12 Expat Tax Tips Before Moving Abroad

by | Nov 30, 2024 | US Expat Tax

Moving abroad can be a hectic process. There are many things for Americans to consider when making a foreign country their home, taxes being one of them.  New expats are understandingly concerned about how the move abroad will affect their US taxes.

While many are afraid of double taxation, in reality, expat life can bring significant tax benefits.

Below we share the top 12 tax tips every expat should know before moving abroad.

1. Expats still need to file US tax returns

One of the most common misconceptions Americans living abroad have is that they do not need to file US taxes. Many American expats believe that once they leave the country, their reporting and filing obligations cease.

Others think that because they can exclude foreign income from US taxes (more on that later), they don’t need to file.

Unfortunately, this is not the case. The United States government taxes citizens on their worldwide income. Filing is required regardless of residence. And even if you don’t owe any tax, you still need to file.

2. Most expats need additional tax forms

One of the key differences when filing taxes as an expat is the forms. Expats will likely need to submit several forms that they haven’t used in the past.

While the necessary forms vary in each case, most US taxpayers abroad will need to submit the following important forms:

  • Form 2555 (The Foreign Earned Income Exclusion and the Foreign Housing Exclusion or Deduction)
  • Form 1116 (The Foreign Tax Credit)
  • FinCEN Form 114 (FBAR or Financial Bank Account Report)
  • Form 8938 (Statement of Specified Foreign Financial Assets)

These forms include tax savings for expats and important declarations to the US government.

3. Save taxes with Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)

When moving abroad, many are concerned about double taxation. The thought of tax liabilities in two countries can be worrying.

Luckily, there are two key tax benefits that can reduce or even eliminate your US tax burden when living abroad.

The Foreign Earned Income Exclusion (FEIE) is one of the most popular options. The FEIE allows expats to exclude $126,000 (in 2024, $130,000 in 2025) from income tax.

To qualify for the FEIE, Americans abroad need to either be bona fide residents of a foreign country or to spend 30 days or less in the US per year.

Alternately, the Foreign Tax Credit (FTC) can also result in huge savings for expats. The FTC gives a dollar-for-dollar tax credit for taxes paid to a foreign government on foreign-sourced income. This is especially helpful in high tax jurisdictions.

In some cases, expatriates can combine the FEIE and the FTC for maximum tax savings.

However, Americans living outside the US need to remember that both the FEIE and the FTC must be applied for. They are not automatic.

4. Report foreign bank accounts and assets

Another key requirement for US Americans is reporting foreign bank accounts and financial assets.

The two primary forms used for this are the FinCEN Form 114 (Financial Bank Account Report or FBAR) and the Statement of Specified Foreign Financial Assets (Form 8938).

On the FBAR, you must report any foreign bank accounts that they have a financial interest in or signature authority over. Whether you need to report depends on the total balance of the accounts.

In addition to FBAR, Form 8938 is required when foreign assets and investments exceed certain thresholds.

5. Expats receive an automatic 2 month filing extension

Another important tax difference for expats is the US tax deadlines. Because many expats need to file taxes in another country first, the US government gives an automatic extension of two months. This extension gives Americans abroad a filing due date of June 15.

If you still need more time to file, an extension until October 15 can be requested.

But, regardless of whether the tax return is submitted in June or October, interest on taxes owed will still begin accruing on April 15th.

6. Consider moving to a no income tax state (if living in a sticky state)

Many Americans are not aware that they may still have tax obligations to the state they lived in before moving abroad.

In fact, the situation can be fairly complicated depending on the state. Certain “sticky” states such as Virginia, California, and New Mexico may consider you a tax resident, and responsible for taxes, even while you are abroad.

Individuals from sticky states should consider establishing residency in a tax-free state before moving abroad. States like Florida, Texas, Nevada, and Washington eliminate ongoing state tax complications entirely.

The process typically requires physical presence in the new state, changing voter registration and driver’s license, and filing a final return in your old state.

Plan to establish new state residency at least 6-12 months before moving abroad to create a clear paper trail.

7. Keep a US address and bank account

While being aware of state taxes, expats should also consider maintaining a US address and bank account while living abroad. A US address and bank account can make many processes easier while living abroad.

This is especially true for retirees who are moving to Latin America or any less developed country. Expat retirees can technically have their Social Security checks go to a foreign bank account.

However, not all countries have banking systems that can ensure your payments will be delivered on time.

As an example, occasionally banks can lose the ability to process social security deposits for months at a time. When this happens, expat retirees can be put in a difficult position if they depend on the payments.

By maintaining a United States address and bank account, expats can make many parts of living abroad easier.

8. Timing of the move abroad may impact your taxes

While a job usually requires that you start work abroad on a certain date, occasionally you may have more flexibility. The timing of your move relative to the tax year could impact your filing.

Leaving closer to the beginning of the year gives expats more time to qualify for the Foreign Earned Income Exclusion (FEIE) by the time tax returns are due.

The total amount of savings can still be the same if the expat moves mid-year. However, they may have to request a tax extension because they need more time to qualify.

When using the Foreign Tax Credit instead of the FEIE, this is not a concern.

9. Know about PFICs before signing up for foreign life insurance and investment accounts

Oftentimes, foreign life insurance does not meet the IRS definition of life insurance.

Not only do those plans not enjoy the tax benefits of US life insurance. They may even be considered a PFIC (Passive Foreign Investment Company) and incur punitive taxes.

Foreign mutual funds and other types of foreign investments also fall under the PFIC definition. Common mistakes include investing in local mutual funds without understanding PFIC implications, purchasing foreign life insurance that doesn’t meet IRS requirements, and failing to report foreign investment accounts properly.

US investment access may become restricted once you move abroad, as many US brokerages limit services to non-resident accounts. Plan your investment strategy before moving to avoid forced sales at inopportune times. US-based ETFs and mutual funds generally remain accessible and avoid PFIC issues, making them often preferable for expat investors.

This is a complex tax topic. Expats should seek guidance from a tax advisor before signing up for those types of investments.

10. Capitalize on tax treaties and totalization agreements

Be aware of tax treaties and totalization agreements between the US and the new country of residence. These can typically reduce an expat’s tax burden.

Tax treaties deal with income taxes, whereas totalization agreements address social security taxes.

Crucially, tax treaties provide protection against double taxation in situations where a foreign tax credit would not apply.

11. Plan your retirement accounts strategy before moving

Moving abroad affects your retirement accounts and requires advance planning. Your 401(k) and traditional IRA accounts can generally be maintained abroad, but consider how foreign tax treaties affect distributions and whether your new country recognizes the tax-deferred status.

Roth conversions may be attractive before moving to a high-tax country, allowing you to pay current US tax rates rather than potentially higher foreign rates on future distributions.

HSA implications also require attention, as many foreign medical expenses don’t qualify for tax-free withdrawals. Consider maximizing contributions before leaving or adjusting your strategy based on your destination’s healthcare system.

12. Understand Social Security and Medicare changes

Moving abroad significantly impacts your Social Security and Medicare benefits. Social Security payments can generally continue abroad, but payment methods may change and some countries have banking restrictions that could interrupt payments.

Medicare coverage does not extend outside the US. If already enrolled, decide whether to maintain coverage for future visits or disenroll to avoid premiums. Medicare re-enrollment rules are complex if you later want coverage again.

Consider international health insurance options and research healthcare quality and costs in your destination country before moving.

US expat tax FAQs: What you need to know before moving abroad

How long before moving abroad should I start tax planning? 

Ideally, begin planning at least 6-12 months before moving. This gives you time to establish tax-free state residency, if needed, optimize your retirement account strategies, plan Roth conversions, and understand your destination country’s tax implications (and how they intersect with US taxes).

Should I form a company locally or maintain a US business entity?

US entities provide simpler tax compliance and better access to US banking/clients, while foreign companies may offer local tax benefits but create complex US reporting requirements. Consider operating both structures if you need to serve different client bases.

Moving mid‑year – can I still use FEIE?

Yes, but you must qualify under the Physical Presence Test (330 full days abroad in any 12‑month period) or Bona Fide Residence. You may need to file an extension to qualify.

I’m self‑employed abroad. Do I still owe US self‑employment (SE) tax?

Usually yes, even if you claim the FEIE. A totalization agreement with a certificate of coverage from the foreign system can exempt you from US SE tax.

I work for a foreign employer. Do I pay US FICA?

Generally no, but you’ll pay the host country’s social taxes. Exceptions can apply with US employers or under certain agreements.

What if I still have state tax ties after moving?

“Sticky” states (e.g., CA, VA, NM) may continue to treat you as a resident if you maintain ties in the state or intend to return. Before leaving, you might consider establishing domicile in a no‑tax state (DL, voter reg, lease/home, bank accounts) and file a final state return.

Do I owe US tax on rental property in the US while abroad?

Yes. US‑source rental income stays taxable in the US and may require a state return. Foreign rental income is also reportable; FTC can mitigate double tax.

Find a tax accountant experienced with expat taxes

Most US-based tax accountants are not familiar with the specific exclusions, deductions, and credits that can reduce expat taxes. We have amended many returns to correct errors and get refunds.

Finding a qualified tax accountant is important.  An accountant is not only someone you trust with your financial data. He or she should know expat taxation well and deliver great service, no matter where in the world you are.

At Online Taxman, our team of expert accountants will walk you through each step of the tax planning process to ensure tax efficiency and peace of mind. Get started by setting up a consultation with one of our expert expat accountants below.

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<a href="https://onlinetaxman.com/author/vincenzovillamena/" target="_self">Vincenzo Villamena, CPA</a>

Vincenzo Villamena, CPA

Vincenzo Villamena, CPA is the founder and CEO of Online Taxman. He has extensive experience in both tax preparation and advising clients in accounting and financial transactions. At Online Taxman, Vincenzo oversees corporate and individual filings. He specializes in offshore structuring for US entrepreneurs abroad and US real estate transactions by foreign nationals and funds. Vincenzo loves to travel and is fluent in Spanish, Portuguese, and Italian. Vincenzo currently lives in Rio De Janeiro, Brazil.

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