Retiring abroad sounds like a dream: morning coffee in a Portuguese plaza, sunset walks on a Mexican beach, or perhaps finally settling into that villa in Spain. It’s a reality for many, but for U.S. citizens, that dream comes with a unique shadow—the Internal Revenue Service (IRS).
While you can leave the country, you cannot leave your status as a U.S. taxpayer. The United States is one of the countries that taxes based on citizenship, not just residency.
This guide breaks down exactly what you need to know about navigating your tax obligations from afar.
When you move overseas, your tax life doesn’t get simpler, it doubles. You are essentially dealing with two sets of rules: your new home’s and Uncle Sam’s.
To stay compliant, most expats follow a specific order of operations:
The IRS requires you to report every cent you make, regardless of where the bank is located or where the check was cut. This includes:
Many people believe that if the U.S. has a “tax treaty” with their new country, they don’t have to file a U.S. return. This is a myth.
A tax treaty is simply a set of rules that decides which country gets to tax you first, so you aren’t double taxed. For example, if you live in Portugal, the treaty might say Portugal has the first right to tax your pension. You still report that pension to the U.S., but you then claim a Foreign Tax Credit. This credit acts as a dollar-for-dollar reduction of your U.S. tax bill based on what you already paid to Portugal.
Missing these requirements can lead to hefty fines, but staying informed makes them manageable.
If the combined total of all your foreign bank accounts exceeds $10,000 at any point during the year, you must file an FBAR.
Note: This isn’t just about one account having $10,000. If you have three accounts with $4,000 each, you’ve crossed the threshold and must report.
If you’ve lived abroad for years and didn’t realize you had to file, don’t panic. The IRS offers a “pardon” program called the Streamlined Foreign Offshore Procedure (SFOP). This allows non-willful taxpayers to get caught up on three years of tax returns and six years of FBARs without facing penalties.
If you’re planning to sell your house in California or New York to fund your move, timing is everything. It is often best to sell while you are still a U.S. resident to claim the home sale exclusion, which can keep up to $500,000 of profit tax-free for married couples. Waiting until you are a resident of another country could expose that profit to high foreign tax rates.
Navigating international tax law is a heavy lift. Many retirees find that a virtual CPA or a specialized USA accountant is essential for long-term planning.
Consider the story of “Robert,” a former resident of Washington State who retired to Spain. He initially tried to handle his own income tax services but was quickly overwhelmed by Spain’s “wealth tax” and how it interacted with his U.S. small business accounting. By hiring a knowledgeable CPA who understood both jurisdictions, Robert was able to structure his withdrawals to minimize his global tax rate, ensuring his retirement savings lasted much longer.
Whether you need IRS help for a past-due return or ongoing bookkeeping services for a rental property back in Oregon, professional accounting services are an investment in your peace of mind.
The Bottom Line Retiring abroad is an incredible milestone, but the paperwork follows you. By staying proactive with your corporate tax services (if you still own a business) and your personal accountant, you can focus on enjoying your new life rather than worrying about an IRS audit.
