American possibly moving to Dubai (tax question):

[Iron Horse]

Be proud to pay your taxes to be a citizen of such a great country! My employer, which is a US company, currently takes out all federal and state and other miscellaneous taxes and I have no issues with them doing so. I was told I should declare my residence in one of the states that don't have a state tax such as Texas, Florida, Nevada, or Wyoming because chances are I wouldn't see this money in my pocket again. Yet I decided to leave my residence in Colorado. I approached it from a few different angles. One, it's the right thing to do. Two, when I return one day to my state I hope my money helps to make a difference. Three, it's easier than trying to play a game with the IRS as I have nothing to hide from when I file.

[Monalisa]

Bev,
I hope I would get some additional feedback.
I am so glad to see your replies,you definitely know what you are talking about.
I am a US citizen moving to Dubai in July with my son.
My husband will stay in the US for now with my other son.
We usually file jointly.
What do you suggest we do in this case?
If I am paying rent,do you get any deductions for it?
I am totally at a loss when it comes to taxes!I do not want to mess up on this one!
Thank you for taking the time to explain it step by step!

[Bevdeforges]

Originally Posted by Monalisa

My husband will stay in the US for now with my other son.
We usually file jointly.
What do you suggest we do in this case?
If I am paying rent,do you get any deductions for it?

The first filing from overseas is generally the worst. Then, it falls into a rhythm and actually becomes rather easy.

You may want to start looking at Publication 54 from the IRS. (Download it from the IRS website - or use the coupon in your tax booklet from last year to order a copy in printed form.)

AFAICT, you can probably still file a joint return, however you may need to file for an extension until you have established your residency in Dubai (i.e. have been living there for a full year) so that you can claim your overseas earned income exclusion. Or, you file a joint return that first year without taking the exclusions, and then file an amended return after you have established your overseas residence and your right to the exclusion. If DH joins you later, you may have to do the same thing in that year to establish DH's right to the exclusion (assuming he is working there - each one of you can claim your own overseas earned income exclusion).

Depending on how much income you are earning in Dubai, you may be able to take the overseas housing allowance for rent you pay while there (and for other living expenses). See the instructions for form 2555 for the details.

It will definitely complicate your tax situation. Now, with regards to your state income taxes, that's anyone's guess. Some states won't let you file separately if you file a joint federal return - but technically, in your case, you would not have state residence while you are out of the country. Depending on how your state does things, you may want to file separately for federal, so that your Dubai income won't get hit for state income tax.
Cheers,
Bev

[COPO]

Bev,

Do I understand it corrrectly that if I have relocated full time to Dubai and am working for a non-US employer, than there is no Soc. Sec. or Medicare, or State tax liability? Only tax payable by me would be US Federal less the $87K exclusion and the ~ $13K housing exclusion?

If my employer does not have a retirement plan, are there some retirement planning strategies to shelter income? Would I have to make 1/4 ly estimated tax payments since income will be in the $300K range?

Anyone firm you could reccommend in Dubai for tax planning advice?

Thanks in advance.

[Monalisa]

Copo,
I guess the firm we should talk to should be in the states.
I am waiting for recommendations if anybody is familiar with one.
little off topic,I would love to know what are the jobs that pay this kind of money
My son just started college yesterday and I want to make sure he knows what jobs are financially rewarding and in demand these days!!!I graduated 20 years ago and it is a little too late for me!!
Enjoy Dubai, I am definitely going to do so.

[COPO]

There are numerous jobs that pay quite well. Investment Banking or Real Estate Development are two that come to mind and are in high demand particularly in the gulf states these days. I received an undergrad degree in civil engineering followed by an MBA in Finance. Although the best advice is do something you enjoy.

[Bevdeforges]

Originally Posted by COPO

Bev,

Do I understand it corrrectly that if I have relocated full time to Dubai and am working for a non-US employer, than there is no Soc. Sec. or Medicare, or State tax liability? Only tax payable by me would be US Federal less the $87K exclusion and the ~ $13K housing exclusion?

If my employer does not have a retirement plan, are there some retirement planning strategies to shelter income? Would I have to make 1/4 ly estimated tax payments since income will be in the $300K range?

Anyone firm you could reccommend in Dubai for tax planning advice?

Thanks in advance.

Even if you're working for a US employer in Dubai, if you're established over there as a Dubai resident (see IRS pub 54 for details about residency), you can avoid FICA and State taxes on your income. If you return to the US for retirement, you'll be lacking the quarters to qualify for Social Security and Medicare, but you only need 40 quarters these days to qualify. (If you continue to hold property in the US, you may get hit for state taxes for any income your in-state property generates - but on a non-resident basis.) The housing exclusion has to be justified with a list of the housing expenses you incur, but basically yes, that is excludable from your taxable income up to whatever the current limit is.

For retirement plans, you can still contribute to an IRA to the extent that you have taxable earned income on your US return (which it sounds like you will). And actually, for the part of your Dubai salary that is subject to US taxes, you have most of the same sorts of income shelters available - all your usual deductions from income (e.g. mortgage interest, health care expenses) though these will be apportioned between your taxable income and your excluded income.

And yes, if you're not having withholding taken out of your pay, you will have to do quarterly estimated payments to avoid interest and penalties when you file your taxes.

I'll have to leave it to the folks in Dubai to suggest a tax advisor familiar with US taxes.
Cheers,
Bev

[Monalisa]

You are very right about doing what he enjoys.
My son is not 17 yet and is verrryyyyy undecided on what he wants.That is why I thought he would welcome suggestions(I think he wants me to leave him alone, but you know moms
I wouldn't mind him finding what he likes among those kind of jobs.
I am in the education field and a licensed real estate agent on the side.