Shownotes
US tax planning when moving to Ireland is the focus of this episode with Stephanie Wickham and US tax specialist Josh Katz. They explain how state residency, foreign tax credits, filing deadlines and investment rules can affect Americans living in Ireland. Listeners will learn why the timing of a move matters, when selling assets before arrival may reduce tax exposure, how PFIC rules can complicate Irish investments, and why Irish and US advisers often need to coordinate both tax returns.
Why This Topic Matters
Moving from the United States to Ireland creates a tax position that can be more complicated than many people expect. US citizens generally remain within the US tax system after moving abroad, while becoming liable to Irish tax under Ireland’s rules on tax residency, domicile and income source.
That does not necessarily mean paying tax twice. The Ireland-US Double Taxation Agreement and foreign tax credit rules can often provide relief. However, the result depends on the type of income, which country has primary taxing rights and when the relevant tax is paid.
There is no single treaty rule stating that all income is taxed in one country and ignored in the other. Each source of income or gain must be considered separately. As accountants are rather fond of saying, the facts matter. Unfortunately, in cross-border tax, they really do.
The first year is often the most difficult. A mid-year move can involve part-year state returns, Irish tax registration, different filing deadlines and uncertainty about the final amount of tax due in each country. Early planning can prevent unnecessary payments and avoid leaving too little cash available for the Irish tax bill.
What Stephanie Covers
Stephanie and Josh discuss how US state tax residency can continue to affect Americans after they move to Ireland. The position varies considerably between states. Some states recognise credits for tax paid in Ireland, while others may continue pursuing former residents if their departure has not been properly documented.
California is highlighted as a particularly persistent state. For someone making a permanent move, establishing residency in a state without individual income tax may sometimes be considered before leaving the US. However, simply changing an address on paper is unlikely to solve the problem where the person intends to return shortly afterwards.
Even after state residency has ended, income connected with a particular state can remain taxable there. For example, someone receiving rent from a property in Ohio may still need to file an Ohio non-resident return, although the state would generally tax the Ohio income rather than the person’s worldwide income.
The episode also examines estimated US tax payments. Self-employed individuals may continue paying quarterly instalments after moving, only to discover that Irish taxes and foreign tax credits substantially reduce their US liability. That can create a significant cash-flow problem, particularly when the individual also needs funds available to pay Irish Revenue.
Stephanie explains why taking advice before the move can help estimate the Irish liability and determine, with appropriate US advice, whether estimated US payments should continue at the same level.
Another important issue is the coordination of Irish and US tax returns. Irish tax figures may be needed to calculate a US foreign tax credit, while the final US treatment may affect the Irish return. In some cases, the advisers need to exchange draft calculations before either return can be finalised.
The discussion also covers the treaty’s saving clause. US citizens can sometimes read a treaty provision and conclude that particular income is exempt from US tax, without recognising that the saving clause allows the US to continue taxing its citizens in many circumstances.
Investment planning is another major part of the episode. Non-US mutual funds and exchange-traded funds may be treated as Passive Foreign Investment Companies, commonly known as PFICs. These investments can involve additional reporting, tax on unrealised gains under a mark-to-market election, or punitive tax treatment under the excess distribution rules.
Possible alternatives may include direct shareholdings, US-based investments, property or, in suitable circumstances, holding different assets between US and non-US spouses. These decisions need to be reviewed from both the Irish and US perspectives before any assets are transferred or investments are made.
Finally, Stephanie and Josh discuss planning before the move. Selling shares, funds or a US property before becoming Irish tax resident may produce a different result from selling after arrival, particularly where Irish Capital Gains Tax would otherwise apply. Timing can make a real difference, although pre-arrival sales are not automatically appropriate for everyone.
About the Guest
Josh Katz is a US CPA and the founder of Universal Tax Professionals. He specialises in US tax compliance and planning for Americans living abroad and works with clients in more than 50 countries.
His work covers annual US tax returns, FBAR reporting, foreign companies, trusts, investments, compliance programmes and cross-border tax planning. He regularly works with Americans living in Ireland, people moving between Ireland and the United States, and taxpayers who have only recently discovered that they should have been filing US returns.
Get in touch with Josh Katz & Universal Tax Professionals:
Website: https://universaltaxprofessionals.com/
LinkedIn: https://www.linkedin.com/in/joshuanathankatz/
Email: info@universaltaxprofessionals.com
What Listeners Will Learn
Listeners will understand:
- why leaving the US does not automatically end state tax exposure
- how foreign tax credits may reduce US tax on income taxed in Ireland
- why mid-year moves and mismatched filing deadlines cause practical problems
- how estimated US tax payments can affect cash flow after moving
- why PFIC rules matter when Americans buy Irish or European funds
- when selling investments or property before arrival may be worth considering
- how Irish and US tax advisers coordinate cross-border tax returns
- when detailed planning is valuable and when the first tax return may be sufficient
The central message is that not every American moving to Ireland needs elaborate US tax restructuring. Everyone should, however, understand their Irish position before the move and check whether any US state, investment or timing issues require action.
Four Episode Quotes
“Take advice early, because we can give you a reasonable idea of what your Irish tax bill is going to be and help you avoid a cash-flow problem.” — Stephanie Wickham
“The treaty goes through each individual type of income and gain and allocates taxing rights. There is no one vanilla statement that covers everything.” — Stephanie Wickham
“If something is treated as a PFIC, you may be paying tax on gains every year even though you have never sold the investment.” — Josh Katz
“Sometimes planning before the move can save a lot of money. Other times, there is genuinely nothing that needs to be done.” — Josh Katz
Frequently Asked Questions
Do US citizens still have to file US tax returns after moving to Ireland?
Generally, yes. US citizens can remain within the US tax system while living in Ireland, although many may not ultimately owe US tax because of credits for tax paid in Ireland. The filing position depends on the individual’s circumstances.
Can a US state continue taxing me after I become resident in Ireland?
It can. State tax rules vary, and some states are more persistent than others. You may also remain taxable on income connected with a particular state, such as rental income from property located there, even after you move abroad.
How do foreign tax credits work between Ireland and the United States?
Foreign tax credits can help reduce double taxation, but they do not apply through one simple blanket rule. The treatment depends on the type of income, which country has taxing rights and how the Irish and US returns are prepared.
Should I sell shares or property before moving from the US to Ireland?
Possibly. Selling certain assets before becoming taxable in Ireland may result in a lower overall tax bill, particularly where Irish Capital Gains Tax could apply after the move. The right timing depends on the asset and the person’s wider circumstances.
Why are Irish and European investment funds a problem for US citizens?
Some non-US funds and ETFs may be treated as Passive Foreign Investment Companies, or PFICs, under US tax rules. This can lead to extra reporting and potentially unfavourable tax treatment, including tax on gains before the investment is sold.
Do my Irish and US tax advisers need to coordinate my tax returns?
Often, yes. Irish tax figures may be needed to calculate US foreign tax credits, while the final US position can also affect the Irish return. Coordination can help ensure both filings use consistent figures and meet the relevant deadlines.
Related Episodes
US citizens moving to Ireland, tax tips and traps
Moving to Ireland from the US – tax issues to consider
An overview of the US state tax system for Irish residents
Top Tips for Managing U.S. Taxes as Irish Citizens or Expats with Sean Kearney (Part 2)
The Financial Reality of Migrating to/from the United States with Sean Kearney (Part 1)
Voiceover
Welcome to Taxbytes for Expats, the top tax tips you want to know as an expat. The podcast is here to help answer the common queries and concerns expats have when moving to or from Ireland.
Complex taxes explained simply. We’ll focus on the Irish and international tax issues to be aware of to ensure you save time, money, and stress.
Stephanie Wickham
Avoid the hassle of dealing with your bank and transfer online, by app, or over the phone on Currencies Direct today.
So, a lot of Americans living abroad aren’t even going to owe U.S.
Josh Katz
taxes. So, if you’re not going to owe U.S. taxes, it’s not really a problem. It’s only if you’re in a case where you may owe.
Stephanie Wickham
So, this is something we refer quite a bit of work on to you for. You might be keen to kind of step it through. So, routinely in a consultation, we’ll talk with a client and, you know, we guide them through what’s going to be taxed in Ireland, when they’re going to have to pay tax, how much, and, you know, what opportunities might exist to kind of limit any tax.
Yeah.
What’s your experience with guiding clients through that dilemma?
Josh Katz
Yeah. So every state’s different. Some states do honor the credit for taxes paid in Ireland. Some do not. But in general, if you’re moving from the U.S., if you’re moving from some states, there shouldn’t be an issue.
You will now no longer be a resident. But you can always change your residency to a state without any state income taxes, for example, Florida or Texas. So we’ll often advise clients on how to make that move kind of more on.
Paper, make their new residency Florida and avoid any taxes. And that way, if they are contacted by the state, then they’re able to let them know, no, Florida is my residency and there’s no issue because Florida doesn’t have any state taxes.
So California is by far the worst. I’ll receive letters from California about a client 10 years after we filed. So for 2016, we’ll say, you forgot to file your 10 years.
Yeah.
Stephanie Wickham
They can go back that far.
Josh Katz
The federal government is nowhere near as that state government and even local. Sometimes you’ll have a local.Local jurisdiction too that may have taxes. But the simplest thing to do is to move your residence in Florida.
It depends on, I mean, if you’re moving to Ireland for two years or one year, it’s not something you can necessarily do. And if you change your residency in Florida for a year and then move back to California, I think California will know.
So in that case, you may still want to pay your state taxes. But for a lot of Americans who are moving abroad, it might be more of a long term decision. And at that point, definitely changing your residency is the easiest.
Easiest way to avoid any state taxes. After that, we’ll look at what state it’s going to be and your situation. So, even though you may move your residency to Florida, you may move to Ireland, but you might still have income from that state.
Let’s say you have a property in Ohio and now you have rental income. So, now you could file a non resident tax return and only pay taxes on the income derived from that state and not your worldwide income or any income you earn while in Ireland.
So, this is something that can be.Very individual because there’s 50 states and it depends on which state you’re from and how it’s treated. But in general, there are some ways to avoid state income taxes as well.
Stephanie Wickham
What do you think the other timing issues are that people need to be aware of? So, you know, if income or taxes are assessed or recognized differently between two different jurisdictions, what problems do you encounter for clients when you’re working with them?
Josh Katz
Definitely partial year. So, let’s say you moved in the middle ofThe year, you know, determining when they’re paying taxes in Ireland and then also having a half year of U.S. taxes.
So they might file, you know, for a state, you could file a part year tax return. But for the U.S., they’re only going to get, you know, credits for half of the year, determining that. And that’s a situation where we really want to know.
Usually, if you live, you know, and file your taxes year after year, it’s easy to predict. But when you move in the middle of the year, it’s really hard, much harder because, you know, you have no idea what it’s going to look like.
And the tax rates might be lower, and you might not even decide if you’re going to be paying taxes in Ireland until a later point. So, I think that’s sometimes a situation that could be more complicated.
But in general, your question, what are the timing issues? So, obviously, the filing can be an issue if your taxes really aren’t going to be completed until November, and we want to make sure that they’re completed in the US by October.
Well, what are we going to do about that? So, ideally, we’ll try to complete everything on time.Maybe you’ll file on October 15th.
Stephanie Wickham
Well, we would, we, I think as well, and that’s probably where having two advisors who talk to each other is really helpful because we have specifically designed it because we have so many US clients that we have like a busy period in April where we do a lot of Irish returns, just get them done.
They don’t necessarily have to part with the taxes straight away, they can pay them later, but get a final figure across so that you kind of, you’re not having to chase that.
Point I wanted to mention as well on that. What happens generally speaking if somebody’s in an installment? Because I know in the US, you can sometimes pay taxes on an installment basis in advance.
Josh Katz
Yeah, that would be if you’re usually, for example, if you’re self employed. So if you’re self employed and you’re still paying those taxes, then you want to continue paying them. But we’re not going to know necessarily if you need to continue paying them until we find out how much taxes you’re paying in Ireland.
So, right, we might, again, we might not know. Let’s not say November. Let’sUse October as our dollar. So we’re not going to know until October whether or not you paid enough taxes in Ireland or what you would owe in the US.
So definitely, I would say in that first year of moving, it’s good to continue paying those taxes, which should be provided by whatever account you used or you filed yourself the previous year. So for the previous year, we would say, okay, this year pay taxes on this much per quarter, for example, and then you’ll just get a refund.
So you’re overpaying your taxes. Now, let’s say that this is a veryLarge amount of money, or if you paid these taxes, then you’re not going to have enough money to pay your taxes in Ireland. So that’s a situation.
Well, then in that case, maybe it’s best to don’t pay the taxes, take the risk. And if you do owe in the US, it should be a much smaller amount because you’re paying tax in Ireland. And then even if there’s a small penalty on top of that.
Stephanie Wickham
And that’s a really, really important point because oftentimes that kind of lends itself to what we say to clients generally, which is if you know you’re moving to Ireland and you, for example, are paying.
On a quarterly basis in the US, for example, then take advice early because, you know, we could, with a relative level of confidence, give you an idea of what your Irish tax bill is going to be.
That allows you to stop paying in the US, subject to getting the right US advice. It can solve a cash flow problem because I don’t know how quickly the IRS are giving back refunds at the moment, but we’ve seen it from Irish revenue.
Nobody can guarantee you’re going to get a refund within a certain amount of time. What are you practically seeing in that circumstance?
Josh Katz
Overall, the US is much, much better at giving refunds than a lot of other places. So you can be very confident that if you’re owed a refund, you’re going to get it. So that’s first of all.
And then also, you’re going to get it most likely pretty fast. It depends on how it’s submitted. And for example, if you submit your return by paper, it will be slower. But if it’s e-filed, it would be faster.
But you can be pretty confident that you’ll at least receive the money. Whereas we’ll work with, I know this is in Ireland, but Italy.Have no idea if you’re going to get that money back if they allow amended returns.
So, something else we might do in terms of the timing issue is file a return knowing that we’re going to amend it. So, we’ll file an incorrect tax return and then amend that a few months later once we have the final numbers.
We don’t do that a lot, and I don’t really like doing that because usually it’s the same as waiting. But that’s an option in the US, and that’s something other accountants may do that more.
Stephanie Wickham
And I know we’ve had a couple of cases, they’re not common, but it can happen where we have adraft Irish tax return, which feeds into the US tax return. The US tax return is finalized.
You give us a final tax credit and then we finalize and lodge the Irish return. So that kind of circular, if there’s credits being claimed on both sides, because to the heart of this issue and a common fallacy we see, and we’ve spoken it before about it on the podcast is there is often a generic belief that, oh, well, the treaty says I pay tax in such and such a country.
And the treaty says nothing of that at all.Says is it goes through each individual income type and gain and it allocates taxing rights. So there is no one vanilla statement that covers tax credits.
That can obviously be different, cognizant of the US rules. But from our perspective, it’s very nuanced how the credits are claimed from an Irish treaty perspective.
Josh Katz
I’ll mention this you just kind of touched on it, but the treaty also has something called the savings clause, where basically, after whoever wrote the treaty spent all this time writing the treaty at the end, there’sThe savings clause, which has basically most of it, doesn’t really apply.
So that’s a big mistake we’ll see from time to time that somebody will write me a long, long email, quote all these sections of the treaty, say, okay, well, I don’t have to pay tax on this and this and this and this, and have no idea that, you know, how the savings clause works or, you know, what it means.
So it’s definitely unfortunate sometimes if you read the treaty, it seems clear you don’t have to pay taxes, but then in the end, it doesn’t exactly work, you know.
That way.
Stephanie Wickham
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Check the show notes or head to currenciesdirect.com to register. And thanks to Currencies Direct for the support of this podcast. So just to kind of round back and touch a little bit more on what you said about investing as an American living overseas, what, like justMaybe expand a little bit on this concept of a PFIC.
Why can non US funds or non US ETFs be a problem for US individuals abroad?
Josh Katz
Yeah, the reason is because if they’re considered a PFIC, I guess I can’t say for sure, but I assume that the US is discouraging investment abroad and would rather you invest in the US.
But if something is deemed to be a PFIC, two ways in general to treat it either that you use the mark to market election, which meansThat you’ll pay tax on the gains every year, whether or not it’s sold.
So, if you have one fund and it gained in value, you report that as income, even if you never sold it, which sometimes is not a problem. Sometimes it’s going to work out to be the same as if you did so.
But let’s say you have a fund which grows in value, you pay tax, and then loses value in the future. It can be definitely something which is not as advantageous.
Which is called the excess distribution method, means that you’re paying a lot more tax than if it was a normal investment. So that’s the reason why you’re going to want to avoid. You also won’t always be able to make the mark to market election.
There’s sometimes a $25,000 exclusion, which means that if you have less than $25,000, you wouldn’t have to pay tax on anything. But $25,000 in your retirement portfolio can easily be.
Surpassed for a lot of people and find themselves in a bad situation. There are lots of ways to avoid this. And that’s where we really recommend working with your accounts on that.
And we understand it can be very difficult if you are living in Ireland and then you have Irish tax restrictions as well.
Stephanie Wickham
It can. And I think sometimes people probably feel like they’re hemmed in from every direction. So, what would be the practical advice that you’d give somebody who wants to invest sensibly but doesn’t want to end up with?
Kind of a tax monster in the corner at the end of it, given their circumstances have changed?
Josh Katz
Well, from a U.S. tax perspective, they can invest in any single share stock. So, any company in the U.S. or outside the U.S. So, let’s say the foreign, you know, PFIC, the Foreign Mutual Fund, invested in 10 different Irish companies.
Well, you’re allowed to invest in any of those companies. You just can’t invest in the group fund. So, one idea would be just to invest in single shares.
Times we’ll work with maybe a husband and wife, and the husband might be American and the wife’s not. We might then transfer them to a spouse’s name. And sometimes I’ll mention that to clients and they’re horrified.
And other times they think, oh, this is a great idea. But when they are horrified, maybe what we would do is balance their portfolio by putting single shares in the husband’s name and then the other types of mutual funds in the wife’s name.
So those are options. Other options would be investing in the US. So whatever would be allowed.In the US, from the Irish tax perspective, that’s fine. Or other types of assets.
So maybe instead of investing, if you’re moving to Ireland, instead of investing in mutual funds, invest in real estate. That could be an idea. If you have a large portfolio or a complex situation, that’s when we’re also going to recommend working with a financial advisor.
And you and I work with a few together who know this from both sides and are able to help.
Stephanie Wickham
Approach, isn’t it? There’s a few moving parts, which I suppose is just a yeah, it can come as a surprise to people, but it’s probably good to know in advance.
What are the key things you say to clients when they’re looking to leave the US and they’re planning to move to Ireland? What are the generic things that kind of come up?
Because I suppose a lot of people listen to this are either in Ireland, having moved from the US, or currently planning a move.
Josh Katz
Everyone has their own situation. So sometimes I’ll speak with people and they’re thinking about moving to Ireland. And then at that point, I’m going to say, I think this might be a little too early to begin planning.
Or I’ll get someone that thinks about moving to Ireland or the UK, Spain or France, and they want to know what’s better for them. Well, at that point, I don’t think we’re the right person to help you decide where to move.
And I think there’s also, I also would mention to them, there’s a lot of other factors besides just taxes. But if they’re definitely, they have a date, they’re ready to move, then I would consider.Bit of tax planning. So, in general, the tax rates in Ireland are higher.
So, they may be in a situation where if they know they’re going to be able to sell, first of all, financial assets, maybe it’ll be a good idea to go through your portfolio and sell them now, pay the U.S.
capital gains tax rate rather than the Irish capital gains tax rate. So, that could be a good situation if they do that before they move and before they’re taxed in Ireland. Same thing possibly with a house, right? I speak with a lot of people. They say, well, you know, it’s going to be easier for me to sell my house once I moved out and moved everything in Ireland.
And then I’ll just have, you know, the house will be empty so I can have the realtor sell everything. Well, at that point, you might be taxed in Ireland. So it might be a good idea to sell it before, you know, figure out where you’re going to live in the US for a few months.
But definitely you could save a lot of money that way because you’re not subject to taxes in Ireland on that income. And then there’s other types of planning opportunities. But also for a lot of other people who I speak with, there’s nothing to do.
There’s nothing to plan for because in general, your tax situation in the US could be much easier once you’re moving to Ireland.Overall, it’s going to be more complex because you’re going to have to deal with Irish taxes, and that’s where things are going to get complex.
But in the US, it might be easier. So sometimes I’ll speak with someone who’s very worried and wants to plan and wants to know exactly what they’re going to pay. You know, just in general, this isn’t special to Ireland, but if you, when someone wants tax planning, I might say, okay, well, how are your decisions going to change if you know, you know, for example, how much you’re going to pay next year?
They want to know how much they’re going to owe in taxes. I go, well, you know, are you going to, do you have enough money in the account to pay either way?And maybe they do. So it doesn’t necessarily, wouldn’t change anything if they know how much they’re going to pay.
Other times it’s a big, it is very important. Maybe they’re not going to have the money, so they need to sell stocks and shares to make sure to have that money available. Or based on the amount they need, they’re going to owe in the US and Ireland, they’re going to make a lot of other different decisions.
So I think that that’s going to help determine what type of planning is necessary. But there are lots I have.I wouldn’t say everybody moving to Ireland needs US.
I would recommend everybody speak with an Irish tax advisor about what you need to know there, because you want to be off on the right foot once you move. But from the US side, some people, it can be very important.
Other times, it’s something that we would deal with from your first tax return. So you move to Ireland. Once it comes time, February, March, we would have a call and then determine what you need to do for the year and the best way to file.
Tax planning wouldn’t be as important.
Stephanie Wickham
That’s what we see happening quite a lot, really, isn’t it? That clients will come to us, we’ll have a discussion with them, and then we’ll say, okay, talk to Josh or talk to Josh’s team, or basically consider how the US position changes.
That is generally how it will work. So if we were to look at the majority of people, we speak to them, we do a consultation, we do the Irish piece, we loop you in so you can have a chat if needed.
And then when we come to do the tax return, we’re doing the Irish return.Early, we’re giving it to you as you need it to file in the US with respect to whatever deadlines in play.
And then behind the scenes, we essentially just coordinate between us, don’t we? Like it’s in other words, most clients don’t really want to know what’s going on as long as they know that it’s actually done correctly and that there’s experts dealing with it for them.
Josh Katz
Yeah, for sure.
Stephanie Wickham
Josh, if people want to have a chat with you, we will put your contact details in the show notes. But just talk a little bit about what working with you and the team looks like.
With you, tell us your contact details, et cetera, et cetera. How would you like people to make contact with you as a result of this discussion?
Josh Katz
Sure. Yeah. You can email me directly at Josh at Universal Tax Professionals.com. Usually we’re able to set up a quick 15 minute introductory consultation. The purpose of that is going to be to discuss our services, discuss your situation a little bit.
In that time, I’m not usually able to give tax advice or go deep into your tax situation, but definitely discuss how the process can work.And give what we’d recommend, or possibly that could be the beginning of our relationship, and we might be able to work on planning from that point or filing a tax return.
We have a team of about 15 accountants. So, usually, if it’s tax filing season and you want us to help with your tax return, we would then send you everything we need, including our new client questionnaire, and then pair you with an accountant.
And that would be your main contact who you’d be ableTo email and speak directly with any questions. We have a great team. Our accountants are great. We have two tax directors who are fantastic.
And we love our clients from Ireland and who we share as well.
Stephanie Wickham
Yeah, we’ve got some really good ones together. Josh, this has been really, really useful. It’s really nice to actually sit down and go through these things and solidify how the process works and what people are doing day to day and how it’s working out.
And yeah, I’ve no doubt we’ll get a lot of value from listening to your insights. So thank you so much for taking the time to share them.
Josh Katz
Thank you so much for having me.
Stephanie Wickham
It’s been a pleasure. It’s a pleasure working with you guys. And yeah, I’m sure we will definitely have you on in future. There’s plenty more to talk to, but I think we’ve done a really good job of kind of hitting those key points today.
Voiceover
So thank you very much.
Thanks for listening to Taxbytes for Expats. Please do leave a rating or review wherever you listen to your podcast. And as always, remember to take professional tax advice specific to your personal circumstances before acting or refraining from action in connection with the matters dealt with in this series. The material in this podcast is intended to give general guidance only.
