Expats and Taxes – How to File the Right Way When You’re Abroad

If you are still in the planning stages of leaving the United States to begin your new life abroad, there are probably endless questions to intimidate and confuse you. A lifestyle overseas will change a lot more than just the way you file your taxes, so it’s important to understand the challenges and opportunities that may await you.

 

So, You’re an American Who Wants to Go Abroad? What About Your Taxes?

 

How to do US taxes when living abroad

 

Becoming an American expat or perpetual traveler can be disorienting and enlightening. You’ll experience a wide range of lifestyles if you keep yourself open. Don’t expect the privilege of being able to go about most of your day in an isolated bubble. Your presence will bring about lots of interaction and attention in some places. In the third world, the more you live like a local and skip the luxury items you might find at home, the further your dollar will go.

 

On the other hand, moving from the developing world to somewhere relatively wealthy can be very relaxing and liberating. But you may also feel like there is stronger pressure to conform to their far more established cultural identity. Everyone’s cup of tea is different, so if you’ve never traveled you may not know where your ideal destination lies.

 

The most widely shared quality among cultural differences is that they can be managed. Be real about your concerns. Laugh about your over corrections, and take credit for those strokes of quick thinking and luck that helped your adventures turn out more memorable (wherever you go in the world).

 

How to do US taxes when living abroad

 

Working for Yourself or Others Abroad

 

Your biggest concern about relocating might not have anything to do with overcoming cultural obstacles. You might be more focused on how you are supposed to make a living in a new country with its own laws, language, marketplace demands, and requirements. Many people in the modern age continue to work for a U.S. company while going wherever their heart desires. After all, why not? Most everything done in an office environment can be done online, from conferencing face-to-face to sending and signing documents.

 

Working for a larger foreign company is the easiest tax situation for Americans living abroad, and the most likely to cause you to avoid being liable to pay both income tax and Social Security. Being fully liable to both in a country with a higher tax rate and with a Social Security Totalization Agreement is another way to go about it. You may be surprised to find that some of the commonplace skills and experience you have developed in your ordinary career at home are highly valued in certain other places. You could find yourself in a much higher-salaried position with the same qualifications simply by going where you are in greater demand.

 

If your goal is to start a new company and register it abroad, you can save on Social Security. You could simply create a foreign corporation with other Americans or by yourself. However, having more than 50% of the corporation owned by U.S. shareholders will make it a Controlled Foreign Corporation (which is best avoided). This is usually the ideal situation for bloggers and other self-employed American expats who work online.

 

US Taxes for Worldly Americans Olivier Wagner Cover, How to do US taxes when living abroad

 

 

Using All the Tools Available

 

The internet is crucial to nearly every location independent business. But copyright holders, local utilities, and governments all influence how the internet performs. In some places, like China or Iran, the internet is heavily censored to the great lament of foreigners. Virtual Private Networks, or VPNs, allow browsers to bypass geographical internet restrictions by masking your access in another location. Be warned that VPNs can range from secure and legitimate to sketchy and spammy. Unfortunately, the countries most notorious for Internet censorship are the ones that have the tightest restrictions on VPNs.

 

If you’re a perpetual traveler, you may want to consider a mailing address based in the U.S., for simplicity’s sake. Paid services exist specifically for expats which mind your U.S. P.O. Box. They show you your mail, and let you decide whether they should forward it to you, scan it, or toss it. If you’re addicted to Amazon.com and can’t fathom living without easy access to online retail, a mail forwarding service like this can be invaluable. While scanning letters and receiving a pdf is easy enough, forwarding packages (or other physical products such as credit cards) can be trickier when moving too often means lacking a stable mailing address to actually receive it.

 

Having a U.S. based mailing address could also be part of your state taxation strategy. Not only will you be liable for income tax to the federal government, but the state where you were last a resident might continue to see you as such and expect you to pay state income tax. This would continue unless and until you sever your ties with that state. Although, many do offer some relief, either providing safe harbor to be treated as a non-resident, allowing some Foreign Tax Credit, or allowing the Foreign Earned Income Exclusion. Some do not offer any relief at all (yes, Pennsylvania, I am looking at you).

 

Keeping a U.S. bank account while abroad will give you access to more ATMs and credit services. Banking is easily managed online nowadays, though you may find your debit card getting temporarily blocked every time you enter a new country without notifying your bank first. Many now offer services where customers can deposit checks by taking pictures of them. Most U.S. banks will serve customers with foreign mailing addresses. For day-to-day banking, though, and for purchases to stores that won’t accept a foreign check, you’ll want to establish an account with a reputable bank in your host country.

 

How to do US taxes when living abroad, Oliver Wagner

 

About the Author

 

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. In his new book, U.S. Taxes for Worldly Americans, he uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS.

For more information on proper tax forms check out IRS.gov. Want to save money traveling? Check out our travel savings here.


About Christa Thompson

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Christa Thompson is the Founder and Senior Editor of The Fairytale Traveler. Christa has been traveling the world since 2003 when she attended a summer abroad study at the University of Cambridge in England. Since then, her wanderlust has been fierce. Her three passions in life are her son, traveling, and being creative. The Fairytale Traveler brand gives Christa the opportunity to do all of these things and to live intentionally every day.

“It’s never too late to believe in what you love and to pursue your dreams.” -Christa Thompson

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