For US Citizens Moving Abroad: 5 Secrets to Minimize Your Total Taxes
Moving abroad presents new adventures and opportunities to learn about different cultures. However, moving abroad also presents additional challenges related to tax planning within the already-confusing U.S tax system. From double taxation to foreign tax treaties, tax season can be a difficult time for U.S expats.
To simplify tax season, we’ve outlined our top 5 pieces of U.S expat tax advice to minimize your taxes and ensure that you avoid the most common tax penalties that U.S expats face.
Evaluate Moving Expenses
Those who began their expat life within the past year may be eligible to deduct various moving expenses when filing their taxes. The IRS Page for US Citizens Abroad advises U.S citizens to deduct moving expenses incurred “when starting work at a new job location”. A full list of deductible moving expenses can be found here. Filing moving expenses is as simple as filling out a Form 3903 (link to https://www.irs.gov/pub/irs-pdf/f3903.pdf).
Don’t Forget State Taxes
One of the most common mistakes made by American expats when filing their taxes is to neglect U.S state taxes. After moving abroad, you must prove that you are no longer a resident of your previous state in order to avoid any form of state taxes. Most states will release you from residency status if you can prove your residency in another place for more than 6 months of the year. However, California, New Mexico, South Carolina, and Virginia do not make this easy. To be released from residency status in any of these 4 states, you must prove that you will not return to that state as a resident.
Evaluate Your U.S Citizenship
High net-worth individuals may want to take some time to evaluate the tax burdens faced by retaining their U.S citizenship to determine whether it makes sense to give up their U.S citizenship. Giving up your U.S citizenship is an irreversible decision and should not be taken lightly. However, those earning over $1 million per year should consult an international tax advisor to evaluate whether this makes sense for their individual case.
Explore Foreign Earned Income Exclusions
A U.S citizen working abroad may qualify for exemptions on their foreign income, which may enable you to avoid U.S taxes on a large percentage of your total income. This exact foreign income exclusion amount is updated annually based on inflation but is currently $112,000 for 2022 and $120,000 for 2023.
Review International Social Security Tax Treaties
Those who work in a foreign country may be eligible for social security tax exclusions. The United States has tax treaties with dozens of countries across the world. If you currently live in any of these countries, you may be exempt from paying social security taxes to the U.S.
For more information on U.S tax treaties with individual countries, visit the IRS tax treaties index.
Filing taxes as a U.S expat can be complicated, but these 5 secrets should leave you adequately prepared to face tax season. Looking for additional expat advice? Follow us on Facebook and Twitter for the latest expatriate news and advice.