We interview a CPA specializing in retiring expats

Tax Considerations for Those Retiring Outside the U.S.

by Gary Foreman

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Would you consider retiring outside the United States? And, if you did, how would becoming a retired expat affect your taxes?

Many retirees looking for a lower cost of living, quieter lifestyle, better weather, or other advantage retire abroad. While becoming a retired expat can bring benefits, it also creates financial questions that must be addressed. To help us understand how taxes work for those who retire abroad, we contacted CPA Vincenzo Villamena.

Mr. Villamena works with Online Taxman, a boutique CPA focused on taxes for US expats, including retirees abroad. He's worked very closely with Live and Invest Overseas, which is a newsletter helping people looking to invest and retire abroad.

Q: Can you avoid state and federal income taxes simply by moving out of the country?

Mr. Villamena: Moving out of the country and domiciling yourself elsewhere would help avoid state tax and potentially some types of federal income tax. If you qualify for being outside the US for over 330 days in a 365-day period or you claim residency in another jurisdiction, then you would be eligible for the foreign earned income exclusion for the first $100k of earned income (salary, contractor payments, etc.). This would not apply to passive income like rental, dividends, interest, etc.

Q: If you moved out of the U.S. and all of your income came from outside the U.S., would you still owe U.S. income taxes?

Mr. Villamena: You would definitely need to file this income. However, tax might not be owed if you qualify for the foreign earned income exclusion for the first $100k in earning. Also, if you paid foreign tax on this income, then you would receive a credit for this amount, which might cover all US taxes owed depending on how high the tax rate is of the foreign country.

Related: Does Home Ownership or Renting Make More Sense In Retirement?

Q: What's the biggest tax problem that expatriates face? And, what's the best way to solve it?

Mr. Villamena: I think the reporting of foreign bank accounts, companies, trusts, etc. can complicate people's lives every year in trying to report them all. I think the important thing is keep things simple and not open foreign companies or bank accounts unless needed as they might need to be reported annually if certain thresholds are met.

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Q: How can you determine if you'll be subject to taxes in the country that you're moving to?

Mr. Villamena: The general rule of thumb is if you live over 183 days in a place, then you are a fiscal resident and subject to local taxes. This always depends on which jurisdiction you are in as some countries only tax you on income from sources received inside the country (i.e. Hong Kong, Singapore, Panama).

Q: What happens if you want to live in the states, but move your money out of the country? Can you avoid taxes that way?

Mr. Villamena: No, many times people think that moving money outside of the U.S. is a tax strategy. However, it is more of an investment diversification and asset protection strategy. You would still be subject to the same amount of income tax but would have more reporting requirements by disclosing foreign bank accounts and companies.

Reviewed December 2017

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Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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