Moving Overseas? Here are the Tax Consequences You’ll FaceJune 01, 2021
Are you moving overseas? There are several tax consequences you should be aware of. Here, we explore those tax consequences through Ana’s story.
If you’re considering moving overseas, there are tax consequences you’ll want to read up on. Let’s dive into Ana’s story, a single engineer from Massachusetts who decided to pack her belongings and book a one-way airplane fare to Peru after landing a new job.
Will Ana continue to have to file income tax returns?
Yes, as a U.S. citizen she will continue to have a Federal income tax return filing obligation if she meets the filing thresholds. Since Ana will be living in Peru, the filing deadline will be June 15th as taxpayers overseas get an automatic two month filing extension.
Wait what about her Massachusetts state filing?
Since Ana doesn’t intend to move back to MA, gave up her rental apartment, and cut all her ties to MA, the year of her move will be the last MA resident income tax return she files. This is assuming Ana has established her domicile in Peru. If Ana comes back to MA for business purposes, she may have to file a nonresident income tax return.
What else should Ana be worried about?
Ana will also want to know how to avoid double tax. Ana will also have to comply with the Peruvian income tax system and pay personal income tax. Now that she is employed in Peru and will be taxed on her worldwide income in the United States, it will be important for Ana to explore the options available to her, to mitigate her worldwide tax burden. Some of the most common options are the foreign earned income exclusion and/or the foreign tax credit.
Some other important factors to consider…
- Ana, and others in her situation will want to :
- Gain an understanding of the tax system in Peru. (E.g. filing deadlines, tax rates, income subject to taxation, etc.)
- Have a discussion of her U.S. and Peru pre-planning tax opportunities with both her U.S. tax and Peruvian tax advisers to sort anything out before her move to Peru.
- Understand the Implications of future social security payments
Our team specializes in the analysis and minimization of worldwide income tax obligations. Contact our International Tax Services team for assistance.