Lower cost of living. Adventure. Wonderful weather. Beautiful beaches. Many Americans are looking to other countries to spend their retirement years. This can be a rewarding and cost-effective retirement strategy.
However, before you move to Costa Rica, you need to make sure you have your financial affairs in order - including taxes. Moving overseas doesn't change your tax obligations - and if you have a bank account overseas, it may actually result in additional reporting requirements. United States citizens living outside the country still have tax obligations. Foreign domicile and failure to file or report income can come with not only tax penalties, but passport restrictions as well – which can really crimp your style.
What are my tax obligations if I live abroad?
Most people are required to report their assets to the IRS. This includes foreign assets. The IRS generally requires taxpayers report any bank accounts or business interests abroad. Failure to report these assets and income are a hot button with the IRS. The penalty includes fines and other financial penalties.
In some cases, failure to report penalties can include prison time. These cases usually involve large amounts of unreported foreign assets and the IRS finding the failure to report was “willful” or intentional.
So what do I need to do if I want to retire abroad?
Understand your tax obligations, and make sure you have a plan for compliance with the law. The IRS will generally leave you alone if you are reporting properly.
If the IRS sends notification of an investigation into your tax affairs, you should contact competent representation immediately. An attorney or accountant experienced in these matters can help you resolve any offshore account issues while better ensuring your rights are protected.