Living Abroad, What to Know About Paying Federal and State Taxes

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Living Abroad and Your Taxes

Anyone living abroad is still required to file federal taxes in the U.S., and probably state taxes as well. It’s important to understand the tax ramifications of different types of income, where it is earned, and in what state your residency is established while living overseas.

Paying Federal Taxes While Living Abroad

Federal tax returns are required to be filed every year, even if living abroad for the entire year. The IRS does grant an automatic two month extension to anyone living abroad for filing their returns, but be aware, if you owe the IRS any taxes those are still due in April regardless of the filing extension, and any taxes paid after the April deadline will be subject to interest and penalties.  

Paying State Taxes While Living Abroad

State taxes are based on the most recent state where you were a resident before moving abroad. If you are planning to rent out your home while you are living abroad, you will need to claim the rental income and pay taxes accordingly in your state. State income taxes differ from state to state, and the ease of being released from residency status from a state can vary, so establishing residency in a different state may be worth considering before moving abroad long term. The state we currently live in currently (California) is one of the more difficult states to get released from residency.

Credits for Foreign Taxes Paid While Living Abroad

If you pay any foreign taxes, you can likely apply credits to your US taxes to reduce your liability through the Foreign Tax Credit or the Foreign Earned Income Exclusion. A good tax accountant familiar in taxes for expatriates will likely be necessary to ensure you are not paying more than you need to in taxes while living overseas.

Helpful Links About Paying Taxes While Living Abroad:

US Expat Tax Help – This website includes a general overview of tax considerations when planning to move abroad, a list of states that do not have state income tax, a list of states that make ending residency difficult, and a list of links to all state tax websites.

IRS: US Citizens and Resident Aliens Abroad – Get the official word on federal taxes right from the source.

25 Things You Need To Know About US Expat Taxes – This article provides great highlights of important points to keep in mind of you are thinking of living overseas, and they have a free guide that can be downloaded.

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