Moving Abroad - State of Residency Tax Question

[sbcalimom]

Hi All,

I'm moving abroad to Germany at the end of this month and am struggling with state residency issues. I keep getting contradictory information and don't really know what to believe.

I live in New Mexico which is apparently one of four states that makes it hard to "give up" residency when you leave to move abroad. After July 1st, I won't have any income based in NM and after September 1st my husband won't have any NM income. I work remotely so my income will continue to be US based but I'll be technically based out of NJ after July 1st for our payroll provider. My husband will not have any US income after his final check in August.

So, what I'm struggling with is do I have to have a state of residence if I live abroad?? I know I will have to file federal taxes, but once I file our 2016 taxes for the state of NM, do I just stop filing state taxes? I've been told that as long as I don't have NM income after 2016 and put down the dates I left the state that will end my residency. The only real concern would be if I plan to move back or if I'm reported by someone as having NM based income which doesn't apply since we won't have any.

We will NOT be returning to NM after our 5+ years abroad. We don't own any property here, won't have any vehicles registered here, aren't registered to vote here, and are planning to surrender our driver's licenses when we leave.

As far as a mailing address, we had planned to use my sister in South Carolina but I've been told that SC likes to try and say you plan to live there in future if you have a mailing address there and live abroad so we probably shouldn't. I'm thinking we'll use a mail service for the first year or so that receives and scans your mail for you (using a TX) address but after that I have no idea what to do for a mailing address.

Any help or resources would be greatly appreciated.

[billisonboard]

Jun 6, 2016 14:46:18 GMT -5 sbcalimom said:

... I have no idea what to do for a mailing address.

Any help or resources would be greatly appreciated.

Germany has postal service.

[sbcalimom]

I meant a US based address.

[suesinfl]

I don't have any advice, but bonnie in the landlord thread lived in Germany for a while. I also don't know how to tag someone, sorry.

[mroped]

Get a PO Box and have someone that you trust pick up the mail.
Or better, if you have a friend/family that stays behind( as in they are a NM resident) ask if you could have your mail forwarded to them and then you file the paperwork at the Post Office for your mail to be forwarded at the respective address.

That is just a tought! Whenever I had to move, I just moved!

[Wisconsin Beth]

Bonny and there was someone else who returned from Germany. I'm blanking on the name right now.

[Bonny]

Jun 6, 2016 17:58:46 GMT -5 Wisconsin Beth said:

Bonny and there was someone else who returned from Germany. I'm blanking on the name right now.

We remained AZ residents for income tax purposes. Also had to file a CA return because we owned property there.

Are you military or a corporate relo? Military has some special rules. We were a corporate relo. There is a tax treaty between the US and Germany so you aren't "double-taxed" but your tax rate in Germany will be based on your "world wide" income which will include all your investment income. Welcome to 40% tax rate on our German income!

Our tax returns approached 100 pages.

The other German ex-pat is bobosensei (hope I spelled that right). Military relo.

[Wisconsin Beth]

Yes!! Bobosensi that was it. Thanks Bonny!

[billisonboard]

Jun 6, 2016 16:24:58 GMT -5 sbcalimom said:

I meant a US based address.

Do you need one?

[sbcalimom]

I don't know that I need a US based address but it would be helpful for some things so I'm told by some of my expat friends. As far as a PO Box, the best options are in CA and SC but apparently those states like to cause problems for expats with addresses in the state regarding state taxes. CA could be especially problematic since we used to live there.

We're not military, rather a job relocation for my husband. We don't have any income or property based in NM so it seems like after this year we won't have to file for state taxes but it is so confusing. I don't mind paying taxes but I really don't want to have to pay state income taxes for NM for 4 years when I have no plans of ever returning and have zero ties to the state once we move.

We only have my husband's German income and my US job based income. I currently freelance but will likely curtail that dramatically if not entirely once we're settled in Germany. No investment income or anything. So far it looks like our tax rate will be fairly high on his German income but remain "normal" on our US income. He's currently a post doc so his net salary will be about the same given the higher German taxes and the kindergeld payout (by German gov't) for our daughters. 

I was planning to just hire an accountant/CPA that specializes in German expat taxes for the federal cause I had heard that it was ridiculously complicated. Just not sure how to figure out the state issue. My current account gave me a very pat answer of "oh you'll be fine after 2016" but I'm a worrier so that doesn't seem solid enough for me.

[sbcalimom]

I'm leaving at the end of this month so unfortunately that's not an option before I go. It may be a possibility for sometime in 2017 if it was absolutely necessary since that would likely be cheaper in the long run than continuing to pay state taxes for 5+ years. I work remotely so I really can work anywhere there's an internet connection though my husband would probably not be too happy about me taking off for 3 months and leaving him to manage the children alone  .

[sbcalimom]

Jun 7, 2016 9:17:28 GMT -5 @sroo4 said:

You don't actually have to live there... just make a paper trail and establish residency.  

Interesting...

[Bonny]

Jun 7, 2016 7:59:18 GMT -5 sbcalimom said:

I don't know that I need a US based address but it would be helpful for some things so I'm told by some of my expat friends. As far as a PO Box, the best options are in CA and SC but apparently those states like to cause problems for expats with addresses in the state regarding state taxes. CA could be especially problematic since we used to live there.

We're not military, rather a job relocation for my husband. We don't have any income or property based in NM so it seems like after this year we won't have to file for state taxes but it is so confusing. I don't mind paying taxes but I really don't want to have to pay state income taxes for NM for 4 years when I have no plans of ever returning and have zero ties to the state once we move.

We only have my husband's German income and my US job based income. I currently freelance but will likely curtail that dramatically if not entirely once we're settled in Germany. No investment income or anything. So far it looks like our tax rate will be fairly high on his German income but remain "normal" on our US income. He's currently a post doc so his net salary will be about the same given the higher German taxes and the kindergeld payout (by German gov't) for our daughters. 

I was planning to just hire an accountant/CPA that specializes in German expat taxes for the federal cause I had heard that it was ridiculously complicated. Just not sure how to figure out the state issue. My current account gave me a very pat answer of "oh you'll be fine after 2016" but I'm a worrier so that doesn't seem solid enough for me.

I'm surprised that you aren't being offered tax prep services as part of the relo package? Make sure you ask since it sounds like you are getting "grossed up" on the German taxes.

If you have no NM sourced income I would be surprised if you wind up paying any NM tax due to the tax treaty with Germany; in essence any income tax you pay is credited towards your US taxes.

We did have to pay some AZ tax because the Tax treaty exempts real estate based income and we had mineral rights (oil royalties) which fortunately were partially off-set by other real estate holding paper losses. But I was really glad not to be paying German taxes on that income. Whew!

[sbcalimom]

We may get some sort of assistance once we get there for tax prep as they have a lot of things set up for expats working at the institute. I'm getting a lot of this info second-hand through my DH so that doesn't always help! But, I agree it does sound like once we have no income based in NM and no property, cars, etc we should be fine. I'm going to get a consult from an expat tax service I found just to be safe and hope we can get reimbursed but if not, not the end of the world.

[bobosensei]

Send your DH with a list of things to ask HR or whoever does the relocation, and you are right that probably you will get more support once you move over.  My DH was military and when I worked in Germany it was for a US based company so our situation was different.  

You are going to love Germany though!

[rangerj]

I have never had a NM client so I cannot provide specific information. That having been said, most states provide for a check the box status for change in residency, e.g. part year resident (moved in or moved out dates). There may also be a "final return" box. You can also provide an attached statement that you are, or have, permanently left the state and are no longer state residents. A "drop box" and mail forwarding service is also worth looking into. Every state that I know of has a legal definition of "residency". A few added thoughts: The U.S. Embassy has an IRS representative and can generally be contacted. The foreign "earned" income exclusion (section 911) provides for the exclusion from US taxation of an amount of foreign earned income once you have met the requirements. To the extent that the foreign earned income is excluded the foreign tax on that income is not available for the foreign tax credit. You cannot have your cake and eat it too. That said, the foreign tax credit is just that a dollar for dollar credit against the US tax. Also, just because the company that pays you is based in NJ does not make you a NJ resident. You have a few complex tax issues and a consultation with a tax professional with foreign tax experience is a very good idea. I would see a tax attorney with foreign tax experience, particularly German tax experience, and do it BEFORE, not after, the fact. In other words do "Tax Planning". 

[sbcalimom]

Thanks all! I had a consultation today with a US tax company that specializes in expats. Unfortunately, they can only help on the US side so while I now feel much more confident about the US side I am even more confused on the German side.

It seems like we'll be able to avoid double taxation as long as we file appropriately but what is making things more complicated is that I'm paid as an employee by a US business. There's no way my employer will be able to do any sort of ex-pat status so now it's seeming like I may have to convert to a contractor both here and in Germany. Not sure though and am waiting on a German consult next.

I'm not sure I'll be able to get it all figured out before we move (in 17 days) but it will be top of my list once we arrive so we can plan appropriately. I want to be sure to pay what I'm supposed to pay and not get a huge tax bill down the road because we stuck our head in the sand.

I also reached out to our employer contact to see if they can help at all. So far they've been very helpful and knowledgable so they may have more help than we realize for tax issues. I thought I understood how it worked based on the health insurance discussions but now I'm realizing I wasn't clear enough and likely assumed too much.