Retiring abroad has lots of advantages, but reducing your tax
bill isn't one of them. As long as you're a U.S. citizen, you'll
still be required to pay U.S. taxes on income from your investments
and other sources. And if you maintain a residence in the U.S., you
may be subject to state taxes, too.
If you earn income in your adopted country, you may be able to
exclude up to $97,600 from U.S. income taxes in 2013 by claiming
the Foreign Earned Income Exclusion. This law enables you to avoid
paying taxes to two countries on the same income.
You could face an unexpected tax bill from your adopted country
as well. Many countries base their tax systems on residency, not
citizenship, says Christine Ballard, a CPA in the international tax
division of Moss Adams LLP. The U.S. has tax treaties with many
foreign countries to prevent double taxation, but you may still
have to file a tax return. Moreover, if you die while living
outside the U.S., property you purchased in your adopted country
could be subject to that jurisdiction's estate taxes. Even if
you've usually done your own taxes, you should get advice from a
tax professional who is well grounded in foreign tax laws.