“I’ve just gotten residence in Ecuador. That means I don’t have to file my U.S. taxes anymore, doesn’t it?” This is the type of question I hear regularly. There are many misconceptions about Americans living overseas, a common one being that once you move overseas, you are no longer required to file a tax return.
The New York winters were getting too cold for Terry and Sue Jones. Apart from that first, pristine snowfall of the year, it just wasn't fun anymore. Their friends started retiring to Florida, sending them Christmas cards of white-sand beaches and palm trees. The Jones’ were considering moving there, but they discovered International Living and decided to look for their new home overseas.
Using your self-directed IRA to buy real estate is a hot topic in the tax world. But there are misconceptions surrounding it. Misconceptions that, if implemented, might cost you thousands in taxes. One of the big benefits of buying real estate with your IRA is tax deferral. But in order to benefit, it’s important to have all the facts. It can be easy to make a tax or legal mistake…so here are some dos and don’ts for owning real estate in self-directed IRAs.
When I talk to International Living readers, I usually focus on sharing how you can minimize your U.S. taxes and stay out of trouble with the IRS. But today, I’m going to do something a little different. I'm going to share with you what I do. I live part of the year in Jaco, Costa Rica. When I bought my condo, I kept the owning and renting of this foreign real estate simple: I bought it in my own name. That’s pretty unusual; Jaco is one of the few remaining areas that allow Americans to own beachfront property in their own name. This keeps my U.S. tax reporting of the rental income reportable—just like a U.S. property—and I do not have to make a foreign corporation disclosure.
As a U.S. citizen, no matter where in the world you live, the IRS requires you to report your income, file your tax return, and pay your taxes. There are many common misconceptions about Americans living overseas, a common one being that once you move overseas, you are no longer required to file a tax return.
Genevieve from Atlanta married a prince from Monaco. She moved all her belongings to her new home to live there with him. As a U.S. citizen abroad, she files her annual tax return with a status of Married Filing Separate. All assets are in her husband’s name and nothing is titled jointly.
Many Americans of or near retirement age count their IRA as their greatest source of wealth. But despite contributing as regularly as they possibly can and watching their nest egg grow, many of those same people are at a loss when it comes to deciding how to make that investment grow further.
As a wise man once said, the journey of a thousand miles begins with the first few steps, and that's particularly true when it comes to making the move overseas. Those first steps are all about learning: learning what you want out of your move, learning what you really need to do to get there, learning what your courses of action should be, and learning where the edges of error lay.
We all look for ways to minimize our U.S. tax bill and to maximize our freedom abroad. We all desire to simplify our tax and reporting responsibilities. We want to think less about taxes...and enjoy more of our international experience. The good news is, if you approach your taxes in the right way, you can save yourself from the stresses of Tax Day every year...free up thousands of dollars that you're legally entitled to that might otherwise go to the IRS...and avoid unnecessary and costly non-disclosure penalties.
As a wise man once said, "Forewarned is forearmed"...and that's never truer than when it comes to taxes. Informing yourself of all the IRS regulations is a sensible idea—and could save you thousands of dollars. While it's important for every American citizen to understand the phraseology of the regulations, if you're thinking of living, working, or investing abroad, it's even more important.