If you are a US citizen now residing overseas, please remember that
the
United States continues to tax you on all of your worldwide income (one
of the few countries that does so for expats). Thus, as you probably
know, you have to report, and pay (federal) taxes upon, your worldwide income, as
long as you retain your US citizenship . . . even if you live abroad continuously for several years. Unless you work for the US
government, however, you should have the opportunity to exclude some or all
of your overseas income from federal taxation by claiming the Foreign Earned Income Exclusion
(via IRS Form 2555).
With respect to California, we
did some research on this for you. As it turns out, by moving to a
foreign country you are able to "abandon" your prior California
residency (tax
domicile) for state tax purposes (unlike the rules in many other states). You would therefore only be taxed on
your US income (by the state of California) for anything that was
classified as California-source income.
If all of your income is earned overseas, and you have no separate California-source income, then you could file a California state nonresident tax return and exclude your income by indicating that it does not have a California-source. Or, you could exclude your income from California taxation by claiming the federal foreign earned income exlusion (which also applies then to California). Or, you could just not file a California income tax return at all, under the theory that since you can qualify as a state nonresident (for income tax purposes), and you have no California-source income, then you would have no filing obligation. In short, you have some choices. Probably the one to raise the least number of (potential) future questions, though, with the California FTB would be to continue filing nonresident California returns and exclude your income from California taxation that way.
Please refer to the
California Franchise Tax Board Publication
1031 for more details on residency. In particular, the examples on Page 5,
and the discussion on Page 9, are helpful and may be applicable to your present
circumstances. Here is that link:
https://www.ftb.ca.gov/forms/2016/16_1031.pdf
And please refer as well to the following California Franchise
Tax Board webpage for a complete definition of how the FTB defines
California-source income:
https://www.ftb.ca.gov/individuals/filertn/nonresidents-part-year-residents.shtml
Also, please don't forget any annual (federal) foreign financial account disclosures you may have to file this year, if you keep a bank account or other financial assets overseas.
In
fact, there are two
separate annual disclosure forms that may be required for US citizens; each also has different
reporting rules.
One is known as IRS Form 8938, and can be
attached to the relevant yearly Form 1040 tax return (which you could
file for free using TurboTax, if you have no taxable income).
The other is known as FinCen
Form 114, which can only be filed via the internet. The following
Internal Revenue Service webpage describes them in some detail, and provides
their dollar value reporting levels (called the "Reporting Threshold"):
https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements
Form 8938 is included in
TurboTax, as indicated; FinCen Form 114 is not, and you would need to access that reporting
webpage separately. Note that you can get to the FinCen reporting internet site directly
through the above IRS link (a link within a link, essentially).
Thank you for asking this important question.
