Monday, February 24, 2020

How Big Life Events Affect Your Taxes in Different Countries

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No matter who you are — except maybe an accountant — taxes are a daunting task that we face every year. Organizing your information in order to get the maximum refund and trying not to forget anything important just in case you get audited is stressful. If you have to pay the government money, it can be even more of a pain.

All of this is especially true if you have some international funds that need to be accounted for. It's even more difficult if you’ve lived in a foreign country and also need to pay taxes there. Suddenly you’re not only dealing with the complicated U.S. tax system but something altogether different.

Ultimately, the things that really impact your taxes such as buying a home, having a baby, getting married or divorced, or starting a new job are factors no matter where you live. Some of these may be monumental in the States but have a smaller impact if you’re living in a foreign country, or vice versa. Either way, they can get complicated quickly so it isn’t a bad idea to look into filing with a professional with experience in international taxes and accounting.

Here is a quick guide to some of the big-ticket items in the U.S. and how they might play out if you are living abroad and/or filing in a different country.

Buying a Home

Regardless of where in the world you live, buying a home is a big deal! Whether it is your first home or a rental property, homeownership is a symbol of financial stability and investment. It also means working on fun home improvement projects and taking advantage of tax breaks!

In the U.S. first-time homeowners are usually shocked at how much they can save on their taxes through their homeownership status. There are all sorts of tax benefits, but the biggest one is the ability to deduct up to $750,000 in mortgage interest. Things can get a little more complicated if you buy a home in a foreign country though. In that scenario, you may still be subject to normal taxes and some deductions in the States but will also have to pay property taxes in the country the home was purchased in.

Back home there are also a number of ways to get tax benefits from completing home improvement projects. Anything that substantially improves the quality of your home such as energy efficiency improvements, remodeling, or building a deck or makes your home dual purpose such as renting out a room or creating a home office space counts. Many of these same deductions are available in foreign countries but they may make for more or less return into your pocket depending on the country’s tax system.   

Getting Married or Divorced

Hitching or unhitching your wagon to or from someone who has been in your life for a number of years can also make taxes a bit more complicated. Part of the struggle is learning to manage money together as a married couple rather than as a single person.

For instance, within the U.S., if you get married you can expect to see a number of changes to your tax documents, especially if you are filing jointly. Similar to the U.S., some countries such as Germany actually beef up the benefits a little bit if you are married and filing jointly as opposed to filing as a single person.

Divorces can be a bit more challenging no matter where you are living. For example, what date your divorce is finalized can impact whether or not you will need to file jointly or can file separately. You’ll both have to update paperwork to adjust your tax withholdings once everything is finalized too. Finally, you’ll have to work through who exactly gets to claim the children as dependents.

Getting a divorce abroad can also be extremely complicated. There is no specific law that requires the U.S. to recognize divorces that take place in a foreign country (though the government usually does). Additionally, child dependent and alimony deductions can vary if you have an ex living in the states versus internationally. Rules can also vary substantially by country.

Healthcare Expenses

Everyone is well aware of how complicated and seemingly unfair the U.S. healthcare system can be. Certain procedures are covered under some insurances while not by others, making it incredibly difficult to understand coverage and financial expectations for certain types of care. All of this can make it particularly complicated to determine if a procedure is a good candidate for medical tourism.

As many people are now traveling abroad for specific medical procedures because of lower prices, anything more than the basic healthcare coverage can seem insanely overpriced and make people question why they have it at all. Within the U.S., taxpayers are penalized for not having health insurance. This can be for better or worse, as many plans are costly and taking the tax hit can actually be cheaper for some families that are willing to take the risk in a financial pinch.

Some benefits do exist though for those that open health savings accounts and make yearly contributions over a certain amount. Granted, in many other countries, the healthcare system is vastly different. Taxpayers pay a substantial amount out of each paycheck for required healthcare expenses, but any medical emergencies or general trips to the doctor are usually free or come at a very minimal cost (think $30 for a broken arm).


Overall, there are going to be profound differences to your tax and filing if you are living in a foreign country or have any ties to one. Things such as home ownership, starting a family, and covering healthcare expenses are going to be very different based on where you live. If you think you may be in this boat, it is certainly worth contacting a tax professional to help walk you though all the ins and outs.

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