Retiring abroad may have tax surprises. The number one rule to becoming an Ex Pat is that if you don’t figure out your tax obligations before hand, you may end up with a big surprise down the road. Approximately 9.5 million Americans live in other countries. About 530,000 are earning Social Security benefits, according to the Department of Social Security.
The failure to plan your tax obligations ahead of time could cause a tax surprise by the IRS, your own home state, or a multitude of other taxing authorities that could easily be avoided with some simple planning. You not only need to figure out the tax obligations to Uncle Sam, so you don’t have tax surprises, but find out the tax obligations of the country you are moving to, so you don’t have tax surprises in your new country of origin. Certain countries have tax treaties with the United States that actually lower the taxes that Ex Pats have to pay, as opposed to increasing the tax rate.
The foreign income exclusion currently stands at $104100 for overseas income, that is excluded from income tax reported to the U.S. That does not count your retirement income, which is included. One of the most common misconceptions about the tax set up living abroad is that retirement income is tax free everywhere. It’s not. Most retirees get this idea from the Earned Income Tax Credit, but that is not the case, and causes tax surprises for untold numbers of taxpayers at tax time, across the world.
Your world income, and up to 85 percent of your Social Security benefits are generally taxable, irrespective of the country in which you reside. Don’t get caught with tax surprises, simply because you failed to plan and learn the nuances of the United States tax system and the country you choose to live in. For if you do, you may be giving us a call, with questions about your options for Tax Resolution. If so call 1-888-689-7861.