As an American expat, do I need to file a US state tax return?
When it comes to US state tax returns, every state is different. Some states are more favorable for expats, since they have no income taxes. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee are also favorable states because they only collect taxes on dividend and interest income. Unfavorable states include California, South Carolina, and New Mexico; these states see their taxpayers as assets and will leave the burden of proof on you to prove you are no longer a resident.
You may be required to file a state return if you are tied to the state in the following ways:
Mortgage or lease payments on property
State driver’s license
State bank accounts or investments
Telephone and utility bills
Dependents living within the state
As an American expat, if you have some of the above ties in one of the states that have income taxes, you may be required to submit a state return until you prove residency in another state.
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.
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