Over the last few years, millions of Americans have packed their bags and made the decision to live abroad. Chances are you know someone living abroad, taking their career to the next level, or enjoying their hard-earned and well-deserved retirement in Mexico perhaps. In fact, in 2016, more than 9 million Americans were living abroad. That’s a huge increase from the 4 million the State Department estimated were residing in another country as recently as 1999.
Everyone has their own reason for making the move, but our long-term ever-expanding global economy does play a major factor. Many United States citizens are looking to climb the career ladder by expanding their horizons and pumping up their resume with a job abroad. Others are seeking a retirement hideaway that is as low-key as well as it is low cost. Still others call another country home due to service in the military, marriage to a person from another country or to get to know family members who stayed behind when their parents or grandparents emigrated to the United States.
Whatever reason they have for re-locating, all expats (as Americans living abroad are commonly called) share one common characteristic: they still have to file a US expatriate tax return.
Living abroad does not automatically release you from you U.S. tax liabilities. Here are five things you need to know about expatriate taxes when you move to another country:
#1 – If you don’t stay compliant, Uncle Sam will find out
Don’t think that your family can fly under the radar with the U.S. government.The U.S. has agreements in place, such as FATCA, which allow other countries to share U.S. citizens’ tax and banking information, worldwide. This type of tracking ensures that American citizens worldwide are filing U.S. taxes and reporting their incomes as required. If you open an international bank account, the Foreign Account Tax Compliance Act will also notify U.S. officials about the action, allowing the U.S. government to even see your foreign bank balances!.
#2 – You absolutely need to file a U.S. tax return
Please note, filing a U.S. tax return doesn’t mean you will be double-taxed. The government has put a number of measures in place to minimize your U.S. tax obligation since you also pay taxes to the country you choose to live in, but you still have to file.
#3 – Even if you don’t have a job, your income may be taxable
Wages aren’t the only income that is taxable. Interest, dividends, pension, and rental income also count, so even if you consider yourself retired, you may still have taxable income.
#4 – You may have to file state taxes, too
OK, you can accept that federal taxes may make sense, but state taxes? Yes, depending on the state you last lived in. Check with your state for more information.
#5 – Not filing taxes results in severe penalties
When the U.S. government discovers your negligence, the penalties can include stiff fines and other actions, including loss of passport in extreme cases.