specific country, but to prove you were outside the U.S.
Therefore, a full day spent in international waters is a qualifying foreign day. This transforms transatlantic crossings and long passages from logistical necessities into strategic assets for your FEIE claim.
Your passport stamps are historical markers, not a sufficient defense. An IRS auditor requires a contemporaneous, detailed record of your location for every day of the tax year. This log is your single most important piece of evidence. Use a simple spreadsheet or a dedicated app to track the following daily:
The rules have sharp edges. A few miscalculated days can invalidate your entire claim.
Meticulously tracking your days is how you qualify, but the process isn't complete until you file correctly and build a defense against potential scrutiny. This final step secures the financial benefit of your disciplined record-keeping.
The Physical Presence Test, which this guide focuses on, is a purely mathematical test of days outside the U.S. It's the most common and straightforward path for yacht crew. The Bona Fide Residence Test is more subjective; it requires you to prove you were a resident of a foreign country for an entire tax year. This often involves stronger ties like renting an apartment and paying local taxes, making it less suitable for transient crew but a potential option for those based long-term in a single foreign country.
You can, but it must be managed carefully. Using a U.S. mail-forwarding service for convenience is generally acceptable. Maintaining a U.S. bank account for investments or to receive payments is also common. However, these must not be your primary financial or personal hubs. If your only bank account is in the U.S., your driver's license is tied to a U.S. address you use between trips, and all your mail goes there, the IRS could argue you maintain a U.S. "abode," jeopardizing your claim. The key is that your financial center of gravity must demonstrably shift abroad.
Yes. "Foreign earned income" is determined by where you physically perform the services, not where the funds are deposited. As long as you earned your salary while working on a vessel outside the United States, it qualifies, regardless of whether your employer pays you in dollars, euros, or deposits the funds into a bank in Florida.
The 330-day requirement is absolute. If you are present in a foreign country for only 329 days in your chosen 12-month period, you fail the test for that period and cannot claim the FEIE. This is why meticulous calendar management is not just a suggestion but a critical operational requirement. A few unplanned days in a Fort Lauderdale shipyard could cost you tens of thousands of dollars in federal tax.
You’ve built a career on precision, foresight, and an unwavering commitment to professional standards. The skills required to navigate intricate maritime laws and manage complex onboard systems are the same skills required to manage your own financial headquarters.
This 3-step framework—establishing your foundational tax home, executing with a meticulous calendar, and fortifying your position with an audit-proof file—is your system for control. By applying the rigorous standards of your profession to your Business-of-One, you don’t just achieve compliance; you reclaim your focus for what truly matters—your career, your future, and the incredible journey of a life at sea.
A certified financial planner specializing in the unique challenges faced by US citizens abroad. Ben's articles provide actionable advice on everything from FBAR and FATCA compliance to retirement planning for expats.
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