I am a citizen in both the EU and the US. I am planning to open an LLC in a tax-favorable state (i.e. DE or WY).
I currently live in the US, but plan to move out to the EU (i.e. establish residency) and then travel the world for a year while creating social media content (which will be my source of income). I will not physically spend time in the US during the following tax year.
Does an LLC make sense in this case? Will my original state in the US require me to file state taxes? Does it matter if I declare residency outside of the US? What are some good ways to avoid taxes in this type of situation?
Yes, forming an LLC in a tax-favourable state (e.g. Delaware or Wyoming) with residency outside of the US in the upcoming tax year may be beneficial, as it can help protect personal assets and provide tax savings.
Yes, you may have to file state taxes in your original US state but this may vary depending on the specific laws of the state. You should speak with an accountant for more details.
Yes, as a dual EU/US citizen living abroad, you must report your income to both the IRS and any applicable foreign jurisdictions. Depending on where you declare your residence, you may be subject to different taxation rates and could be liable for double taxation. It is important that you consult with a professional tax advisor to ensure compliance with all applicable regulations.
It's recommended to contact a tax advisor familiar with international taxation rules and regulations to determine the best strategies for reducing or eliminating taxes in this situation. Additionally, researching international agreements between the US and the country of residence may provide useful tax benefits applicable to dual citizens.
As a dual EU/US citizen living outside of the US, you may still be required to file taxes in the US and the EU. In general, US citizens are subject to US tax laws regardless of where they live or earn income.
However, as a US citizen living abroad, you may be able to take advantage of certain tax exclusions or deductions, such as the foreign earned income exclusion and foreign tax credit, to minimize your US tax liability. You should consult with a qualified tax professional who is familiar with both US and EU tax laws to determine your tax obligations in both jurisdictions.
In terms of your LLC, it may still make sense to establish one in a tax-favorable state, as this can provide certain legal and financial benefits. However, you should be aware that as a non-resident owner of a US-based LLC, you may still be subject to US tax laws and regulations related to foreign-owned entities.
Whether or not you declare residency outside of the US may impact your tax liabilities in the US and EU. If you establish residency in the EU, you may be subject to EU tax laws and regulations, and you may be able to take advantage of tax incentives or deductions offered in that jurisdiction.
In terms of avoiding taxes, it is important to note that tax avoidance strategies can be complex and may carry significant legal and financial risks. You should always consult with a qualified tax professional before implementing any tax avoidance strategy to ensure that it is legal and appropriate for your situation.
As a dual EU/US citizen planning to move to the EU and establish residency while operating a US-based LLC, your tax situation will involve several considerations at both the federal and state levels in the US, as well as in your new country of residence in the EU. Here are key points to consider:
### U.S. Federal Taxes
1. **Worldwide Income**: As a US citizen, you are taxed on your worldwide income regardless of where you live. This means you must report all income, including income earned from your LLC, on your US tax return.
2. **Foreign Earned Income Exclusion (FEIE)**: If you meet certain criteria, you may qualify for the FEIE, which allows you to exclude up to a certain amount of foreign earned income ($120,000 for 2023, adjusted annually) from your US taxable income. To qualify, you must either:
- Be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
- Be physically present in a foreign country or countries for at least 330 full days during any 12-month period.
3. **Foreign Tax Credit**: You may be able to claim a credit or deduction for foreign taxes paid on income that is also subject to US tax, which can help reduce double taxation.
### U.S. State Taxes
1. **State Residency**: Whether you need to file state taxes depends on your residency status in the state where you were previously domiciled. If you are no longer a resident and do not have any income sourced from that state, you typically will not need to file state taxes. However, this can vary by state, so it’s important to check the specific rules of your previous state of residence.
### LLC Considerations
1. **LLC Formation**: Forming an LLC in a tax-favorable state like Delaware or Wyoming can offer benefits such as limited liability protection and favorable tax treatment. However, keep in mind that an LLC itself is generally a pass-through entity for tax purposes, meaning the income passes through to the owners (you) and is reported on your personal tax return.
2. **Income Sourcing**: The source of the income (i.e., whether it is considered US or foreign income) can affect your tax obligations. Income earned from services provided outside the US might be considered foreign-source income, which could impact your eligibility for the FEIE or foreign tax credit.
### EU Taxes
1. **Tax Residency**: Once you establish residency in an EU country, you will be subject to that country’s tax laws. Most countries tax residents on their worldwide income, so you will need to report your global income, including income from your US LLC.
2. **Double Taxation Treaties**: Many countries have tax treaties with the US to prevent double taxation. These treaties typically allow you to claim credits for taxes paid to the other country.
### Tax Optimization Strategies
1. **Utilize FEIE and Foreign Tax Credit**: Maximize the use of the FEIE and foreign tax credit to reduce your US tax liability.
2. **Plan Your Travel**: Ensure you meet the physical presence or bona fide residence tests to qualify for the FEIE.
3. **Professional Advice**: Consult with a tax professional who is knowledgeable about both US and international tax laws to optimize your tax strategy and ensure compliance with all applicable tax regulations.
By carefully planning your residency status and utilizing available tax benefits, you can effectively manage your tax obligations as a dual EU/US citizen living abroad.
