U.S. taxes if you live outside the country

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Q. If I live in Canada 51 percent of the time and collect Social Security, should it be taxed differently? My combined income will not even be $20,000.
— Trying to afford it

A. If you are a U.S. citizen or U.S. resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.

It doesn’t matter what percentage of the year you live abroad, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

If you have sufficient income, you have to file your U.S. taxes, he said.

There is a difference between being a resident and a citizen.

Kiely said, for example, he’s a U.S. citizen and also a resident of the state of New Jersey. If he was to buy a home in Florida, he can claim Florida residency if he lives there more than he lives in New Jersey.

“Florida has no income tax and as we all know, New Jersey has a very high income tax,” he said. “It’s quite easy to change your residency and save on state income tax.”

But your citizenship follows you wherever you go.

“If I move to Europe permanently, I am still a U.S. citizen,” Kiely said. “And as such I am required to file and pay U.S. income taxes, regardless of where the income came from.”

Now, on the taxation of Social Security.

Kiely said it depends on your total income. It could be that zero is taxable, 50 percent is taxable or 85 percent is taxable.

The formula is:
1. Total income excluding your Social Security income, plus
2. Municipal bond income, plus
3. One-half of your Social Security income

The next step is to compare this number to a base amount, he said.

Your base amount is:
• $25,000 if you are single, head of household, or qualifying widow(er);
• $25,000 if you are married filing separately and lived apart from your spouse for all of the year;
• $32,000 if you are married filing jointly; or
• $0 if you are married filing separately and lived with your spouse at any time during 2016.

“If the number you calculated above is less than your base amount, then none of your Social Security benefits are taxable,” Kiely said. “If your income calculated above is more than your base amount, then some of your benefits will be taxable.”

He said if the number calculated above is larger than your base amount but less than $34,000 for singles or $44,000 if married and filing a joint return, then 50 percent of your benefits are taxable, he said. If the number is greater than $32,000/$44,000, then 85 percent of your Social Security benefit is taxable, he said.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.