Your First Year Abroad

About to be a new expatriate?  There are some important tax matters you need to know beforeExpat Tax Issues in Your First Year Abroad you go. Global Tax Help has prepared an overview for your first year abroad.  Should you have additional questions, please use our Info Request form– we’ll be happy to help you prepare!

You should know first and foremost that all US citizens are required to report their worldwide income to the IRS on their tax return. The two primary forms required for expat returns, in addition to the usual Form 1040, etc., are Form 2555 (PDF) – Foreign Earned Income Exclusion (instructions) and Form 1116 (PDF) – Foreign Tax Credit (instructions).

You are also required to pay into a social security system. The US has Totalization Agreements with countries to ensure that you are not having to pay into two systems, but you must pay into one.

US citizens who live abroad get an automatic 2 month extension to file until June 15th. However, if you want to extend this until October, you will need to file for an extension by April 15th. Make sure to check with your state to see if they accept the federal extension or whether you need to file an extension with the state as well. Filing an extension is never a bad idea for expats— it gives you additional time to decide what you are going to do.

There’s good news, though:  the IRS provides two tools to help reduce, or eliminate, double taxation for expatriates.  The first is the Foreign Earned Income Exclusion, which if you qualify, allows you to exclude up to $100,800 for the 2015 tax year ($104,100 for 2018). If you want to claim the Foreign Earned Income Exclusion, you will need to meet the Physical Presence Test. This means you must be outside the US for 330 days out of a 365 day period. Most expats tend to file extensions in their first year so that they can be eligible for the exclusion. Please visit our Expat Tax Basics page for more information.

The second tool is the Foreign Tax Credit.  This, potentially, gives you up to a dollar-for-dollar credit against your US taxes for taxes paid to foreign country.  We recommend that you contact a tax expert in your new country for assisting in filing your taxes there. We use the information from your localized tax returns to calculate your Foreign Tax Credit. You can also find more information on taxation by country in the Foreign Tax: Country-Specific Sites section of our Self-Help Links page.

Here is a useful checklist for planning your international move:

  • Investigate Your New Country’s Rules
    Regulations and laws vary widely among different countries, so it is important to research these before moving abroad. Contact the appropriate embassy or consulate for information relevant to expatriates relocating to the country, including:

    • Visas and permits
    • Vaccines for family members
    • Restrictions or taxes on shipped household items
    • Taxes involved in shipping your car
    • Vaccines and quarantines for pets
    • Insurance
  • File Applications for Passports, Visas and Permits
    Do this early, as this process takes time to complete. It is also wise to renew early if any of these documents is set to expire in the near future.
  • Gather Important Documents
    Be sure to request official copies of important personal documents and allow at least several weeks to receive them. Suggested items include:

    • Birth and Marriage Certificates
    • Naturalization, Green Card, Proof of Citizenship, etc.
    • Social Security Cards
    • Vaccination, Medical and Dental Records
    • Insurance Policies
    • Academic Records and Diplomas
    • Employment Records
    • Proof of Residency (utility bill, statement, etc.)
    • Living Will and Testament
  • International Moving and Shipping Companies
    Contact international moving and shipping companies to obtain quotes for transporting your belongings overseas. Since it could take over a month for your items to arrive, plan ahead when scheduling your shipment.
  • Insurance
    It is critical to determine the exact insurance requirements and availability at your new destination as limits vary widely throughout the world.
  • Auto Insurance
    Anyone planning to operate an automobile internationally will need to purchase an International Auto Insurance policy. Requirements vary among countries, so select an insurance provider with the expertise and resources to ensure the policy meets your needs.
  • Property Insurance
    International personal property insurance, which can include transit and destination coverage, protects items damaged during the relocation process, while in your foreign residence or during shipping and transit. Contact an insurance provider specializing in expatriates for more information.
  • Health Insurance
    Even if your destination country has a socialized healthcare system, you may not be eligible for coverage. If you are not covered under a group medical insurance program, individual policies can be purchased to protect you in a foreign country. These policies include worldwide medical protection and also can include evacuation services. Costs are reasonable and, in many cases, less expensive than stateside coverage.
  • Bank and Credit Card Accounts
    Review your accounts and notify your banks that you will be overseas. Also consider online international banking, which makes it easier to transfer and manage funds between countries.
  • Prescription Drugs
    If you or a family member takes prescription drugs, purchase additional quantities and obtain a copy of the medical file related to the condition. Keep them in your carry-on luggage in the event any bags are lost in transit.
  • International Driving Permit
    Renew your driver’s license if it is set to expire soon. Acquire an international driving permit (IDP) and take extra forms to renew it annually by mail. You can obtain an IDP at a local office of the American Automobile Association and the American Automobile Touring Alliance (through the National Auto Club). Remember to carry both your IDP and your U.S. state driver’s license with you at all times.
  • Pets
    If your pet is moving with you, ensure it receives proper vaccinations and identify a pet carrier. If you have decided not to bring a pet, allow enough time to find it a new home.
  • Flight and Hotel Reservations
    Make any necessary travel arrangements as soon as your travel dates are set.
  • VOIP Phone Service
    Consider using VOIP (Voice over Internet Protocol) phone service, otherwise known as broadband phone service. This is an affordable way for expatriates to make local, long-distance and international calls, all for a relatively small monthly fee.
  • Cancel Subscriptions and Forward Mail
    Cancel all publication subscriptions and complete the appropriate forms at the post office to ensure your mail is forwarded to your new address.
  • Find out all you can about your new home!
    Learn about the country’s history and culture before you move, so you are prepared with the necessary knowledge to adapt quickly to your new home.

(prepared by Kathy Dorf, Clements International)