Expat Tax: Paying Taxes When You Live Abroad

Estimated Time to Read: 3 minutes

Living abroad can be exciting. Taking in the experiences of a new culture is an enriching opportunity that will enhance your life. However, it’s important to remember that living abroad isn’t just a semi-permanent vacation. Having an exotic zip code doesn’t excuse you from some of the bland dealings of everyday life; in fact, it can sometimes make certain matters even more difficult to tackle.

Take your taxes, for example. Paying taxes is a bit of a pain at the best of times, but when you find yourself living abroad, you’re adding layers of complexity. The Expat tax is something many people don’t think about before they make the big move abroad, but it’s a reality you can’t ignore, and by knowing how to handle paying taxes when you live abroad, you will be saving yourself time and trouble, meaning you can get back to enjoying your life in your new location. So, before you make your big move to another country, here are a few things to consider about tax for expats.

American Citizens Are Taxed on Worldwide Income

No matter where you live, how you split your time between countries, or what the source of your income is, if you are an American citizen, you must pay American taxes. Many people believe that moving to a new country and earning income only from a foreign source exempts them from paying American taxes, but the truth is that you are not only accountable to your current country of residence. As long as you are an American citizen, you must file and pay your taxes. Knowing this, make a plan in advance of moving for how you will handle paying those taxes—not just from a financial perspective, but from an administrative perspective as well. It’s not a good idea to wait until the day before the deadline to file; your return will be more complex as an expat, and you may have questions. Plan to have any necessary forms as soon as tax season starts and aim to have everything filled out with at least a month to spare to give you time to ask questions and seek advice.

Foreign Accounts, Assets and Investments have Tax Implications, No Matter where You Live

Taxes on international income don’t just apply when you live in a foreign country. Any foreign account, asset or investment will have American tax implications, so make sure you understand what those implications are—and the risks involved—before you make any financial decisions involving a foreign country.

There May Be Tax Credits You Can take Advantage of

Before you start worrying about paying taxes when you live abroad—and how this will affect your overall financial situation—remember that you may qualify for certain foreign tax credits relating to things like housing deductions or exclusions and currency conversion. These opportunities for saving can make a big difference on your overall financial outlook, and that can help cushion the blow of having to pay expat taxes.

Every Situation is Different . . . So Consult an Expert!

The bottom line is that no two individuals or families have the same financial situation. Every case is different, so it’s impossible to provide thorough, universal advice on paying taxes while living abroad. Situations like splitting your time between two countries, having a spouse who is native to the country you are moving to, and owning property in your foreign destination will profoundly impact your tax outlook, so it’s best not to make any assumptions or take general advice without also talking to an expert.

It’s important to consult a financial advisor or tax expert before you move so they can assess your specific situation and guide you. If you are planning a move and are ready to start planning for the expat tax, contact an international tax consultant that has experience dealing with the expat tax. The can evaluate your finances and give you the advice you need to set your mind at ease. Your move abroad should be an exciting time full of wonder and possibility; let someone else handle the challenging financial parts so you can get back to planning your new life!