When strategizing your return to the US after living abroad, it’s crucial to understand the impact of your move on your taxes. Depending on your foreign earnings and other variables, you might be subjected to different US tax regulations. Below are ten tax insights to bear in mind when making your way back to the US.
- Upon returning to the US, your tax responsibilities will shift.
- Neglecting these duties could lead to fines or additional filing requirements.
- By grasping your expatriate tax obligations, you can capitalize on diverse opportunities to economize.
Tip #1: Request Employer Submission of Departure Documentation If Necessary
If you’re permanently departing your foreign tax home, your employer might be obligated to submit documents informing the foreign government where you reside about this change. Certain countries mandate specific filings for employees relocating. Failure to file the appropriate paperwork could lead to an exit tax or potential immigration-related complications. As regulations vary, ensure you’re informed about the requisites in your current country of residence.
Tip #2: Verify If Your Employer Has “Grossed Up” Your Payments
Should your foreign employer have made tax payments on your behalf during your overseas tenure, it’s vital to confirm that your tax return incorporates these payments as “grossed up.” This term signifies that taxes on the tax are fully covered. Incorrectly addressing your employer’s tax payments could entail filing an additional tax return in the future.
Tip #3: Understand Your Residency Classification
Upon your return to the US, you might not immediately be classified as a tax resident. This determination hinges on various factors, including:
- Your duration of stay outside the US
- The US affiliations you maintained while abroad, like a driver’s license or bank account
- The US-based assets you possess
Your tax obligations could be considerably affected by your residency classification. Therefore, it’s imperative to ascertain whether you will qualify as a resident upon reentry to the US.
Tip #4: Account for State Residency
Expats coming back to the US should also consider potential state tax ramifications. Different states have diverse regulations pertaining to residency and taxation. Depending on your residency classification and the state’s tax laws, you may need to submit state tax returns and fulfill state tax obligations. Check your state’s official website for more information.
Tip #5: Evaluate the existence of your Foreign Bank Accounts and financial Assets
Americans residing abroad encounter supplementary reporting obligations. For instance, if you possess over $10,000 deposited in a foreign bank account, you must file a Foreign Bank Account Report (FBAR). Ownership of foreign assets surpassing specific thresholds mandates filing a FATCA report. While these accounts and assets are needed during your overseas residency, they might be no longer needed upon your return to the US.
Tip #6: Understanding Tax Implications of disposing of Foreign Assets
Opting to sell a property abroad, such as an overseas residence, might trigger taxes on any capital gains from the sale. However, selling a home used as your primary residence for at least two of the past five years allows you to exclude a gain of up to $250,000 from taxation ($500,000 for married individuals). The sale of foreign stocks or other investments may also cost you taxes on capital gains.
Tip #7: Pursue Refund for Foreign Social Security Contributions
Many expats must contribute to foreign social security systems while working overseas. In some cases, you could claim a refund for these contributions upon your return to the US. Reach out to the local tax authority or social security agency to ascertain your eligibility for a refund. Contributions to a foreign company’s Social Security system may be tax-deductible. Consequently, comprehending the taxability of any refund is important.
Tip #8: Monitor Deferred Compensation
In most countries, you’ll likely need to file and settle tax payments upon receiving deferred compensation accrued while working there. This encompasses:
- Restricted stock options
- Stock options
- Severance pay
Once the deferred component matures or you receive a payout, reporting it to the foreign government may be necessary. Hence, it’s prudent to track your deferred income during your overseas stay to ensure accurate allocation.
Tip #9: Decide on Handling Your Foreign Pension
If you’ve built up a foreign pension during your overseas employment, you might contemplate repatriating your savings to the US. Regrettably, most foreign pensions cannot be transferred to a US-based retirement scheme. This leaves you with several alternatives:
Leave the funds within your foreign pension and withdraw them when eligible.
Withdraw the complete pension upon reentry to the US, subsequently reinvesting in a US-based retirement account. This may incur early-withdrawal penalties, potentially impacting your income substantially.
Maintain the funds within your foreign pension and pass them to your heirs.
Consulting a qualified tax expert is advisable to determine the most suitable option.
Tip #10: Claim Eligible Tax Credits and Deductions
The IRS extends an array of tax benefits to Americans living abroad, including the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Even after you return to the US, you could potentially apply for these benefits regarding income earned prior to your repatriation.
For instance, if you arrive in the US on August 17, you can utilize the FEIE to exempt your foreign income earned from January 1 to August 16 of that year. Similarly, the FTC can be utilized to lessen taxes on income from future business trips abroad or deferred compensation receipts. Enlisting the guidance of an expat tax specialist can aid in determining the optimal path forward.