Taking a new position overseas may be bring career growth opportunities and offer a fun change but it also brings many financial planning challenges. Generally, people go overseas for three- or five-years. During that time, they will work with other expats or foreign citizens and talk about how they invest. This is just one of the reasons why U.S. citizens with jobs and money outside the U.S. need additional financial advice.
Most countries tax only the income earned within its borders - but not the United States. Federal law requires that U.S. citizens and legal residents declare any foreign account and pay taxes on the income it generates. Fines for not filing a Report of Foreign Bank and Financial Accounts disclosure form can total $100,000 per year for each account, or half an account's balance on the June 30 filing deadline for each year a violation occurred, if the IRS concludes that the failure to file was deliberate. On top of the penalties, account holders must pay the taxes due, plus interest.
Some account holders don't think they could owe U.S. taxes because they don't live in the U.S. They are wrong. Among the laws on foreign accounts held by U.S. taxpayers: Account holders must pay taxes on all income, regardless of its source. Also, taxpayers who have more than $10,000 in an account any time during the year must file a disclosure form each June 30, even if an account generated no income.
Decades ago, people may never have learned about delinquent tax bills. But the IRS has gotten much better at finding all kinds of foreign accounts and their owners.
Employers often include tax preparation in contracts to comply with U.S. law, and some will equalize or pay your foreign taxes. Make sure all local taxes and filings in the foreign country are in by there due dates. This may require you to hire a local tax expert. Expats may be eligible for foreign tax exclusions, deductions or credits to protect against being taxed twice on the same income.
Americans who go abroad for work often have international accounts. Some of these investments may be investments outside the United States but these investments don't have the same tax reporting requirements. For instance, you will not receive a Form 1099 to use when filing a tax return.
Since foreign investments are an area of concern it makes sense to avoid them or when possible to repatriate your money. Some overseas accounts, particularly those in passive foreign investment companies, may have surrender fees of up to 50% and may require you to keep contributing until retirement.
Foreign country laws may void legal documents and asses higher taxes on estates. To protect your estate plan expats can specify in their wills that U.S. law should govern their estates. In any case, you should consult an attorney specializing in the area of expatriate law.
It is also wise to make sure your insurance will be accepted in the country where you will be living.
