Tax Preparations and Expectations for Repatriating Americans
Moving back to the United States after a long stay from a foreign country can be a relief. If you have experienced certain difficulties with tax forms and payments when starting to move out of the country before, you would not want to trap yourself again in the same unnecessary tensions.
More knowledge will keep you on top of everything and cut waste of time, energy, and money related to your return. Here are three general information on what to expect, what to prepare, and what other things to understand as a returning expat.
What to Prepare
Once you are sure of your departure, these are the things related to your income and taxations that must be given time. Prompt and well-prepared requirements will be result to greater benefits.
Prepare the paper works related to your transfer. Whether your return to the U.S. is long-planned or is the result of an immediate decision such as a resignation, there are departure forms that you need to accomplish.
There are different filings depending on the reason of your departure and the country where you came from. Some countries require submission of documents for the immigration office to scrutinize such as tax returns made by your employer during the year of your return. Others require the payment of an exit tax.
Prepare the record of your delayed compensations. Your receipt of any postponed payments including stock options, bonuses, and the like during your stay in the overseas may need some tax filing and payments as well. For proper reconciliation, it is thus important to have a list of these incomes. Make sure all information are included to have hassle-free filings.
Prepare to streamline your foreign assets. There are strict guidelines imposed by the U.S. to expats with foreign bank accounts, income, or other assets. Some penalties are severe when you fail to file these foreign financial ownerships.
Simplify your accounts by only disclosing those ownerships needed when you return to the United States. There are legal procedures on how to close other foreign accounts which you deem unnecessary while you are home. If you prefer to allow these financial assets to remain open, consider the benefits you might get from these after you leave. Just keep in mind that accounts from $10,000 and above need a yearly Report of Foreign Bank and Financial Accounts or FBARs as long as these accounts are active.
What to Expect
Although there are some preparations required on your part such as those mentioned above, there are also good news to expect during your return as a U.S. expat.
Expect to have your Social Security refund. Most other countries require a Social Security System contribution and your country is probably one of these. According to your status as a foreigner, there might be the possibility to refund the contributions you made once you move back to the United States.
Make sure you make time to ask the domestic tax authorities if you are qualified to get a refund. Ask also if your refund should be taxed. In most cases, contributions both from you and your employer in your foreign country were already taxed, but there are situations when this does not happen. You don’t want to pay double taxation which you can actually avoid if you get enough information beforehand.
Expect eligibility for credits, deductions, and exclusions. One of the advantages of being a U.S. expat are the tax treaties between U.S. and other countries which are made to help avoid double taxation. While living in a foreign country, these treaties including Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) can also help you lessen your taxes as an emigrant. Determine if your business or association is deserving to have these extra benefits included in your tax return. The period included will be the year that you move back to the U.S.
You don’t have to live an entire year abroad to enjoy a partial FEIE. You can also use FTCs for future business travels to other countries where incomes are earned. You can also benefit from FTCs if you will receive deferred payments in the future.
What to Understand
Greater understanding can mean more advantages and less trouble. There are intricate procedures and requirements related to U.S. taxation but once you get an accurate understanding, you will learn how to go through the process smoothly.
Understand policies of taxation on investment sales made in the foreign country. After settling back in the U.S., retention of your citizenship or claiming of your Green Card may take some time. Once retained, your citizenship requires payment of all assets – local or international.
Your foreign properties which you plan to sell will incur a tax payment computed from the sales price minus the original price. You will also be required to pay even part of the interest of the asset not related to your residence in the U.S. This is also applicable for other assets such as grant options, stocks, among others. There are other options available for your investments. A discussion and advice from an accountant will provide further details.
Understand the rules on United States residency. Filing taxes in the United States depends on individual state regulations which may not be entirely the same in every other state. Some states may be lenient and may not ask for income tax, while others impose strict compliance when it comes to tax filing and residency.
Other states will still consider you as a resident even if you are away in another country due to work assignment or business opportunities. In some states, there are required days of staying in and out of the country before you can be considered a resident or non-resident. There are penalties imposed only for residents, and there are also different policies for non-resident.
Paying taxes for your U.S. state residency while you live in a foreign country is possible when you don’t have enough knowledge on how your state runs residency guidelines for tax purposes.
Other details on taxes related to your return to the U.S. will be provided by your financial advisor. But the information presented here should be enough to get you going.