Top Retirement Destination Tips for Americans Moving Abroad

6 Top Retirement Destination Tips for Americans Moving Abroad

Top Retirement Destination Tips for Americans Going Overseas

In recent years, it has become much more common for Americans to want to move abroad when it comes time for retirement. With the cost of retirement in the United States rising significantly, many Americans are finding it easier and more cost-effective to retire overseas. When it comes to selecting a retirement destination, there are many twists and turns that taxpayers must be aware of before moving their entire lives overseas. Some less experienced accountants and tax planners are all too quick to just throw out the names of destinations that offer a low cost of living — without taking into consideration all of the unforeseen headaches and taxes. Let’s take a look at six retirement destination considerations for Americans going abroad.

Worldwide Income

The first thing to consider is the fact that the United States follows a citizenship-based taxation model and requires taxpayers who are considered US persons for tax purposes to report their worldwide income. This generally includes U.S. Citizens, Lawful Permanent Residents, and Foreign nationals who meet the substantial presence test. Noting, that even if the taxpayer lives overseas and earns all of their money from foreign sources, they are still required to file our annual tax returns.

Is it a Treaty Country?

If a taxpayer selects a treaty country to reside in, the taxpayer may be able to qualify for certain treaty elections so that they can reduce or eliminate their U.S. tax requirements. Nothing, that even if it is not a treaty country, the taxpayer can still apply for tax credits or qualify for the foreign earned income exclusion.

Not Everyone Qualifies for a Treaty Election

Just because the taxpayer resides in a treaty country does not mean they will qualify to be a foreign person for tax purposes under the treaty to avoid filing US taxes on their worldwide income (instead, they file a Form 8883 and 1040-NR). Each treaty is different and typically citizens as opposed to permanent residents do not qualify to make this election.

Additional Taxes

When ab American relocates abroad, sometimes they go with the idea of reducing their taxes, but it could increase their taxes. Take for example an American who moves to Australia. They worked for several years in Australia and earned superannuation. With a superannuation, Australia taxes are being witheld from the superannuation gains and then distributions are typically tax-free. This, since no taxes are being withheld in Australia, there are no foreign tax credits in Australia to offset U.S. tax liability for the superannuation. Thus, some Americans will be forced to pay U.S. tax on these distributions even though they are not being taxed in Australia.

Foreign Investments and U.S. Reporting

Once the taxpayer decides that they are going to move abroad, it is important to evaluate the different types of foreign investments they may consider because ownership of foreign investments may lead to increased US taxes and reporting requirements. This is especially true in situations in which the foreign investment is an entity, trust, or investment fund (PFIC) such as a mutual fund or ETF.

Are You Already Out of Compliance?

For Americans who have already relocated abroad and have failed to remain in compliance with their U.S. tax requirements, not to worry. The IRS offers various amnesty programs that can assist taxpayers with safely getting into compliance and taxpayers should consider working with their Board-Certified Tax Law Specialist team that specializes exclusively in these types of matters to ensure that they can get back into compliance.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.