It’s important to know these tax basics if you are living outside of the US, or thinking of moving abroad.
The US has been taxing its citizens living outside of the country since the Civil War. Over the years, many individuals and organizations have advocated for an end to this policy; however, nobody has succeeded yet in convincing Congress to adopt legislation implementing taxation based on residence rather than citizenship. Thus, US citizens and permanent residents are required file US taxes annually, no matter their location.
Depending on your financial circumstances, you may need to file forms you’ve never encountered before. For example, if you open a bank account in another country, you may be required to file several additional forms reporting the amount in your account. Another situation where taxes can quickly get difficult for US expats is if you open a business in another country.
If you become tax resident in your new country, you will likely be required to file a tax return and pay taxes there. Filing two sets of tax returns every year is, unfortunately, one of the additional responsibilities of being a US expat.
The US likes to keep tabs on money held by citizens and permanent residents overseas, even if you’re not one of those wealthy people living on their yacht in the Mediterranean. Make sure you research the requirements for reporting your overseas assets.
Staying tax-compliant in the US and your new country as a remote worker can be tricky. Additionally, opening a business in another country might cause a windfall of new tax and reporting obligations to the US. It’s wise to talk with a tax advisor before embarking on either of these paths.
Many US expats keep their apartment or house in the US and rent it out while living abroad in order to fund their travel and retain their ability to return home at some point. If you do this, you will still need to report any income and pay tax on it in the US. You may also need to comply with tax obligations and report this income in your new country if you have established tax residence there.
Additionally, if you are planning to sell your primary residence at some point while living abroad, it can be difficult to understand what needs to be done to retain your “Section 121 exclusion” from capital gains on the sale. Nitzel Tax can assist with the planning to ensure this valuable exclusion is not lost. Let us know if you’d like a consultation.
Unfortunately, any US wills and/or trusts you have in place may not be recognized in your new country. It’s vital to have these documents reviewed and/or modified to fit your new circumstances so that your assets and beneficiaries are protected according to your wishes.
The IRS has an amnesty program for individuals in this situation. In most situations, you can catch up with your taxes and avoid penalties! Get in touch with us to learn more.