Tax & Residency Strategy
You don't stop being taxed just because you moved. This page explains the U.S. rules that follow you abroad — and how to keep your life simple instead of accidentally creating a mess.
Important Notice: The information, tools, calculators, and explanations on this page are provided strictly for educational and general informational purposes. They do not constitute tax advice, financial advice, legal advice, or a substitute for guidance from qualified professionals who can consider your specific circumstances. U.S. tax law, state residency rules, and international reporting requirements are complex and subject to change. Before making decisions about selling property, changing residency, or moving abroad, consult a licensed tax professional, CPA, or attorney.
The U.S. Taxes You No Matter Where You Live
Unlike almost every other country on earth, the U.S. taxes based on citizenship, not residency. It doesn't matter if you live in Italy, Portugal, or a spaceship orbiting Saturn — if you hold a U.S. passport, you file a tax return.
You might not owe, but you must file.
What You Must File Every Year
- Form 1040 (always)
- Foreign tax credits (Form 1116) or FEIE (Form 2555)
- FBAR (if foreign accounts exceed $10,000)
- FATCA Form 8938 (if assets exceed thresholds)
- State tax return (maybe — see below)
What You Don't Get to Escape
- IRS jurisdiction over worldwide income
- Reporting foreign bank accounts
- Reporting foreign assets
- Filing requirements regardless of residency
Your State May Still Consider You a Resident
Leaving the U.S. is easy. Leaving your state… is another story entirely.
Some states aggressively pursue former residents — California, New Mexico, South Carolina, Virginia. Others release you easily. A few don't tax income at all. Residency is determined by facts and circumstances, not what you think is "fair."
Select your state to see exit difficulty:
Deeper strategy available on the State Exit Playbook page (coming soon).
How the U.S. Avoids (Most) Double Taxation
There are two main tools the IRS uses to prevent you from paying full taxes twice:
Foreign Earned Income Exclusion
Best for remote workers
Excludes up to ~$126,500 of earned income from U.S. taxation.
Does NOT apply to:
- • Pensions
- • Social Security
- • IRA/401(k) withdrawals
- • Dividends or rental income
Foreign Tax Credit
Best for retirees & investors
Dollar-for-dollar credit for taxes paid abroad. This is what most retirees use in Europe.
Best for:
- • Pension income
- • Investment income
- • Rental income
- • Social Security (in some countries)
Tax Treaties Explained Without the Legal Nonsense
Tax treaties do not exempt you from filing a U.S. tax return.
They decide which country gets to tax what.
Social Security
IRA Withdrawals
Dividends
Capital Gains
Rental Income
Government Pensions
Foreign Accounts You Must Report
If you move abroad, you'll likely have foreign bank accounts, investments, retirement accounts, and joint accounts with your spouse. These require reporting — not because you did anything wrong, but because the U.S. has extremely aggressive anti-money-laundering regulations.
FBAR (FinCEN 114)
You must file if your combined foreign accounts exceed $10,000 at any time during the year.
Penalties are brutal. Always file.
FATCA (Form 8938)
Thresholds start at $200,000 for expats filing single.
Catches investments, pensions, and some insurance products.
Do you have any of these foreign accounts?
You likely do not need to file
If you don't hold any foreign accounts, FBAR and FATCA don't apply to you.
How Your U.S. Investments Are Taxed When Living Abroad
Your U.S. investment accounts remain U.S.-taxable. But the foreign country may also tax them — depending on their rules.
U.S. Taxation
Still taxed normally:
- Capital gains
- IRA/401(k) withdrawals
- Rental income
Foreign Taxation
Depends on treaty:
- Some countries tax capital gains (Italy often does)
- Some tax dividends (Italy does)
- Some tax Social Security (Italy does; Poland does not)
Why You Should Avoid Foreign Mutual Funds & ETFs
Foreign mutual funds are treated as PFICs — the most punitive tax category in the U.S. system. Your accountant will beg you to avoid them.
If you move to Europe, keep your investments in the U.S. unless you have professional advice. Foreign index funds sound fun until the IRS hits you with Form 8621.
Your Post-Move Filing Timeline
Update Your Records
Update address with IRS + financial institutions
Track Foreign Accounts
Track foreign account balances for FBAR threshold
File U.S. Tax Return
June 15 automatic expat extension applies
File FBAR
FinCEN 114 due if accounts exceeded $10,000
File FATCA
Form 8938 if assets exceed thresholds
Do These Things Before Boarding Your Flight
Update address with IRS
File Form 8822 or update via IRS.gov account
Close unnecessary U.S. state ties
Driver's license, voter registration, home ownership
Move investments to U.S.-compliant options
Avoid PFICs — keep funds in U.S. brokerages
Understand treaty rules for your destination country
Social Security, pensions, dividends, capital gains
Set up international banking
Some U.S. banks close accounts for overseas residents
Download your last 3 years of financial documents
Tax returns, W-2s, 1099s, brokerage statements
Helpful Guides and Tools
IRS International Taxpayer Page
Official IRS guidance for U.S. citizens abroad
FBAR Filing Site
FinCEN BSA E-Filing System
FATCA Form 8938 Instructions
IRS instructions for foreign asset reporting
Publication 54
Tax Guide for U.S. Citizens Abroad
U.S. Embassy Taxation Portal
Country-specific tax information
Need a Tax Exit Strategy?
Book a consultation to build your personalized tax and residency plan.
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