Pre-Departure Tax Planning for US Citizens

Before moving abroad, you should make strategic decisions about tax residency tests, investment structures, and state domicile that will shape your compliance for years to come. Pre-departure planning unlocks opportunities that disappear after you leave.

Establish your tax residency strategy. The IRS offers two paths to qualify for the Foreign Earned Income Exclusion: the bona fide residence test (establishing genuine residency in a foreign country) and the physical presence test (330 days in a 12-month period outside the US). Your CPA should model which test you'll meet and when the exclusion kicks in, because partial-year moves often don't qualify for either.

Understand FEIE vs. Foreign Tax Credit before departure. If you're moving to a high-tax country (UK, Germany, France), the Foreign Tax Credit is usually more valuable. If you're heading to a low-tax or no-tax jurisdiction, FEIE may be better. The election you make in year one constrains future choices.

Set up banking and reporting compliance. Open foreign accounts knowing that FBAR and FATCA reporting obligations begin immediately once balances exceed thresholds. Avoid foreign mutual funds, which trigger punitive PFIC taxation. Restructure investments to US-domiciled funds before departure.

Terminate state residency properly. Many states, especially California, New York, and New Jersey, continue taxing former residents who haven't clearly severed domicile ties.

The pitfall: Waiting until after the move to find a CPA often means missing planning opportunities that only exist before departure, particularly around investment restructuring and state residency termination.