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At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is how we get compensated.
At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is
Americans who live abroad are required to pay taxes but have an extension to file them until mid-June. Most expatriates can claim a foreign tax credit, which offsets U.S. tax liability.
The foreign earned income exclusion prevents you from being taxed on your income by both the U.S. and your country of residency.
It’s important to consider the tax implications of retiring abroad.
If you’re an American living in another country, tax time can be challenging. Whether you’re new to living abroad or have been an expatriate for several years, here’s what you need to know about staying in good graces with the IRS when you don’t reside in the U.S.
Paying Income Tax as an Expat
As a U.S. citizen, you must pay income tax no matter where you live. This means if you earn money in another country, you have to file an income tax return and pay the outstanding balance just as you would otherwise. Your tax return must be filed with calculations in dollars even if you are paid in foreign currency.
However, you do receive a two-month extension on the filing deadline. This means your income taxes are due in mid-June rather than in mid-April. Although you can e-file, you must also mail a copy of your tax return to Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215.
You will need to file a tax return in your country of residence as well as in the U.S. Depending on your new location, you may be taxed on your income twice. Some countries have a reciprocal agreement with the U.S. that prevents this situation, however.
You can deduct income earned in another country on your U.S. tax return after the amount is converted to U.S. dollars. This deduction is allowed for individual taxpayers who have earned foreign income during the current tax year. Although you will not receive a refund if the foreign tax credit exceeds your tax liability, the surplus can be applied to either any future tax year for 10 years or the prior year’s taxes.
Exceptions to this credit include income earned from Cuba, Iraq, North Korea, or other countries that the Department of State has designated as terrorism supporters. You must file Form 1116 with your tax return to claim the Foreign Tax Credit (FTC).
The Foreign Earned Income Exclusion (FEIE)
You can avoid double taxation on your income in both the U.S. and your foreign location by claiming the Foreign Earned Income Exclusion (FEIE). Up to $102,100 in foreign income can be excluded from your taxable income if you have foreign earned income, ongoing employment for at least 12 months, and can pass one of two residency tests.
The physical presence test requires that you have resided in the country for at least 330 of the last 365 days. You cannot pass this test if you have retained a U.S. address. You must plan your travel time carefully to meet this requirement. Missing the cutoff by just a day or two can be costly when it comes to your taxes.
The bona fide residency test requires you to live in the foreign country for the entire tax year and have the intention to remain there indefinitely.
Tax Implications for Retiring Abroad
If you’re planning to move to another country when you retire, you should simplify your finances as soon as possible before taking the leap. Make sure to set up online access to all your banking and investment accounts. Although the cost of living in your new locale might be much lower than in the U.S., you should still have several thousand dollars set aside for getting set up overseas. You may need it for a rental deposit, moving expenses, and other one-time costs.
If your only income in retirement comes from investment accounts and pensions, you are not eligible for the FEIE or the FTC. You may be able to claim them if you work part-time, however.
You may also be charged an extra fee to open an overseas bank account because the bank must comply with the Foreign Account Tax Compliance Act (FATCA). This law requires the bank to report the existence of your account to the U.S. government. You must report your holdings in foreign accounts if they exceed a certain threshold.
When opening a new bank account, you will need to provide proof of the source of the money. For example, if you try to deposit the proceeds of selling your home in a foreign bank account, come prepared with a copy of the closing documents from the sale.
Financial experts recommend keeping your retirement accounts in the United States to avoid reporting requirements under FATCA. Doing so also increases your investment choices and protects you from changes in world currency.
Although you can receive Social Security payments when you live abroad, you will not be able to receive Medicare.
When You Can’t Afford To Pay Taxes
Even if you are not living in the United States, past-due taxes will still accrue taxes and penalties. If you haven’t filed, you should do so immediately. The monthly penalty for not filing your taxes is 10 times greater than the monthly penalty for not paying your taxes. If you haven’t filed taxes in a few years, you can take advantage of Streamlined Offshore Filing Procedures. This provision allows you to file the past three years of tax returns without penalty.
Some individuals renounce U.S. citizenship to avoid paying taxes. If you go this route, you will have to prove that you have filed and paid all outstanding taxes for the past five years.
If you owe taxes you can’t pay, consult a CPA who is experienced working with expats so you can amend your returns to claim the credits above if you haven’t already. You can also contact Solvable to be matched with well-reviewed companies that provide solutions for those facing tax, student loan, and credit card debt.
Solvable is a for-profit company that helps customers resolve their tax problems, but a free service for consumers. Partners cannot pay us to guarantee favorable editorial reviews or ratings. We do not publish favorable (or unfavorable) editorial reviews or assessments at the direction of an advertiser or partner. We always work to put consumers first and do our best to provide value in meaningful ways, but our reviews are subjective.
How We Make Money
Solvable is compensated by some of the companies seen on our website. Most often, Solvable receives fees when one of our readers clicks, fills out a form, applies for, or receives a financial product from one of our partners. We also earn fees for capturing consumer stories and writing about them, displaying advertising, having our partners sponsor certain parts of the site, and writing content that may be relevant to our partner and their audience. This compensation may impact where products appear on this site, including article pages, comparison listings, the order in which they appear or if they will even appear on a given page, and our matching recommendations. Solvable has not written about, reviewed, or rated all financial products available to consumers.
In addition, we may be compensated in the following ways:
Referrals to consumers who use the online form or locator line that may provide expert answers to questions;
Marketing tax resolution, tax preparation, tax audit help and general tax assistance.
Referrals to services that help consumers with tax resolution, tax preparation, tax audit help and other tax issues.
We do recommend that you shop around and compare services and costs with other companies while performing your own due diligence, especially since people’s experiences with companies can change over time.
Free Solvable Services
The offers that you are matched up with are from companies or attorneys/law firms that we may receive compensation from. Based on our initial review of such companies or individuals, we feel comfortable introducing them to our readers. We won’t recommend something just because we’re offered payment to endorse or promote it. However, we do recommend that you shop around and compare services and costs with other companies while performing you own due diligence, especially since people’s experiences with companies can change over time.
We are not attorneys and we don’t provide legal advice. As always, we encourage you to do your homework and check out individuals and companies before you hire them. If you are already working with an attorney, we urge you to ask them your questions. After all, they will be familiar with your situation and the laws in your state.
We hope that you find Solvable helpful in your efforts to get a fresh start.
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Personal Loan Providers determine the underwriting criteria necessary for approval. You should review each Provider’s terms and conditions to determine which loan works best for you and your own personal financial situation. All reasonable efforts are made to provide and maintain accurate information. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each Provider’s or affiliates discretion. There is never a guarantee you will be approved for credit or that upon approval you will qualify for the advertised rates, fees, or terms that were shown.
Be sure to speak with your representative about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask up front about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $35,000 may be available through participating lenders or affiliates; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. In some cases, lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Ask your representative for details.
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Business Loans Advertiser Disclosure
Business Loan offers that appear on this site are from companies or affiliates from which solvable may receive compensation. This compensation may impact how and where products appear on this site (including for example, the order in which they appear or whether a lender is “featured” on the site). solvable does not include all Business Loan companies or all types of offers available in the marketplace.
Business Loans are those loans that are for commercial use and any property and/or proceeds from the proposed request will be used by the requestor for commercial purpose only and not for any personal, family or household purposes.
Most of our Business Funding Partners or affiliates, do not require collateral for business loans; however, please note that it is possible to be offered another product by the lender depending on your needs and if the underwriting requirements dictate the same. Traditional bank and SBA loans generally are known for collateral requirements.
There is no one-size fits all business loan. Rather there are several types that will likely be offered and or discussed with you upon completing your request. Business Funding Partners determine the underwriting criteria necessary for approval, you should review each Partner’s terms and conditions to determine which business funding option works for your business’s financial situation. All reasonable efforts are made to provide and maintain accurate information. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each Partner’s discretion. There is never a guarantee your business will be approved for credit or that upon approval your business will qualify for the advertised rates, fees, or terms shown. Lender terms and conditions will apply and all products may not be available in all states. Ask your loan representative for details.
Student Loan Refinancing Advertiser Disclosure
Student loan offers that appear on this site are from companies or affiliates from which solvable may receive compensation. This compensation may impact how and where products appear on this site (including for example, the order in which they appear or whether a lender is “featured” on the site). solvable does not include all student loan companies or all types of offers available in the marketplace.
Potential savings may vary based on the interest rates, balances and remaining repayment term of the loans you are seeking to refinance. Your overall repayment amount may be higher than the loans you are refinancing even if your monthly payments are lower. Variable rate options will fluctuate over the term of your loan with changes in the LIBOR (or other index utilized by the lender) rate, and will vary based on applicable terms and presence of a cosigner. Fixed interest rates may be based on applicable terms and presence of a co-signer. Additional terms and conditions, and rates are subject to change at any time without notice and may not be available in all states or for all types of current student loans. Such changes should only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Lenders are required to provide every potential borrower with disclosure information before they apply for a private student loan. The Lender you select is required to provide you with an Application Disclosure and an Approval Disclosure within the application process before you accept the terms and conditions of your loan. solvable is not a lender or creditor, it does not offer, extend or alter credit terms. Only participating lenders can perform the full application and deliver the required disclosures, please ask your lender about rates, terms, fees, and potential discounts that may be available for each product.
Certain federal and private student loans may not be eligible for consolidation/refinance.
Certain consolidation/refinance plans may result in higher monthly payments or negative consequences (i.e. prepayment penalties).
Consolidation/refinance may lead to other negative results, such as loss of grace periods.
Loans in default generally cannot be consolidated until completion of a repayment trial plan so tell your lender if you are in default and determine relevant options (be wary of those asking for upfront fees as well)
Other options or programs may fit your needs (i.e. personal loan, debt consolidation and/or debt relief). Consult your financial and/or tax advisor prior to making any decisions.
Solvable is not a creditor as it does not offer, extend or alter credit; rather it is an online market lead generator that allows consumers to shop and compare rates, terms and costs associated with financial products such as mortgages, auto loans, personal loans, student loans, etc. solvable does not originate or fund any product it markets; rather it has a network of lenders or Partners/affiliates. You may choose to speak with one or more of these lenders or Partners/affiliates to determine what your actual terms and savings may be. Only a lender can provide you with a formal application for credit, your inquiry form here is merely an expression of interest and/or intent to obtain credit or assistance. You must discuss your actual credit situation and fill out the lender’s required documents prior to obtaining an extension of credit. Network lenders may not have the best or the lowest rates so you are encouraged to continue to shop and compare additional lenders, credit unions, local financial institutions, etc. to ensure you are truly getting your best deal for your situation.
You should contact your tax professional or other financial advisor to determine if you can actually realize savings by refinancing when it can extend the life of your current loan. You should ask the lender about all terms, rates, fees and costs associated with each product and if you will realize a net tangible benefit from the same. All initial estimated savings is done by trying to calculate what your rate may be; however, solvable does not have that information and cannot guarantee potential savings or that lenders will approve you for such product that would warrant those savings. Rates are not guaranteed and change daily. Lenders/Brokers/Dealers/Partners that perform the actual underwriting will have to determine if you meet their underwriting criteria which is unknown to solvable at the time of matching/offer/quote delivery. All amounts are estimates and examples only and do not represent an actual offer.
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