This tax season, many new US expatriates were astounded to find out they would be required to file a State return along with their US Federal Expat tax return. The truth is certain states are more difficult than others when comes time to get rid of tax residency. Some of those persistent states will obstinately hold you liable for your US expat state taxes. That may also happen even if you are planning to work or have been working overseas for many years. The fundamental to escape these tax traps is to cut your fiscal bonds with these states.
The ¨Magnificent Seven + Two States¨ – The Favorable States
Nine out of the fifty states offer the best conditions for an expatriate for tax purposes. They are:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
These 7 states have no individual state tax at all. In other words, they will not go out of their way to track you when you are working abroad.
New Hampshire and Tennessee are almost like the ¨Magnificent Seven¨ except that they only will require your filing for them to collect taxes on investment income such as dividend, interest or rental income.
One typical strategy when moving overseas is to move into one of those states before coming to here to Spain. This is a strategy to consider in order for you save and escape state filing once overseas.
The ¨Furious Four States¨ – The Less Favorable State
This is section is for all of the expats who last had residency in the state of
- California
- South Carolina
- Virginia
- New Mexico
Those states are much more diligent in keeping their residents. This unfortunately means that you will bear the burden of proof and will need to convince the state authorities that you will no longer be living within that jurisdiction.
California and South Carolina are especially stubborn in uncovering any type of ties that a US expat still has to the states. You must be prepared to file in those states if you have:
- Mortgage or lease payments on property
- A state driver’s license
- State bank accounts or investments
- Telephone and utility bills
- Voter registrations
- Library cards
- Mail correspondence
- Association memberships
- Dependents living within the state
To positively terminate your residency status in any of the four states mentioned, most or all of the aforementioned ties need to be shed.
Just changing your mailing address to one of the ¨Magnificent 7+ 2 States¨ is not going to be enough to sever those ties.
Every Other States – Neutral State
The outstanding not mentioned above have what we would called impartial conditions which are neither beneficial nor difficult for US Expatriates. If you out of those states for more 6 months, most of these states will consider non-resident in that state if you prove residency elsewhere.
So… How To Minimize Your State Tax Exposure As An Expatriate?
So you are planning to move to Spain? Here are some tips on how to minimize your State tax exposure and burden:
If you can afford it, move to one of the non-taxable states that are the ¨Magnificent 7 + 2 States¨ several months before heading over.
Do not leave your dependants inside the state before moving especially in California, South Carolina, Virginia or New Mexico
Cut as many physical links as possible to the state you are trying to end residency with. That meanes mortgages, bank accounts or bills, They generate a long paper track. Regardless of your intentions to indefinitely stay abroad if you are not there physically, the paper track proves to those states an intention to return.
Need More Information on US Expat Tax Exposure?
Please do not hesitate in contacting us should you need any additional information with regards to US expatriate State tax.
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