Ep 2: Expat Taxes for U.S. Citizens Living Abroad

If you are a U.S. citizen living abroad, planning to move overseas, or thinking about retirement outside the United States, taxes still need to be part of your relocation plan.

In this episode of The Bougie Expat Podcast, Sable sits down with her friend Laura, an expat tax CPA with more than 20 years of experience in international taxes, for a clear conversation about what U.S. citizens need to understand before moving abroad.

Laura explains why the IRS still expects U.S. citizens to file taxes while living overseas, how tax residency works, what double taxation means, and why filing does not always mean you will owe. She also breaks down the foreign earned income exclusion, foreign tax credits, the 330-day physical presence test, and why retirement income, passive income, business income, and digital nomad income can all be treated differently.

This conversation is especially helpful for Black women over 40 who are planning to relocate abroad, retire overseas, work remotely, or build income streams while living outside the U.S.

This episode is not tax advice. It is an educational conversation to help you understand what questions to ask and why speaking with a qualified tax professional before moving abroad can save you stress, money, and major surprises later.

In This Episode

•  Why U.S. citizens still need to file taxes while living abroad 
•  What tax residency means for expats 
•  Why filing taxes does not always mean owing taxes 
•  How the foreign earned income exclusion works 
•  The 330-day physical presence test 
•  What double taxation means 
•  How foreign tax credits may reduce U.S. tax liability 
•  Why retirement income and earned income are treated differently 
•  Tax concerns for digital nomads and remote workers 
•  Why LLCs, S corps, and business income need planning before relocation 
•  How unpaid taxes can affect passport renewal or travel 
•  Why every relocation plan should include a tax plan 

Mentioned in This Episode

•  IRS filing obligations for U.S. citizens abroad 
•  Tax residency 
•  Foreign earned income exclusion 
•  Foreign tax credit 
•  Double taxation 
•  Digital nomad income 
•  Passive income 
•  Retirement income 
•  U.S. passport tax issues 
•  LLCs and S corporations 
•  Portugal 
•  Panama 
•  Laura, expat tax CPA 

Thank you for listening to The Bougie Expat Podcast.

If this episode spoke to you, subscribe to the podcast and share it with another Black woman over 40 who has been thinking about relocating abroad, retiring overseas, or designing a new chapter with more freedom, peace, and intention.

Join Sable, your bougie girlfriend:

Facebook
https://www.facebook.com/share/1BEgyNv5NM/

Instagram
https://www.instagram.com/thebougieexpats?igsh=MXc2d2FqdHA3MW42bw==

LinkedIn
https://www.linkedin.com/in/sableryan/

YouTube
http://www.youtube.com/@sableryan5957

Transcript

SPEAKER_02 0:00

Don't treat the relocation like a vacation. It's real it really is a wealth pivot because you want to know what type of life am I going to live abroad. And it comes with financial peace. Because if that financial peace is not tied to it, what exactly are we doing? You are just going to move from one location to another, but you're bringing the same baggage, you bring the same drama, the same stress and nonsense, and that's what we're trying to avoid.

SPEAKER_00 0:33

She's done waiting. She's done shrinking, and she's done building empires in rooms that were never designed for her. This is the Bougie Expat, the podcast for black women over 40 who are ready to reinvent their lives, rebuild their income, and relocate with intention. If you're done settling in corporate, tired of environments that no longer feel aligned, or quietly planning your next move, you are in the right place. Hosted by Sable, live from Panama City, Panama. Seven countries, four continents, one move she made in five months flat. Income strategies, exit plans, a life designed to actually fit you without starting over broke. Let's get into it.

SPEAKER_01 1:41

Laura has been doing international taxes for over 20 years. And I guess one of the things people always keep continually asking is why are we even talking about taxes that we're living abroad? Before I get into that, I'm going to tell you who I am. I'm Sable, your Bougie girlfriend. And of course, you are tuned into the Bougie Expats. And I hope you have subscribed. If you have not, do that now. Make sure you turn your notifications on because you do not want to miss any episode. So we're going to kick off today and talk about everything international tax that we can. But I want to say this is not tax advice. We are not telling you how to file your taxes, how to pay your taxes, not to pay your taxes. We are just having a conversation and you get to be an opportunity to listen to that conversation. So if you need tax advice, you need to call Laura, and she's going to send you an invoice, and then you're going to get some really great tax advice. But until now, you are just a fly on the wall listening to a conversation and hearing about some things you may want to think about and go deeper. So one of the things I always get a lot of questions from clients around taxes is I am moving abroad. Why are we even talking about taxes? What do you mean, the IRS? What do you mean I still have to file? So I would love for you to just give us a high-level interview just to kick it off on what is the IRS really expecting from us? Are they really still looking for us, clocking us, thinking about us when we move abroad? Absolutely.

SPEAKER_02 3:21

And honestly, that's a valid question because the US is actually the only developed country that taxes its citizens based on their citizenship and not necessarily based on where they live or work. So if you are a US citizen living abroad, working abroad, the RS is still expecting you to file your taxes. It doesn't necessarily mean that you are going to have to pay taxes, but you still have to disclose. And of course, it depends on the income level and whatnot. But there are also some mechanisms like we can that are available for people to mitigate the tax liability. But yes, that's just like the law. And again, the US is the only developed country that does that. And if you do pay attention to your passport, one of the last pages, if not the last page, has those small prints that tells you because you're the US citizen, you still have your US filing obligations. But how many of us actually even pay attention to our passport? But yes, they do expect you because that's how the US taxation system works. Yeah. Where for somebody who is not a US citizen, let's say you're like British or like Canadian, and you go in about and live your life outside of your country of citizenship, they typically do not expect you to file a tax return if you're not now a tax resident, also in your country. Because and again, the US is the only country who taxes a constituent, if you will, based on the citizenship.

SPEAKER_01 4:57

That is interesting. And you just you mentioned this term, you snuck it in there, tax resident. Tell us, what's the difference between like your tax citizenship versus being a tax resident? Okay.

SPEAKER_02 5:09

And again, the citizenship doesn't necessarily determine how somebody's gonna be taxed. Then look at the residency. So you also have the legal term of what residency is in general, but from a tax perspective, it's the status that really determines which jurisdiction is the first right of taxation on your income. So let's say, and again, you're a US citizen or US green card holder, and you live in Portugal, right? From Portuguese purposes, based on the length of time you live there, for example, like in general, it's like more than 183 days, you will be kicked into the tax residency. Where the foreign jurisdiction now is gonna look and say, okay, you've been here long enough. Now we have the right to tax you on your worldwide income because you are a residency, right? Which is a little bit different now that we have a digital nomad and we hear that all the time. Like they're moving around because they are really because of their visa and everything else, they're typically not spending enough time in a foreign place for them to be kicked into a residency for tax purposes. But now, if you are a US person, we don't care over here. We care where you're residing. For US purposes, we'll still need you to file your taxes. And again, it doesn't mean necessarily that you're going to be subject to taxation because we have things like the front earned income exclusion and also the front tax credit, among other things. There's also like 3D disclosures, and we don't want to get too technical. But with the front earned income exclusion, the way I like to think about it is the IRS is giving you like a hall pass up to a certain amount, and it does change every year updated for inflation. I think it's like $136,000. Please don't quote me on that. But up to that amount, it's excluded from your US taxation. So you're still reporting it, but up to that amount, there's no tax. There's also the front tax credit because let's say you live in a country where they're taxing you on your income, and on the US side of things, you're also subject to taxation on the same income. The US is going to give your credit for what you paid in the other jurisdiction. Okay. And the way I like to think about it too is it's very layered and nuanced, depending on the country you're living in. For some living in a low tax jurisdiction, let's say they don't pay tax over there and also do not make crazy money, the front earned income exclusion may be the right path for you, right? But in some circumstances, you may not even want to claim the front earning income exclusion and go with the front tax credit. And sometimes it can be a combination of both. So it just really depends on the type of income. And if you're dealing a lot with, and I know I'm starting to talk a lot, but if you're dealing a lot with people who are moving abroad and all they earn is that retirement of money funds and whatnot, those are typically not subject to, they're not eligible for the fund earned income exclusion because it's not earned income per se. Right. If you're only earning what like retirement up. Okay, retirement. Like you have aerial distribution and things like that, or social security benefits. But it doesn't necessarily mean that it's also going to be taxed in the other jurisdiction, depending on whether we have a treaty with a jurisdiction where the treaty, and again, not to get too technical, because some treaties will still treat you as if even you still living in the US and whatnot, what we call like the saving clause. But some treaties will say, okay, because of the arrangement that we have with this other jurisdiction and you're receiving social security benefits, the social security benefit will only be taxed in the US, for example. Okay. Or in the country of residency, whatever the case may be, so you don't have that double taxation where both countries have the rights to tax the same income.

SPEAKER_01 9:07

Okay. Yeah. And so that brings what you just said. I have like 55 questions that follow up. But I'm gonna start with probably the residency part. And then because you talked about foreign exclusion, but you also talked about the what income could be taxed and what income and then afterwards what could be taxed. And this is for me probably like the big rookie mistake because I didn't realize that there were some caveats around that. So when I was living outside of US, I was filing my taxes. And I'm glad I did, because for some reason I just felt, oh, let me just find my taxes. But I also was really shocked one year when I had owed money. And I thought, wait a minute, they said that if you were making, and at that point I was like just doing 125. So I was like, well, I know I'm okay, but I still had to pay taxes. And I didn't realize I just owed taxes because all that money came to me tax-free, which is really one of the exciting parts about working outside of the United States. It's tax-free money, but it's only tax-free up to a certain amount. And I didn't realize there was another stipulation. So I was bouncing in, I came in for Christmas, I came home for the summer. I just had me such a great time. So come and explain to us what happened to me. Because the part that was missing, that I now was treated no longer 125 being tax-free.

SPEAKER_02 10:40

Oh, you didn't have enough days to qualify for the front earned income exclusion. And that's where some planning comes into play, especially for people who have to be coming back and forth between where they're living and the US. And that's what I do with my client as well. Like you have to understand the individual's lifestyle and where they're living. So with the front earned income exclusion, you have two tests, one being like the physical presence, which is typically easier to qualify for in a way. You have you need 330 days outside of the US, and they don't need to fall in one calendar year. They can fall, they can shuttle over two years, but the exemption will be prorated for one year. Then again, not to get too technical, but it in general is 330 days that will help you qualify for the exclusion. The other test is the bona fide of residency, and it only really applies when you are in a country with a treaty with the US, where we look at your other factors, okay, like your place of interest and things like that, where it's not necessarily based on the physical presence. It's more like on the intent. Are we really living here? And then do you not restricted necessarily to being there for 330 days? But again, you have to look at the lifestyle of the individual and also where they're living. Because if, and you brought a very important point, you're living in a country where either they're not taxing you or they're not getting like some withholding, you don't want a surprise at the end of the year, right? Like you're like when you file your taxes that are owed this much. And again, it doesn't necessarily mean that it's a bad thing to owe money, but when we are prepared and it is the least amount that we can pay, because the least being like legal, nobody's trying to go to jail today, we want to be prepared. So that's where it's very important when people go abroad or before they go abroad to understand what they're getting into. What we find is when people go abroad, and not the majority, but they treat it as if it's like a vacation. It's not a vacation, right? Unless you're moving for vacation. That's a different thing, right? But if it's like retirement or we're going to expand and create businesses or like work remotely or whatever the case may be, have a plan, have a discussion with somebody who understands international tax, right? From both sides of the borders, where it's like on the US side, what does that look like for you? Because in the US, you are still going to be subject to disclosing whatever income, whether you're self-employed and whatnot, and also where you'll be living if you're not like a digital nomad. And then we can also create a plan because in some countries, depending also on your visa type in the residency, there may be some favorable scheme that will help you either be with a tax-favorable regime under tax-favorable regime that you wouldn't be under if you had a different visa. It's really like a planning for like immigration purposes. And again, I don't offer legal advice or immigration advice. I know enough to be dangerous, but I always refer to that work. And for the work that you're doing for people to really look at how we're relocating is something that is needed today, especially for us black women. We don't always have access to the resources, and people just want to wing it. Okay, let's just go like with the vibes. I'm going to Portugal. Yes, that's a good thing. But then you have this tax bill, you start opening like bank accounts here and there. You don't know you have to disclose them. I don't mind getting paid, but I want people to be educated and understand what it looks like when I move, when I pack my things. Let's just not pack our things, but let's also pack our tax plan because we need a plan.

SPEAKER_01 14:25

So we when you talked about a lot of things within them, like the digital nomad, you talked about treaties. So I want to expand a little bit more around this income that's earned. One of the things we consistently tell our clients is like, how do you make income and showing them how to make income even when they are not in the US, where they can have passive income anywhere from rental incomes coming in to portfolio incomes where they have investments that are paying them, and also active income, like a digital nomad, so person going from country to country, or even a person who may perhaps may be earning income within that country. How does the US look at, and I know that was a lot of different categories, but even give it a general how the US looks at that income and should that person really be concerned that they may have to pay taxes? Absolutely.

SPEAKER_02 15:18

Because nothing changes for them really from a US tax perspective. Even if you never left. Wow. Where we have the layers, I guess, is there are other provisions of the law that can allow you to either exempt some of the income or to use a front tax credit to reduce what the tax would have been here in the US. But nothing really changes other than that. It's not like you disappearing, you're not going to file your taxes, is still relevant for US income tax purposes.

SPEAKER_01 15:50

Okay, so people are still nothing's changed. Don't fill out your 1040 or whatever you're going to be filling out. You still need to fill it out the same way. Put that income. So one of the things you talked about earlier, and so let's talk about double taxation. What does that mean? I get that question a lot. What is double taxation? How does that even happen? Who's doing two taxes? Yeah, what does that mean for us?

SPEAKER_02 16:13

It goes back to the residency. So let's say you're moving to, and I would like to keep Portugal because that's where a lot of Americans are going these days and Panama, but Panama doesn't really have the same US taxation system. There's literally no tax for you, but Americans moving over there.

SPEAKER_01 16:29

So now you're living in Georgia. I just want to point for a little bit of tax if you're moving to Panama. Lots of taxes going on if you're moving to Portugal. That's not fed, nothing. So if you're and you know which way you want to go, you should probably look at what the tax issues are before you I'm just saying.

SPEAKER_02 16:50

That's a good point. And we're gonna get to it, but because what I like to tell people too is people ask a lot what is a tax-friendly country. And I'm gonna get to your question. And what I tell them is yes, tax is important, and I live and breathe taxation literally every day. But I also want you to make a decision without necessarily being too concerned about tax. We don't want tax to be the defining factor that will make you decide how to live your life. You know what I mean? Where do you want to go? Do you like wine? Do you like the beach? Do you like the nightlife or whatever that is for you? Now you can have a plan that is really tailored for the life that you want to live, right? And that tax plan, we can make it work for you depending on also your lifetime, the type of income, treaty provision, whatever that is. So there are ways we can make it happen so that you don't feel like, well, I'm only going to be paying like 10% of taxes, but in a country where you're not going to love it. Yeah. What was the question again?

SPEAKER_01 17:58

So the question is around what is double taxation.

SPEAKER_02 18:01

What is double taxation? So now you are in two countries, and both countries have the right to tax you because one is based on your residency. You're living there long enough where you are treated as a tax resident, and the country has the right to tax you on your worldwide income, the income you're earning in that country. And now, because of your US citizenship, you also are also subject to your worldwide income. So both countries have the right of taxation. That's where the double taxation comes into play. But it doesn't necessarily mean that you're going to pay taxes in both jurisdictions if you do your stuff. And I like to think about if we are going to pay like $1,000, are we paying $1,000 in tax to Portugal? Nothing to the US? Are we splitting? How are we doing it? It depends on the income, it depends on the provisions that we are using to reduce your US tax liability. So there's a whole process where the way I work with my clients is understanding the income, what is generating the taxation, right? Or like the taxable income. How is it taxed in the front jurisdiction? And how can we reduce it for US tax purposes? And now, if you have like entrepreneurs moving from the US or other jurisdictions, everybody loves a little LLC or like an S corporation, which is good for US purposes, but doesn't always translate well when you move abroad. And again, for entrepreneurs moving abroad, it is imperative, and I insist to talk to somebody before you leave the country, just so you can understand. Because there are circumstances where you need to kill the S-corp before you move abroad. Wow. Wow. And if you do decide to open a legal entity in the jurisdiction where you're going to be living, we have to understand that and work with somebody who will know that because of your US citizenship, they're not just dealing with you on that side of the border, but they need partnership here in the US because your life is no longer local to one jurisdiction, but it's really global. And I like to look at it from a holistic perspective, if you will, because it's the US and the jurisdiction you're living in. So double taxation is just like the right of both jurisdictions to tax the income, but you there are ways for you to, and again, mitigate it. Where people have the hard burn is because they're doing it like DIY. You should really shouldn't. You can if you understand what you're doing, but you should not, because that's what people end up paying taxes all over. And I'm all about yes, pay your taxes, but don't pay with tips. There's no need reason to pay extra. You know what I mean?

SPEAKER_01 20:52

Don't pay with tips. Yeah, don't pay with tips. Don't pay your taxes with tips. No, no tipping on taxes. You don't need to. So within that, I also heard you mention we talked about the double taxation and how people move money and even your S-corp not having that conversation before it, because some of these things could affect you. Absolutely. There's some other things that people should be considering before they move, like conversations they should have around their taxes. And with that is also their filings. Because we also are familiar with one of our clients who was not able to leave because their passport was canceled. Because they owe the IRS a sum of money. And that is one of the things IRS is doing. It's canceling people's passports who owe taxes. You don't want to find that out. Let me take a step back because that is not a shock to anybody. Because they have already been saying you owe taxes. You owe taxes, right? And then they're like, by the way, if you don't pay, this is gonna happen. But we also know that some. Sometimes we change addresses or whatever, right? So that could also happen. So what are some other things? Because you don't want to get to the airport and finally that even though you have a passport in your hand, it means nothing. I mean, so what are some other things that we should be thinking about? We should prepare for. Maybe I haven't filed my taxes in the last five years. Should I try to file them now? Should I check out what kind of LLCs or corporations do I have? Should I, if I'm going through a separation, should I really make sure I'm divorced? I don't know, all the things because life happens. Yes. Yes. But when we're relocating, we tend to just think about suitcase, shipping, and visa. What are the things that we should be thinking about with our taxes? A lot.

unknown 22:41

All right.

SPEAKER_01 22:43

Can you mention some of them?

SPEAKER_02 22:45

Already, right? And that's one of the things where I recommend people look at your transcripts, like your ARS transcript. And if you have delinquent filing, have them filed. And even you, even if you are behind or you owe a lot of money, there is tax resolution, there are options for you to be on an installment plan, whatever the case may be, but those things can be easily fixed if you're working with somebody who knows what they are doing and who understands the system. Because then again, nobody wants to show up at the airport and then they can't travel. That's right. Meaning, so get your paper in order and talk to someone because depending on what you may need may be different from what I will need if I were to travel abroad, right? So it's really unique to the individual, but tax return is everybody. Who really should make sure like that they file the tax return and again just understanding your tax plan that is tailored to you. Like what do you need before you file and whatnot? Because people have the harbor around tax time because they don't really get ready for that time. They don't really get ready to make it smooth in a way. And that's when we have the angst, because you have to pull reports from like January. You have to understand, especially when you're a business owner, what did I do with this? Which expenses came from what? Everything is commingled with your personal expenses, and nobody knows what is happening. But having a system also helps, even if it's just okay, once a month, because sometimes it can be too much if it's once a week. Let me sit with my finances and understand what I have. And I also tell people don't try to figure it out on your own because there will be like some transactions or expenses that you may not even know, or you're telling yourself like this is not deductible, let us help you make that determination, right?

SPEAKER_01 24:43

So having a professional is non-negotiable if you're going to live abroad. And I I think if you're not feeling 1040 easy having a profession, it's probably not negotiable. So when we're thinking about taxes in the terms of and now understand a little bit more about the digital nomad, because when they stay a little bit longer, now they have might have put themselves into a residency situation without even knowing it. And we do hear a lot of people like, oh, I just want to do six months here and six months there, not probably even thinking about what the tax implication could be when you're doing six months here and six months there, or buying property here, all those things. So before we go, I just want to ask, what would you say to women who are one piece advice for black women over 40 who are one thinking about moving abroad? So that's I'm going to move. And our other categories the women who have already left and didn't have all this information. So if we can give like next steps, what should they be thinking about now? Because we don't want to send people into a panic. But this information is more for people to be informed, not to panic, but then now to reach out for a professional to figure out for their own situation.

SPEAKER_02 26:05

Yeah. Reach out to somebody, like myself. But also work with people like you, right? Will really help them, not only with the relocation, but understanding what a process looks like. And what I tell people too is don't treat the relocation like a vacation. It's real, it really is a wealth pivot. Because you want to know what type of life am I going to live abroad. And it comes with financial peace. Because if that financial peace is not tied to it, what exactly are we doing? You are just going to move from one location to another, but you're bringing the same baggage, you bring in the same drama, the same stress and nonsense. And that's what we're trying to avoid. So have a structure and build a structure not only around the relocation, but with your money. And the way I like to really think about tax is it's really a financial piece, right? To it, because we're not just talking about like the filing, but how you're earning money, how you're going to be living, is tied to the tax. Because you don't want to be making money and everything is leaking to pay your taxes. That's right. So have a plan. Have a plan and talk to somebody who can help you understand how that's going to look like for you. Because if you don't know tax, you don't understand tax, and now we're dealing with a different animal, like that is like international taxation, you need somebody who can walk you through what does that look like for you. So you can really start treating the relocation like a life plan, because it's really is a life plan, right? And it may be a plan where we're only going to be abroad for five years or move from one country to another country. We don't know, but let's be prepared.

SPEAKER_01 27:56

And so I'm thinking as you're making your plan to move. So one of the things that we love to do with our clients is recreate the exit, the elevated exit roadmap. Okay. And so within that plan, will be a tax plan. What is your tax plan? Yes. So you have your plan for what country you're going to live in. We have your immigration plan to get your visa. You have your shipping plan. You also need to have your tax plan. So this way you don't find yourself in your dream location, not dreaming and not enduring it because you have such a tax plan. I have a rest night, man. Absolutely. Well, thank you so much. This was so informative. Got my mind thinking so much because I'm still earning income in the US. So it just has me thinking, like, how do I make sure, right, that I'm protecting myself? And I've known of done doing a lot of freelance work, a lot of consulting work sometimes, and I get that $1099 from the people I provide the services for. And literally, it's all wiped out. I have to basically give it all back to the IRS. But if I had a tax plan, I probably would have been able to keep it. So before we go, we'd love to ask you our rapid fire question. Okay. All right. So our first one is because you didn't get here without reading some kind of book. So what is your favorite way to read books? Are you audio or hard batch? Hard copy. So it's not a book into it's it has a binder, huh?

SPEAKER_02 29:20

Well, I can do Kindle, but like audio, I'm not into it.

SPEAKER_01 29:24

Not an audio. Yes. Alright, next one. Beach or city? Vacation. You're a beach girl, really? Beach.

SPEAKER_02 29:34

I'm not in the city, so vacation is I love the beach.

SPEAKER_01 29:39

Yes. And our last question before we go stilettos or sneakers. I'm a sneaker season, even though I'm not wearing sneakers today, but yes, sneakers. All right. Well, thank you so much. Thanks for joining us. And to how would everyone reach you?

SPEAKER_02 29:52

They can reach me at your expatsaxcpa.com and all my information is on there. I'm also on LinkedIn on the Laura Chilumba. So come and just get the vibe and let's hang out. Yeah.

SPEAKER_01 30:03

And our information is in the comments. Thanks so much. Have a great day.

SPEAKER_00 30:12

That's a wrap. And if this episode resonated with you, go ahead and follow the podcast and share it with another woman who's ready for her next chapter. And if you're ready to move beyond thinking and start building your exit strategy, I invite you to join me inside my live experience, the elevated exit masterclass. You'll find the link in the show notes. Until next time, make your next move a bougie one.