Overseas Mail Forwarding Services
Many people who are considering moving abroad wonder how they will keep their U.S. residency and what the tax implications will be. It is critical to fully understand your requirements so that there are no surprises come tax season. If you want to keep your U.S. home while living abroad, here are a few U.S. ex-pat tax return facts to consider.
The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month. Other services, such as UPS (United Parcel Service) or USPS (United States Postal Service), will require your physical presence to activate a mailbox service.
Life continues in the United States, and requiring mail to be shipped is another reason to have an address. Fortunately, keeping a U.S. address while living abroad is relatively simple. This article will help you know more about tax filings, tax guides, and how to receive mail as a digital nomad.
Why Not Enlist The Assistance Of Your Family?
Some expats choose to use the address of a friend or relative in the United States. However, if that address is in a state with an income tax, which is the majority of states, the tax authority may contact you about tax filing a tax return – even if you've never lived in that state. Resolving the issue by demonstrating your non-residence in the state can be a time-consuming and frustrating process.
Maintaining A US Address While Living Abroad
There are a few considerations if you're in the process of moving and aren't sure how your U.S. expat tax return will be affected by maintaining a U.S. address while living abroad. Having proper tax guides is a crucial step for moving abroad. As you'll see below, simply maintaining your U.S. home is not the same as renting it out.
There are eight significant steps that green card holders can take to minimize complications upon re-entering the border to show immigration officers that they expect to maintain their permanent residence:
- Keep and use U.S. savings and checking accounts. Simply having a bank account is not enough; it must be used regularly, so that bank statements show activity.
- Maintain a U.S. mailing address. Ideally, owning a residence in the United States demonstrates that a permanent resident intends to make the United States their permanent home. If you do not personally own a home, it is perfectly acceptable to stay at a friend's or relative's home.
- Ensure all mail, including documents from USCIS (United States Citizenship and Immigration Services), is delivered to this address.
- Have a valid driver's license in the United States. The address on this license should match the address on all official documents, such as those obtained from the (USCIS) United States Citizenship and Immigration Services.
- Obtain a credit card from a United States (U.S.) financial institution. Use this credit card regularly so that credit card statements reflect some activity on the account.
- File your income tax returns in the United States. Even if you receive income from outside the United States, you must file a tax return each year. These tax returns must be submitted as a "resident." Filing as a non-resident is frowned upon because the permanent resident is claiming personally that they are not a resident.
- Keep in touch with a spouse, relatives, and friends in the United States. This can be demonstrated by emails, letters, or even phone call records to friends and family in the United States.
- Demonstrate family ties to the United States. Having a child, spouse, parent, or other close relative residing in the United States indicates that you intend to make the United States (U.S.) your permanent home.
- Maintain social and professional affiliations. Active social or professional memberships, such as boat club or golf memberships, demonstrate that the permanent resident was only in the United States temporarily and intended to stay for the long term. Active membership can be shown by timely payment of dues, receipt of journals, attendance at annual meetings, etc.
A permanent resident who will be traveling outside the United States for a period of six months to one year should take these steps. A re-entry permit is required if you leave the country for more than a year.
Taking these steps does not guarantee that the permanent resident will have an easy time re-entering the United States, but it increases the likelihood. This list is not exhaustive, so any additional documents demonstrating a permanent resident's intent to settle in the United States will be helpful.
Renting Your U.S. Home And Filing Your U.S. Taxes
Renting out your U.S. home can be a nice way to recoup the costs of maintaining a home while you're away. However, it comes with its own hurdles when it's time to file a U.S. expat tax return. Renting is also influenced by the number of days your home is used during the year.
- If you spend no time in your home during the tax year and it is wholly considered a rental property, you must report 100 percent of the rental income on your U.S. expat tax return, and all expenses and repairs are deductible.
- You can make more on your U.S. rental home by calling it a vacation home with IRS (Internal Revenue Service) approval. If you only spend 14 or fewer days there per year, the IRS will classify it as a second home and not give you any tax breaks. Your indirect expenses (mortgage interest, property taxes, depreciation, and so on) will be pro-rated based on the number of days you rented out the home. Direct management expenses, management fees, advertising, and the like will be fully deductible against rental income.
- The property is considered a vacation home if you stay in your U.S. home for more than fourteen days and rent it out for more than fifteen days in a year. In this case, you must report the rental income and then deduct expenses based on the days the property is rented out.
- You don't have to report any received rental income if you live in your U.S. home for more than fifteen days but rent it out for less than fifteen days. For instance, if you rent out your home for one week per year, you will most likely not need to report that income on your U.S. expat tax return.
The Consequences Of A Vacant Home
Perhaps you want to keep your home in the United States but don't want the added responsibility of renting it out. In general, you will have no additional tax liability in this scenario. However, it is dependent on how you intend to qualify for the Foreign Earned Income Exclusion (FEIE). The Physical Presence Test will almost certainly not affect your U.S. tax return.
However, if you use the Bona Fide Residence Test, you may be required to provide a reason for keeping your U.S. property if you are living full-time in a foreign country with no hope of returning to the U.S.
This is because the IRS only considers you a bona fide resident if you do not intend to return to the United States – and maintaining a residence may be interpreted as an expectation of returning at some point.
Which Address Do Expats Use On Tax Forms?
The question of what address to enter on their tax return arises for many Americans who live abroad. At first glance, the answer appears obvious - use your current address. The address on your tax return should be one where you can easily and quickly receive any correspondence from the IRS.
But what if the mail system in your country of residence is slow or unreliable? What if you plan to relocate before filing your next expat tax return? Many U.S. financial institutions require you to provide an actual U.S. address (not a P.O. Box) to keep your account open.
Advantages Of A Virtual Mailbox For Living Abroad
By using a virtual mailbox, you will have instant, dependable access to your U.S. mail and will be able to keep your U.S. bank accounts without fear of triggering state tax inquiries. As a result, for many expats, the minor cost is worth the significant time savings during tax season—and throughout the year.
Permanent residents must clearly show that they intend to make the United States their permanent home. The steps outlined above will assist you in demonstrating that you consider the United States your home and intend to relocate permanently to the United States.
What Is The Process Of Using A Virtual Mailbox?
Rather than relying on friends and family to forward your mail, a virtual mailbox service is a better option. But what exactly is a virtual mailbox, and how does it work? You can get a personal, non-PO Box mailing address for a monthly fee. It is preferable to have an address in a state without an income tax, such as Florida or Texas.
You will receive an email notification when mail is delivered to your virtual mailbox address. The mail is scanned or forwarded to you at your request. Some services will scan the first page and email it to you, allowing you to decide whether or not to "open" the rest of it.
What If Your U.S. Mail Can Already Be Received?
Here are some of the likely reasons why using your parents, friends, or cousins who live in the United States to forward your mail is probably a bad idea:
- Your parents or friends may reside in a state that imposes a state tax. If you include that address on your federal tax return to the IRS, there is a (very high) chance that the local state authority will require you to file a State Return. You might have a chance to fight them, but it will be expensive and time-consuming.
- You are in a slightly better position if you file a non-resident state tax return to report income from U.S. sources (rental income, partnership income). Your current expat situation would be revealed by the non-resident return (living abroad, filing as a non-resident).
- If a non-resident state return is not required, but the federal tax return shows a U.S. state address, the state assumes you are still a U.S. resident who failed to file a state tax return. You still bear the burden of proof. When it comes time to do taxes, there is no presumption of innocence.
- You cannot expect people who are doing you a favour to scan every piece of mail you receive and email it to you within hours of receiving it (or they may not even know how to do it in the first place). They might forget or misplace some mail. In the end, you're likely to receive some of your mail months after it was sent.
- At the end of the day, if your parents don't mind forwarding you every piece of mail, it may just get annoying for them, and you wouldn't want to nag them, especially during tax season, to check and handle every single piece of mail that you receive.
Talk To A Postal Service Expert
Moving to a new country that's not your home can be incredibly challenging. But with the right information in hand, you'll be able to prepare for any potential difficulties. This article discusses some of the challenges you might face, plus how to overcome them.
If you are planning on moving abroad, set up your mail service so that you can read your mail from wherever you go. Speak to a local postal service expert to help you with this process.