Expat Tax Planning: Legally Avoiding State and Local Income Taxes

We will preface this article with the advice that for expat tax planning, the expat should always consult with their tax CPA for legal and correct advice that legally conforms with state and local requirements. A qualified accountant can give you the specifics based on your situation.

What tax questions should we ask?

Advice number one for planning expat taxes is to research and plan your complete departure from your state, for taxable purposes. No article can completely prepare, nor advise, you for expat tax planning at the state and local level. Each state has different criteria as to what constitutes a resident for tax purposes. For the future expat tax advice is to check out local criteria that could effect many of your decisions.

Taxes aren't fun... but taking the time to make good choices upfront can give you some of the best returns for your time and money.

Some people put time and money in investing to get a 5% return only to lose 10% from other mistakes. Don't get overwhelmed just make a call and begin finding out!

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10 Important Suggestions and Considerations:

1. If you maintain a current state driver license

2. If you register to vote in the state

3. If you maintain an address in the state

4. The location of your bank accounts

5. If you own or rent real property in the state

6. If your children still attend school in that state

7. The license plates on your cars

8. You still receive utility bills in that state

9. You declare any taxable income in your state

10. Even if you have a library card in the state

Do get tax advice on:

1. Contact your CPA for specific information in order to eliminate state taxes

2. Give up your state drivers license

3. Give up your voters registration

4. Eliminate all, if not most of the above.

5. Open, on line, an account that is independent of your state. If worse come to worse, establish residence in a state like Nevada, Texas or Florida which has no income tax.

Do investigate the inheritance tax consequences of the states also.

By no means is this list exhaustive but it is just the beginning of a list of factors to consider.

Although my teaching pension is neither taxable at the state nor local level, my wife plans to do travel nursing while we live in Mexico and the tax ramifications of any state we claim residency is a significant consideration. This is why she will travel nurse in Florida or Texas.

Be careful to eliminate all factors that could indicate residency since the state could retroactively go after you for past taxes. The simple fact of moving back to your home state years later could spark an audit along with an assessment of past taxes plus interest and penalties.

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