Frequently Asked Questions
US Expat Tax Planning

Are you an American who needs help with expat tax advice and planning? Get information on whether you need to file local or state taxes and more!

If a superannuation account is not considered a retirement account by the IRS, then a withdrawal from it should therefore not be considered a distribution, right?

In a sense, it is not considered a distribution. But the important thing to consider is that it’s an account that has earned income. Contributions to this plan that were made post-tax have created a basis in the account; thus, your withdrawals (distribution) are not taxable. What is taxable, however, is the income that has been earned within the account, whether it be an increase from a change in market value or currency fluctuation, interest, dividend or capital gain. The problem is that these varieties of income have become almost impossible to trace, and the most conservative approach would be to include any withdrawal made beyond what you have contributed (i.e. your basis) in your ordinary income.

[back to top]

How long should I keep IRS records?

In general, tax returns and all the supporting documentation must be kept at least seven years. The IRS can audit your return for up to six years from your filing date. However, the six-year limit only applies to good-faith errors.

The IRS has more information here.

[back to top]

Can my non-US spouse receive my Social Security benefits?

In most cases, the answer is yes. Foreign spouses generally qualify for Social Security survivor benefits, which are the deceased US worker’s full benefits. In the case of dependent or spousal Social Security, a foreign spouse will likely qualify, receiving half of the US expat’s benefit.

There are lots of rules and exceptions to this, and of course we can’t outline every one of them here, as they vary by country. Below are a few of the basic requirements:

  • You must have worked and contributed to Social Security for at least 10 years.
  • You must be at least 62 years old.
  • You cannot be a resident of Cuba or North Korea, although if you are, you can receive all back payments owed once you move to a country where you are eligible to receive benefits.
  • You must not be in a country where payments are prohibited: Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Please note: this list may change.
[back to top]

Will I be impacted by Obamacare as a US expat?

Expats can qualify for exemption from Obamacare by proving their residency in another country. Generally, if you qualify for the Foreign Earned Income Exclusion, you satisfy the minimum essential requirements of Obamacare (also known as the Affordable Care Act). To qualify for exemption, you must pass one of the two residency tests:

  • The Physical Presence Test –  To qualify for this test, you must be physically inside a foreign country for 330 days in any 365-day period.
  • The Bona Fide Residence Test – To be considered a bona fide resident of another country, you must reside in a foreign country for at least one full year and have no immediate intentions of returning to the United States permanently.
[back to top]

If I renounce my US citizenship, am I free from US taxes?

The answer to this question is maybe!

When the Heroes Earnings Assistance and Relief Tax Act of 2008 passed through Congress, the possible financial consequences of renouncing your citizenship changed a bit. This act imposes an exit tax above and beyond standard US expat taxes on covered expatriates who surrender their US citizenship. You are considered a covered expatriate and subject to the exit tax if you meet three conditions:

  • Your average annual net income tax for the 5 years prior to the date of expatriation is more than a certain amount that is adjusted for inflation each year ($155,000 for 2013, $157,000 for 2014 and $160,000 as of 2015).
  • Your net worth is $2 million or more on the date of your expatriation.
  • You fail to certify on Form 8854 that you are fully compliant with your US tax obligations for the 5 years preceding the date of your expatriation.

If these conditions do not apply, you will not be subject to additional US taxes after you officially renounce your citizenship.

[back to top]

Can I use an IRA to save for retirement while working as a contractor overseas?

You are not allowed to contribute income that has been excluded under the Foreign Earned Income Exclusion to an IRA. So, if you have excluded all of your income under the FEIE then you may not contribute to an IRA. If you already have, then you will have made an excess contribution that will need to be withdrawn. If you have income that was not excluded under the FEIE then you can contribute to an IRA, subject to the income restrictions for the specific type of IRA.

[back to top]

Will I need to file state or local taxes?

That will depend on where your property is located. Some states have no income tax and others do. In addition, some states will require a tax or fees paid on various business structures established within the state if properties are held in an LLC or similar structure. The best practice is always to speak with a tax advisor before buying a property to ensure you fully understand all the tax implications before making an investment.

[back to top]

What are my tax filing requirements as a non-resident property investor in the USA?

Your tax filing requirements will depend on the type of entity you choose to make the investment and the number of investors. For example – an individual or single-member LLC with direct ownership will file a 1040 NR, which is due by June 15th each year. A foreign corporation would file Form 1120-F. A multiple-member LLC, either foreign or domestic, would file Form 1065 and each foreign partner would receive a K-1 and need to file Form 1040-NR individually; domestic partners would include this on their Form 1040. Domestic corporations would file Form 1120 within three-and-a-half months of their fiscal year end.

[back to top]

What is the best way to own an investment property in the USA?

As you may know, the US has more than 90% of the world’s lawyers, which makes the US one of the most litigious counties in the world. As such, you should seriously consider owning your properties in a corporate entity such as a Limited Liability Company (LLC). This will help reduce your personal liability should anything happen on your property. If you own multiple properties, you may want to group them in different LLCs, so if something happens with one property, it will not impact the others. There are many options for ownership, and we strongly recommend speaking to an expert before making a decision.

[back to top]

How does buying or selling real estate change my US expat taxes?

Buying or selling real estate abroad has a drastic effect on your US expat taxes. Any gains on the sale of real estate are subject to taxation. However, if you have lived in the home as your principal residence, you are able to exclude up to $250,000, or $500,000 for those who are married and filing jointly. Please note: even if the real estate income was abroad, it is not considered foreign earned income and therefore not excluded by the Foreign Earned Income Exclusion. You must also take into consideration the currency fluctuations, as this does have an effect on how much capital was really earned by your purchasing and selling of real estate overseas. Gains from real estate can put you into a different tax bracket and drastically increase your US expat tax obligation. It is wise to talk to a tax planner before investing in real estate abroad.

[back to top]