Can moving your investments overseas help you escape U.S. taxes?

For American citizens and green card holders, the answer isn't as simple as moving money to Switzerland, Malta, Cyprus, the Isle of Man, or another supposedly tax-friendly jurisdiction.

In Episode 35 of the Divorce the IRS Podcast, we wrap up our series on living, working, and retiring abroad by looking at one of the biggest investment mistakes American expats can make: owning certain foreign investments.

The United States generally requires U.S. persons to report and pay taxes on their investments regardless of where those investments are located. Moving your money outside the United States doesn't automatically remove it from the U.S. tax system.

And some foreign investments can create an entirely new set of problems.

One of the biggest is the Passive Foreign Investment Company, better known as a PFIC.

In this episode, you'll learn:

• Why moving investments overseas doesn't eliminate U.S. tax obligations
• What a Passive Foreign Investment Company, or PFIC, is
• Why foreign mutual funds and ETFs can create problems for Americans
• How UCITS funds can be treated for U.S. tax purposes
• Why a foreign version of a familiar U.S. investment isn't necessarily the same investment
• How foreign pensions and retirement plans can potentially create PFIC issues
• Why certain foreign life insurance and money market products may also be problematic
• How complicated PFIC reporting can become
• Why PFIC taxation can be significantly less favorable than traditional U.S. investment taxation
• Why Americans don't necessarily need foreign investment accounts to invest internationally
• How a U.S.-based portfolio can still provide exposure to companies and markets around the world

For Americans living overseas, one of the easiest mistakes to make is assuming an investment available locally works the same way as a similar investment available in the United States.

It may not.

A foreign mutual fund or ETF could look nearly identical to its U.S. counterpart but be legally structured differently, potentially turning it into a PFIC for U.S. tax purposes.

Owning a PFIC isn't necessarily illegal. But the reporting requirements and potential tax consequences can make these investments extremely unattractive for U.S. taxpayers.

And hiding money overseas isn't a strategy for divorcing the IRS.

If you want international diversification, you don't necessarily have to move your investments overseas to get it. U.S. financial markets provide access to investments and companies throughout the world while potentially avoiding many of the complications associated with foreign investment accounts.

The goal isn't to discourage Americans from living or retiring overseas. It's to understand the rules before making a financial decision that could create unexpected taxes, reporting requirements, penalties, or headaches later.

FREE U.S. EXPAT GUIDE

Considering living, working, or retiring abroad? Download the free U.S. Expat Guide for more information about the financial and tax issues Americans should consider before and after moving overseas.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

You can also learn more at baobabwealthabroad.com.

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• Visit Baobab Wealth Abroad
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Living overseas can create tax-planning opportunities that simply aren't available while you're living in the United States, especially when it comes to Roth conversions.

In Episode 34 of the Divorce the IRS Podcast, we continue our conversation about living, working, and retiring abroad by exploring Roth conversion strategies Americans overseas may be able to use to reduce their future tax burden.

One potential advantage is simple: while Americans abroad generally remain subject to U.S. federal income taxes, they may no longer owe state income taxes.

For someone who previously lived in a high-tax state such as California or New York, that can create an attractive window for moving money from tax-deferred retirement accounts into Roth accounts.

But the opportunities don't stop there.

Americans who qualify for the Foreign Earned Income Exclusion (FEIE) may also have situations where their standard deduction can offset income created by Roth conversions. With the right circumstances and careful planning, this could allow someone to move money from a tax-deferred account into a Roth while paying little or potentially no U.S. federal income tax on the conversion.

In this episode, you'll learn:

• Why living abroad can create unique Roth conversion opportunities
• How eliminating state income taxes can make conversions more attractive
• Why properly ending residency in a high-tax state matters
• How the Foreign Earned Income Exclusion can affect your Roth strategy
• How your standard deduction may create room for Roth conversions
• Why your income level determines which strategies are available
• How a move from a high-tax state could potentially produce significant tax savings
• Why the country you're living in matters before completing a conversion
• How foreign countries may treat Roth IRAs differently than the United States
• Why FATCA and FBAR reporting requirements shouldn't be ignored
• Why expat-specific financial and tax planning becomes increasingly important as your strategy gets more complex

We'll also walk through the example of the Smith family, who moved from California to Dubai for a five-year work assignment.

Because the Smiths properly broke their California residency before leaving and the UAE doesn't impose an income tax, they have an opportunity to execute Roth conversions without paying the 9.3% California marginal state income tax they would have faced back home.

But there's an important warning: just because a Roth conversion makes sense from a U.S. tax perspective doesn't mean it will make sense in the country where you're currently living.

Some countries may treat Roth conversions, Roth IRA growth, or distributions as taxable income. That's why understanding both sides of the equation is essential before making a move.

Living abroad can create powerful opportunities to divorce the IRS, but international tax planning can become complicated quickly.

FREE EXPAT GUIDE

Thinking about living, working, or retiring overseas? Download the free U.S. Expat Guide for a deeper look at the financial and tax considerations Americans should understand before making the move.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

And stay tuned for the next episode, where we'll look at investing overseas and whether moving your investments outside the United States can actually help you avoid U.S. taxes.

• Visit Divorce-the-IRS.com
• Visit Baobab Wealth
• Visit Baobab Wealth Abroad
• Buy a copy of Jimmy's book, Divorce the IRS
• Follow us on Facebook
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Thinking about living, working, or retiring overseas? Moving abroad may change your lifestyle dramatically, but it doesn't mean leaving the IRS behind.

In Episode 33 of the Divorce the IRS Podcast, we explore some of the most important financial and tax-planning considerations for Americans living abroad, as well as those considering making the move.

Whether you're retiring overseas, working remotely from another country, or embracing the digital nomad lifestyle, your finances can become significantly more complicated once you cross U.S. borders. The good news is that proper planning can also create valuable tax opportunities.

In this episode, you'll learn:

• Why Americans living abroad generally still have U.S. tax obligations
• How the Foreign Earned Income Exclusion (FEIE) works
• What types of income do and don't qualify for the FEIE
• The physical presence and bona fide residence tests
• How the Foreign Tax Credit (FTC) can help reduce double taxation
• Why the FTC may sometimes be more valuable than the FEIE
• How living abroad can affect your ability to contribute to retirement accounts
• Why your former state of residence can still matter after moving overseas
• How establishing domicile in a no-income-tax state may help before leaving the U.S.
• How Social Security and Medicare taxes work for Americans abroad
• What totalization agreements are and why they matter
• How working overseas could affect your eligibility for Social Security benefits

One of the biggest misconceptions about becoming an expat is that leaving the United States means leaving the U.S. tax system. The United States generally taxes its citizens and green card holders on worldwide income regardless of where they live.

But that doesn't mean expats are without options.

Strategies such as the Foreign Earned Income Exclusion and Foreign Tax Credit can provide significant tax relief when they're used appropriately. Your state residency, retirement accounts, Social Security benefits, and the country you choose to call home can also play an important role in your overall financial plan.

If you're considering moving abroad, planning before you leave the United States can make a major difference.

FREE EXPAT GUIDE

Thinking about living, working, or retiring overseas? Download the free U.S. Expat Guide for a deeper look at the tax and financial planning considerations Americans should understand before and after moving abroad.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

And stay tuned for the next episode, where we'll continue the conversation with even more tax strategies Americans abroad can use to potentially reduce their tax burden and work toward divorcing the IRS, even from overseas.

• Visit Divorce-the-IRS.com
• Visit Baobab Wealth
• Visit Baobab Wealth Abroad
• Buy a copy of Jimmy's book, Divorce the IRS
• Follow us on Facebook
• Subscribe to us on YouTube
• Connect with us on LinkedIn