As of 2022, there are anywhere between 5.1 to 9 million US citizens who live abroad. While some expats end up staying overseas permanently, others eventually return to the States.
No matter what situation you’re in, you’re still a US citizen. This means that in the government’s eyes, you have state residency in the last place you lived, even if you haven’t been in the country for years.
But what if you want to change that to make your situation overseas more advantageous? Then read on to find out how to change state residency while living abroad.
Why Change Your State Residency While Living Abroad?
First off, why should you even bother to change your state residency? You aren’t living in the country, after all, so it shouldn’t matter that much.
However, your state residency can significantly impact the taxes you owe. All Americans are required to file a federal tax return every year if they meet the threshold, even if they’re not residing in the US. On top of that, they may have to file tax returns on the state level too.
If you haven’t left the country yet, then make sure you leave from a zero-tax state. This will always be a better situation since some states will still try to charge you a state income tax, such as California, New York, New Jersey, Virginia, and Illinois. Do note that this can happen even if you qualify for foreign earned income exclusion on the federal level.
Basically, if you have tax residency in a tax-free state, you’ll take a huge burden off your shoulders.
Another reason to change your state residency while living abroad is to have a US-based limited liability company (LLC). Again, choose a tax-free state to avoid the hassle of extra costs.
And if you need help with forming an LLC, use our business registration service. You won’t have to worry about the paperwork, as Business Anywhere will do it all for you.
Review Residency Requirements
Unfortunately, every state has its specific requirements for establishing residency. Some will require you to physically reside in the state for a certain number of days per year to be considered a resident, while others have different criteria, so be prepared for this. There may even be dual residency in some cases; be aware of potential tax implications and consult with a tax professional if needed.
Make sure you research the specific requirements of the state you want to become a resident of. You may have a state in mind already, but after familiarizing yourself with its requirements, you may find that it’s not feasible to change your state residency, and you’ll have to choose an alternative.
Keep in mind that even though laws are different in every state, there are general steps you can take to get things going. We’ll discuss them below.
Change Your Driver’s License and Vehicle Registration
If you drive, then you’ll want to exchange your driver’s license for one in the new state. Otherwise, you can apply for a new ID card there.
If you have a vehicle, and you want to drive it in the new state, then you’ll want to transfer the registration there as well. If you were worried about how to change your state of residence, then have peace of mind knowing that this is one of the best ways to establish residency.
Update Your Voter Registration
Next, you should update your voter registration. Register to vote in your new state and update your voter registration information accordingly.
You should be aware that registration deadlines can vary depending on the state and the type of election, such as primary or general. Also, something good to know is that you can request an absentee ballot to vote while living abroad.
Obtain a State Address
A key way to establish residency somewhere is to have a primary address in the state. You can achieve this by either renting or purchasing property in the state you wish to have residency in.
In addition to your new address, you should terminate ties with your previous one in the old state. In some states (like California), you may be considered a resident still if you have property, even if you haven’t been in the area for a long period. To prevent this from happening, you can either sell your home or deed it over to a land trust to get it out of your name.
Change Accounts to Your Address
To add weight to your new address, you should change all accounts to that new information. This includes credit cards, bank accounts, cell phone bills, insurance bills, and the USPS.
To make things less complicated, you should consider closing accounts in the old state and starting over in the new one. This provides concrete evidence that you no longer deal with the state. Make sure you keep copies of all documents related to your change of residency in case evidence is requested.
Specific States to Watch Out For
The above provides general advice for changing your state residency, but it won’t be sufficient in two particular states: California and New York. Here are the extra steps you’ll have to take in each state.
California
Not only do you have to leave the state to not have state residency, but you must also be physically living elsewhere. In addition, you have to plan on staying there indefinitely.
To ensure you won’t be counted as a California state resident, don’t return to the state for long periods. You should also abstain from voting in both local and state elections, and file Form 540NR with your last state tax return if you moved in the middle of the year.
New York
New York has similar stipulations as California. You can’t have a primary residence there, nor a “permanent abode.” And if during the tax year, you spend over 184 days in the state, you’re considered a resident.
If you have a business in New York, name a successor to avoid the state deeming you a resident. Instead of filing Form 540NR, you’ll file Form IT-203 and attach it to your last state tax return.
Change Your State Residency to a More Optimal One
Now you know how to change your state residency while living overseas. Some states are more advantageous than others; in particular, you should aim to become a resident of a tax-free state.
The process may seem difficult, but if you do your research and work with reputable professionals, it should go by quickly, even if you’re not in the country. In the end, it’ll be worth it when you don’t have to deal with additional costs while maintaining your lifestyle as a digital nomad.
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