Thinking about starting fresh overseas? You’re not the only one.
Plenty of Americans in their 40s and beyond are packing up and moving abroad. Why? The lifestyle perks are hard to ignore—cheaper living, walkable cities, and better access to healthcare. But there’s a catch. Taxes. For many expats, US tax rules are one of the biggest stress points.
I’ve helped thousands of Americans through this move, and here’s the truth: living abroad is possible. The dream can work out beautifully—as long as you plan for the paperwork as carefully as you plan for the ocean view.
Why Americans over 40 are choosing life abroad
Once you hit 40, the question changes. It’s no longer, “Can I backpack through this country?” Instead, it’s, “Can I build a comfortable everyday life here?”
Here’s what I hear most often from clients:
- Lifestyle and health. People want a slower pace, walkable streets, and affordable healthcare. For semi-retirees and remote workers, that’s a huge draw.
- More financial breathing room. In many countries, rent, food, and services cost a fraction of what you’d pay in US cities. Your savings—and retirement checks—go further.
- A second act with purpose. Maybe it’s consulting, part-time remote work, or finally starting that creative project. Lower costs abroad give you space to explore it.
But here’s the thing—thriving abroad isn’t about finding the perfect country. It’s about good timing and preparation. That includes knowing how to handle US taxes when living abroad, since your financial setup will follow you wherever you go. Before you leave:
- Set up international-friendly banking.
- Keep a US mailing address (family, friend, or virtual).
- Renew your IDs.
- Gather medical records and prescriptions.
- Check if important documents need an apostille for visa purposes.
And don’t skip the test run. Spend a few weeks outside tourist areas. Shop at the local grocery store. Ride the buses. Meet other expats. Then run the numbers in the local currency—add a cushion for exchange rate swings.
The goal isn’t perfection. It’s peace of mind that the daily math works for your lifestyle.
The basics: Do Americans pay taxes abroad?
If you’re a US citizen or green card holder, the IRS taxes you on your worldwide income—no matter where you live. That means you’ll still file a Form 1040 every year, just like if you were back home.
The rules? Pretty similar. But there are some key twists you need to know.
Deadlines and extensions.
Living abroad on April 15? Good news—you get an automatic two-month extension, usually until mid-June. Need more time? File Form 4868 and you can push things to October. One catch: if you owe taxes, interest starts building after April, even if you haven’t filed yet.
Double taxation? Not usually.
Here’s why:
- Foreign Earned Income Exclusion (FEIE). Using Form 2555, you can exclude a big chunk of income if you qualify under either the Physical Presence Test (330 days abroad in 12 months) or the Bona Fide Residence Test.
- Foreign Tax Credit (FTC). With Form 1116, you can claim a dollar-for-dollar credit for income taxes you’ve already paid to your host country. Often this works better than FEIE—especially if you live in a high-tax country or have passive income like dividends.
Many expats use one, or sometimes a mix, depending on their situation.
Extra forms to watch.
This is where people slip up. If your foreign bank accounts total more than $10,000 at any point in the year, you need to file the Foreign Bank Account Report (FBAR)—that’s FinCEN Form 114. You may also need Form 8938 (FATCA) if your foreign assets pass higher thresholds. These forms are separate from your tax return, and penalties for missing them can be nasty.
Key tax benefits that help expats
Here’s some good news: most Americans abroad don’t actually pay US taxes twice. Why? Because the tax code has two powerful tools that protect expats—the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Used right, they can save you thousands every year.
Claim the Foreign Earned Income Exclusion
Think of the FEIE as a giant “income shield.” For 2025, it lets you exclude up to $130,000 of foreign earned income from US taxation. To get it, you’ll need to file Form 2555.
How do you qualify? Two ways:
- Physical Presence Test – Spend at least 330 full days outside the US during a 12-month period.
- Bona Fide Residence Test – Show that you’re a permanent resident in another country.
Married? If both spouses qualify, each can claim the exclusion separately. One warning, though: if you revoke the FEIE, you usually can’t re-elect it for five years. So plan ahead.
The Foreign Tax Credit
The FTC works differently. Instead of excluding income, you get a dollar-for-dollar credit for foreign income taxes you’ve already paid. You claim it with Form 1116.
When does this help most?
- If you live in a high-tax country.
- If you have passive income like dividends or rental income—things FEIE doesn’t cover.
Some expats even use both strategies. The right choice depends on your income mix, where you live, and your long-term plans.
Conclusion
For many Americans over 40, moving abroad isn’t about running away. It’s about creating a better daily life—healthier routines, lower costs, and the excitement of new experiences.
But here’s the reality: while your address changes, your US tax obligations don’t.
The good news? With tools like the Foreign Earned Income Exclusion, the Foreign Tax Credit, and proper reporting of foreign accounts, most expats avoid paying taxes twice. The secret is simple—stay aware, plan ahead, and don’t ignore the fine print.
Thinking about making the leap? Start by doing your homework. Close out ties with your home state. Get your paperwork in order. And talk to someone who knows expat taxes inside and out.
That way, US taxes when living abroad become just another item on your checklist—not the thing that keeps you from starting your next adventure.
