What Documents do US Expats Need for State Filing?

You may be aware that US expats are required to file federal tax returns. While it may seem like that alone should be enough, you may not be completely finished – you may also need to file a state tax return as well. And to make things even more complicated, some states recognize the Foreign Income Exclusion and Foreign Tax Credits, while others recognize just one or the other, and others may not recognize either!

If you moved overseas after living in one of the following states, you must be able to show that you will not return to the state. If you can’t prove this, you must file a state income tax return.

Several factors are considered to determine if you may return to the state at some time, which include: property mortgages, leases, voter registration, driver’s license, and utility bills.

For these states, and others, it’s important to have documentation pertaining to the following so that determining where you need to file is clear:

  • Property ownership documents
  • State driver’s license or ID card
  • Bank accounts or investment accounts in the state
  • Voter registration (even absentee ballots)
  • Mailing address in the state, whether it’s a PO Box or a family member’s home
  • Dependents living in the state, including spouse or children.

Additionally, at a high level, the following items and documents are useful in preparing your state tax return(s) – noting that you’ll find most of these items necessary for federal tax returns as well:

Prior Year Tax Return

Having access to your prior year tax return can help you with your current tax by serving as a reference point for the current year. Some items, such as the Foreign Tax Credit or various items of depreciation, can be carried from one year to the next – and it’s important to carry it over properly.

Travel Calendar

While a travel calendar also helps to show whether or not you would qualify for the Foreign Earned Income Exclusion and Foreign Housing Deduction, it can also guide you in determining where items of income were sourced, or whether you met a state presence test, where applicable. States vary in both their requirements and in their terminology, so having access to the dates of where you were and when during the year can be very helpful.

Income Documents

  • Wages, Compensation, Salaries: In the US, this type of income is reported on a form W-2. If you do not work for a US based company, you will most likely not receive a W-2 but may receive the equivalent in your resident country. If you don’t have a yearly wage reporting document, then you will need to provide your periodic wage statements (pay stubs).
  • Self-Employed, Sole Proprietorship: If you are self-employed you will need to keep records of your gross income (before deductions) and your total expenses (categorized).
  • Interest and Dividend Income: If you own financial accounts with a US bank or financial institution, you will receive year end reporting forms from these banks showing the amount of income paid to you. Foreign banks generally do not have the same reporting requirements. It’s important to keep any documents which have the amount of interest, dividends, or capital gains paid to you. You must keep all reports of income from your foreign bank accounts, even if the income is not taxable in your resident country.
  • Stock and Securities Transactions: If you own investments, either in the US or in a foreign country, you will need to report any capital gains and losses you have during the year on your tax return. If you trade with a US investment company, you will receive a year-end reporting statement. If you invest with a foreign bank or investment house, you may need to keep track of the transactions yourself using monthly or periodic statements.
  • Rental Income: Whether in the US or abroad, you will need to keep any documents related to the rental income and expenses.
  • Real Estate Sales: If you sold real estate, you will need to report it on your tax return. There may not be any tax implications but knowing for sure is key. You need to keep documents from both the purchase of the real estate and from the sale. The documents should include the following information: Date of sale, date of purchase, purpose of the property (personal use, business use, etc.), total cost, total proceeds from the sale, and any improvements made during ownership.
  • Social Security and Pension Payments: If you receive Social Security payments from the US you will receive a form SSA 1099 from the US Government. Other pension and retirement income from the US are reported to you on a form 1099. Payments from foreign social securities and pensions may not have end of year statements, so you need to keep track of the payments using your bank accounts and or statements from your plan holder.
  • Other Income: This would include documentation of business income (Schedules K-1 in the US, financial statements or equivalents from overseas) gambling income, farming income, royalties, unemployment compensation, and foreign disability income.

Deduction Documents

  • Interest Paid: If you paid interest to a US bank you will receive a form 1098 detailing the amount paid during the year. If you paid mortgage interest to a foreign bank you will need to keep your bank account statements for the year that show the amount paid.
  • Taxes Paid (Property): Property taxes paid can be used for several deductions on your return, so it’s important to keep track of them. Property taxes are the taxes assessed from a governing agency on the amount of land and real estate you own or rent. Keep track of the payments you make directly to the governing agency, and to the amounts paid directly from an escrow account.
  • Taxes Paid (Income): Income taxes are taxes paid on your income or expect to be paid on your income for the year. If you live in a country that assesses income tax on your income, it’s important to keep track of how much you are paying to avoid double taxation on your income.
  • Dependents: While your children and other dependents are not as easily tracked on a bank statement, there are still some documents that you should keep in order to be able to claim their deductions. Keep track of Social Security numbers or ITINs for each of your dependents. College/University costs may also give you a tax return boost, so keep track of all expenses paid for your dependent’s schooling. Additionally, child care costs for children under the age of 13 may also be a boost for your taxes, so keep track of the cost as well as the name and address of the care provider.
  • Other Deductions: Some of your other yearly expenses may also give you added deductions to your tax return. Charitable contributions, either cash or household items, to a qualified charity can lower your taxable income. Make sure you note the amount of the donation, the date of donation, and the charity’s name when you give. Medical expenses, those not paid by an insurance plan, can also help to lower your taxes. Document the amount paid, the date, and who you paid in order to take the deduction. Other things that should be kept track of are: alimony paid (with a valid court order), unreimbursed business expenses (expenses paid for you to be able to do your job), and expenses paid to investment houses in order to keep your account running (administrative fees and such).

Do You Need Help with State Tax Return Preparation?

Our expat-expert team of accountants can provide the advice you need in order to become and stay compliant on your expat tax obligations. Contact us today and we’ll be happy to help you underst your state tax requirements.