Are you thinking about moving overseas?
Is it the culture of Costa Rico, the beaches of Spain, the easy lifestyle of New Zealand, or a job opportunity in the UK?
If you are seeking a change, then life in virtually any country overseas will deliver lots of change and a different pace of life.
Your thoughts are probably turning towards packing up the family, all your possessions, organizing car shipping, and what everyday life will be like once you get there.
But before you get too far down the track with your planned move, give some thought to some possible legal issues you might think you will be leaving behind. There are some tax issues you will need to sort out before you leave.
1. File Your U.S. Taxes Every Year
U.S. citizens and green card holders may still have to file U.S. taxes even though they have moved abroad because they are still considered U.S. tax residents. You may still need to declare your foreign income.
In 2020, single filers earning more than $12,400 and married couples jointly earning at least $24,800 in worldwide gross income still had to file U.S. tax returns.
Once you’re overseas, it’s easy to forget your tax obligations. U.S. tax filers based overseas to get an automatic two-month extension, making the deadline June 15th.
2. Plan Your U.S. Travel Accordingly
If you are moving abroad around the middle of the year you need to make sure you are staying out of the country for at least 330 days. By doing this you can exclude around $100,000 of foreign income from US taxation calculations.
The Foreign Earned Income Exclusion is available for tax-paying U.S. citizens living abroad and allows them to exclude up to $108,700 of foreign-sourced income on the next year’s tax return. This helps to prevent double taxation.
3. End Your State Residency Properly
Most states will relieve you of residency status after you’ve been out of the country for six months if you can prove you live elsewhere.
However, states like Virginia, California and South Carolina make it difficult to avoid state taxation. You need to show proof you won’t return ever be returning.
You can avoid state taxes by cutting off any ties to the state before moving overseas. Cancel your state-issued driver’s license and remove yourself from any property ownership. Next, file a non-resident state return for the first few years abroad to ensure your status as a non-resident is declared.
4. Prepare for A Different Tax Year
In some countries, the tax year begins in April, and in others it is July. This can take some getting used to. Make sure you collect your pay slips so you can report your foreign income based on the U.S. tax year of January 1 to December 31.
5. Keep Your U.S. Bank Account
This can be handy if you are transferring money back to family in the US. But if you become eligible for any US benefits like social security you can ensure that you get paid into your US account in case any problems are getting the money into Your overseas bank accounts.
Before moving overseas, consult a trusted ex-pat tax filing company and the U.S. embassy of your potential host country for more information.