Us Expat Tax Return Complication

[Jingthing]

If this is too off topic, just ignore it, but I know there are some US tax heads here and many new expats have to deal with the complications of dealing with US federal taxes and also state complications.

I am filing a partial year residence state return (I moved to Thailand in the middle of 2006) and the return asks me to separate taxable money that I owe state taxes to my old state from taxable money that I don't owe to my home state. They assume you moved to another state, but of course, people do leave the country. Interestingly, the form booklet gives no specific instructions on how to do this.

The kind of income I am talking about is dividends, interest, and long term capital gains from stock sales. Obviously, each event like that has a specific date associated with it.

Given that, my interpretation is that it would be reasonable to do it one of two ways:

calculate the percentage of days I was in the US state and and prorate the entire year against this percentage (they so ask for the exact dates you were in and out of the state and it clear from my return that I have moved to Thailand)

treat it like a cash based accounting thing, any items of interest, dividends, and capital gains which occurred after the date I left the state would be claimed as not subject to state taxes

I do much better with the latter, so I am trying to justify it. It makes sense to me, you make the money on the date the income event occurs, yes?

Edited October 6, 2007 by Jingthing

[john_bkk919]

Whatever you earned while in the state is what you pay tax on, and only that.

It doesn't matter whether you move to the next state over or the moon.

You do need to fully cover any wages reported by your employer as in-state. If you made x dollars and lived there for 3 months in 2006, you pay tax on the x dollars. You don't take your total income for the year and divide by 4. I've always assumed that capital gains followed the same rule.

The only issue with moving out of the country is that it doesn't generate the usual evidence to show that you're no longer resident in your old state.

But as a practical matter, this doesn't matter. You won't be called upon to prove you've left. As long as you pay tax on the income reported by your employer during the time you were there, that's all they're really looking for.

I'm not a tax expert but this is the way I've always done it. Let me know if you find out anything different.

Edited October 6, 2007 by john_bkk919

[JimGant]

treat it like a cash based accounting thing, any items of interest, dividends, and capital gains which occurred after the date I left the state would be claimed as not subject to state taxes. I do much better with the latter, so I am trying to justify it. It makes sense to me, you make the money on the date the income event occurs, yes?

US Fed and State taxes are based on either cash or accrual methods, with most folks using the cash method. If the cash method is the way you've always reported your earnings, then press on. This method would always be superior when exiting left into Expat status.

It only becomes tricky when you still have a foot in the state you're saying you are leaving, ie, you still have a house, or car, or drivers license. Then, they can come looking for you, even if you live most of the year abroad (you're a 'domiciliary' resident in their eyes). Doesn't happen too often, but just to play it safe -- when the wife came here from Virginia for majority-of-the-year stays -- and a part-year tax form was filed -- she stopped off in Hawaii and got a new driver's license.

Anyway, if you're gone lock, stock, and barrel, give yourself any and all breaks. Their long arm won't reach to Thailand. Now, you'll just have to do your Federal tax return (and wonder why your European neighbor no longer has to pay taxes.......).

Edited October 7, 2007 by JimGant

[paperwerks]

My understanding is that you are a resident of your old state until you move and change drivers licence etc to a new state. You still owe state income taxes if you live in Thailand. The best and easiest solution is to move to Texas which has zero state income tax. You can just stay in a motel 6 and use that address while aplying for a new drivers licence and registering to vote.

[CaptHaddock]

My understanding is that you are a resident of your old state until you move and change drivers licence etc to a new state. You still owe state income taxes if you live in Thailand. The best and easiest solution is to move to Texas which has zero state income tax. You can just stay in a motel 6 and use that address while aplying for a new drivers licence and registering to vote.

I don't believe this is correct. My understanding is that you can establish that you are not subject to any state's income tax by taking the steps mentioned earlier, i.e. surrendering your driver's license, divesting yourself of property in the state, etc. The purpose of these steps is to establish that you are not a resident and do not have an intention to return in the future. A US citizen is always a citizen and therefore subject to federal income tax, but residency, in all its legal permutations, determines whether you are subject to state or local income taxes. Here is a link to an opinion from a cpa I found on the web:

http://www.taxmeless.com/page4.html

[Jingthing]

I think the rules and enforcement of state tax residency vary from state to state. However, there can be problems if you stop filing and paying state taxes in your old state and then move back there after some years. It would be probably be cleaner to then move to a new state.

Edited October 13, 2007 by Jingthing