When you are presented with an opportunity to live or work overseas, it can be incredibly exciting. However, one of the biggest considerations that you need to make when moving abroad is what to do about your taxes. There’s a high chance that you won’t be making a clean move on December 31st and arriving on January 1st, so you need to plan ahead.
Paying Your Taxes in the United States
When you are moving abroad mid-year, you will need to pay taxes on all the income that you earned in the United States for that tax year. There will be no changes in how you are taxed on the income before you move, so if you move on June 20th, you will pay taxes on all income earned before then in the US. However, the money that you make June 21st and beyond will be taxed as foreign income.
Many American citizens are surprised to learn that they are still responsible for paying US federal taxes after moving abroad, but that has been the case for quite some time. As long as you are an American citizen and afforded all of the benefits that citizenry entails, you are required to contribute through taxes.
Paying Your State Taxes After Moving Abroad
Just like with federal taxes, you will need to pay state taxes for the period of time before you move abroad. All states have different tax laws that cover moving abroad. Depending on where you live, you might need to pay taxes if you still own property or do business in the state. In other cases, you might be off the hook after you sell your home. An accountant can outline your precise obligations so that you understand what they are.
Are There Any Benefits?
While you will still be responsible for paying taxes when moving abroad, you are often taxed at a significantly lower rate than if you still lived in the country. The IRS has different deductions that you can take advantage of, including things like the Foreign Earned Income Exclusion benefit. There are also other programs that can reduce your tax burden, providing that you work with an accountant to know that they exist!
Overcome International Tax Challenges with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make international taxes easily and avoid the most common international tax challenges. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.