Moving abroad for work can be an exciting undertaking. You get to take in new sights while furthering your career.
However, though you may have long since hopped on a plane and started your new life — you still have a tax obligation waiting for you back home.
You’re still responsible for filing federal taxes to the United States, though you’re working abroad. Consider these points so you are prepared to address your tax return and any tax issues you run into.
1. You Must Consider the Last State You Lived In
As you know, tax laws vary by state.
Learn how your state handles international tax returns so you can handle your obligations. In some situations, you’ll only pay federal taxes. In others, you still must pay taxes to the last state you lived in.
This usually depends on what property you own or business you still have in the state. If you own a house or have a bank account open in a particular state, you will probably have to pay state tax.
Since every state has varying qualifications, find out for sure whether you’ll owe your state, or what ties you have to cut to avoid owing.
When you buy your tax software or hire a tax preparer, be sure that you get the version or paperwork that will let you file an accurate state return as well.
2. Hit the Same Deadlines
The tax deadline is April 15 if you didn’t apply for and receive an extension.
Because the deadline is in place, you can expect to be penalized if you file your return later. So file your taxes no later than the deadline, even if you don’t have the full amount that you owe.
You can even get your passport revoked for late taxes sometimes, so be vigilant about hitting deadlines. Getting your passport yanked over delinquent taxes would be particularly problematic for you since you are already working and living overseas.
3. Figure Out What Exclusions You Qualify For
There are some exclusions that you will qualify for when you are moving abroad.
Two documents that you need to look into include the Foreign Earned Income Exclusion (FEIE) Form 2555 and Form 1116. With these forms, you can exclude income up to a large amount, besides preventing double taxation.
Aside from these forms, you can often qualify for an exclusion on your new foreign housing. Get an accurate price for how much you’re paying for your rent or mortgage overseas, whether you make payments directly or your job takes a housing cut from your paycheck.
Figure out which sorts of exclusions you qualify for, and you will immediately reduce your tax bill.
4. Look into an Automatic Extension if You Need One
When filing your taxes internationally, it’s easy to get overwhelmed by the level of detail required. You might get nervous because there are several exclusions to look into that you don’t want to miss.
Thankfully, you have the benefit of an automatic extension.
Most tax years, people filing from overseas get an automatic extension upon request. This will usually ensure that you are covered until June. If you still need more time after June, you may have to formally file for an extension.
Besides an extension, look into installment agreement options if you know your tax bill is more than you can take on.
A payment plan helps you out if you don’t think you can handle your tax bill in time. It gives you the chance to pay your taxes down little by little each month, instead of having to fork over the entire amount.
You must apply for an installment agreement that the IRS accepts so that you can address your tax debt on your terms.
5. Be Upfront About All Income You Bring In
Be thorough whenever you are documenting your income. It’s easy to have an oversight, which can then turn into delays and problems with your taxes.
For instance, many people in the service industry forget that tips are income and get sloppy with their reporting and record keeping. Others might have a residual stream of income that they completely forgot to account for.
Regardless, do everything you can to report all income so that your taxes are accurate.
6. Log the Exact Days You’re Overseas
There are several visa issues that come into play when working overseas and filing taxes domestically.
People run into both tax and visa problems when they don’t keep track of their days. For example, in order to get a write-off for your foreign income, you must be living abroad for no less than 330 days.
Any time spent en route to the country doesn’t count, either. So make sure you take a hard look at your schedule and ensure that you are fulfilling these sorts of requirements. Otherwise, you’ll risk an audit and potential visa issues.
7. Stay Thorough About Your Records and Documentation
The best thing you can do for yourself is to have accurate records for your taxes. When you can back up and prove every detail, you can stand up to an audit and verify information from years back.
It’s easy to keep great tax records when you have access to tools that can help.
Figure out which tax software you like best so you can use it for your record-keeping throughout the year. From here, you can import these logs into your tax return and your taxes can be done in seconds.
Be sure that your records are stored in a few different places so you always have them when necessary.
8. Learn About How Working Overseas Affects Your IRA and Other Matters
You need to find out how living overseas affects your IRA contributions and contributions for other retirement accounts.
For instance, if you take advantage of the tax break for earned income overseas, you’re not allowed to put money that didn’t get taxed into your IRA. Check with your company to see if you will still be able to make contributions while working on this project.
Many people end up opening retirement accounts in foreign countries just to avoid tax issues and so they can keep on saving in the meantime.
9. Bank With a Company That is Easy to Do Business With Internationally
To address your international taxes, you also need to be mindful about who you bank with.
You must report money in overseas bank accounts. Be sure that your bank is also friendly when it comes to international transaction fees.
It’s important to fill out a Foreign Bank and Financial Accounts (FBAR) report so you can state this income upfront. Even though you’re starting an account where you now live, it’s still treated as an offshore account and should be treated as such.
A non-willful violation could cost you upwards of $10,000, so avoid this by filing properly and on time.
10. Keep Up With Any Property You Own in the States
Be sure that you also stay on top of any real estate property that you own back stateside.
For instance, if you’re renting out your home while you’re gone, you still must account for taxes. This is why so many people opt to cut ties with all property that they will not keep up with.
11. Manage Your Exchange Rates Properly
Stay on top of the exchange rates when it’s time to do your taxes. For instance, if you’re in Japan getting paid in Yen, you must figure out the exchange rate of how much you earned when converted to United States Dollars (USD).
Give yourself the benefit of the annual average exchange rate so you can file your taxes accurately and pay the government the right amount.
When it’s time to file, hire a tax attorney skilled in international affairs. Set aside plenty of money so you can make up for any shortcomings once you find out how much you owe in taxes.
Keep up with your foreign bank accounts and move your money around in a way that keeps your books clean and organized.
Use These Tips for Moving Abroad
These tips for moving abroad help you handle your travels while remaining mindful of your taxes. By handling your international tax obligations, you’ll be able to avoid penalties and keep the IRS off your back.
Stay aware of this information so you can make the right decisions when handling your taxes.
The professionals you choose to help you will be just as important. We’ve been around for years and can help you out with any tax questions that you have.
Be sure to contact us if you need help with your taxes as you plan your international move.