Do I have to pay taxes? I live in El Salvador, I've never had salary in the United States.

Hello *******! My name is Dolan and I'm here to help! Are you a U.S. resident at all that just lives abroad? When was your divorce finalized?

Ok thanks! Just a few more questions. Do you know if this money has generated any interest at all? Also, you didn't earn any of this money through working, correct? It was all purely a part of the setltment?

*settlement (I promise I can spell!)

Ok! Did you need to tell me anything else? If not, I can start with answering your question.

I didn't want you to have to wait on this because I imagine you're super busy. The short answer? YOU DO NOT HAVE TAX LIABILITY. That's the short answer. Here is the long answer: As a U.S. citizen residing in El Salvador, you are required to file a U.S. income tax return reporting your worldwide income, regardless of where you live or where the income is earned. However, the thing is that MONEY FROM A DIVORCE SETTLEMENT IS NOT CONSIDERED INCOME. The reason is that income is generally defined as money earned through your work and this wasn't earned through work, but as a part of a settlement, so it's not taxable. Also, simply receiving a deposit in a U.S. bank account does not, by itself, create a tax liability. Only any interest earned on the money is taxable, but checking accounts don't typically earn interest. If they do, it's typically .001% over the course of the year so any taxes on that would be virtually non-existent anyway. Does that help clarify things? I want to make sure I didn’t leave anything out.

For sure! I want to ensure you feel completely satisfied with our conversation. Were there any details I missed?  Did you have any concerns about this issue that still need to be addressed? I'm happy to help.

Correct! You would owe taxes on the INTERSEST from that, but only once you actually receive the money. So if it builds interest for now and you don't take it out, that's fine, but once you do, only then do you owe taxes on that. This is called a "capital gains" tax. This cap gains tax is taxed differently than ordinary income (meaning it's generally taxed less) so it helps!

I'd love to1 I'm just not an accountant, unfortunately:(. I recommend just using something like Turbo Tax. It's honestly the easiest thing to do.

Awesome! Please come back here if you have questions and we'll be happy to help. We're on call for you.

You are welcome!

Understood; did you actually receive the money or have the bank just reinvest for you?

So for any money that you received, such as the $*****, then you would have to pay taxes on that potentially. However, for the $*****, that money is not taxable. The $***** is only going to be taxed if the money received from that amount was a GAIN based on what was in the previously. If this money is a LOSS based on what your original investment was, you wouldn't pay taxes. It's a bit complex, but hopefully that makes sense!

You've got it!