Do expats from Louisiana still need to pay state taxes?

For Louisiana residents living abroad, it's essential to understand your state tax obligations to avoid unexpected financial burdens and ensure legal compliance. Even if you've moved out of state, you might still need to pay Louisiana state taxes.

In this article, we'll cover key points such as residency statuses and their tax implications, the concept of domicile, what counts as Louisiana-sourced income, and steps to change your residency. We'll also discuss tax benefits for expats, the process for filing Louisiana state taxes from abroad, and the penalties for non-compliance.

TLDR:

Understanding Louisiana's tax residency rules

When it comes to paying state taxes, Louisiana classifies people into three groups: Residents, Nonresidents, and Part-Year Residents.

Resident

A resident of Louisiana is someone whose permanent home, or domicile, is in Louisiana. This means Louisiana is the state you consider your permanent home, the place you intend to return to after any periods of absence. As a resident, you are taxed on your worldwide income, regardless of where it is earned. This includes income from all sources, both within and outside of the United States.

For expats domiciled in Louisiana because it was their last state of residency, it’s required sever ties with the state to avoid being considered a resident for tax purposes. This includes selling property, transferring your driver’s license, registering to vote in a new state, and establishing a new domicile with the intent to remain there permanently.

Nonresident

A Nonresident is someone who does not have a permanent home or significant presence in Louisiana. Nonresidents only pay taxes on income that comes from Louisiana sources. This includes money you make from working in Louisiana or income from property located in the state.

Part-Year Resident

Part-year residents are individuals who moved to or from Louisiana during the tax year. If you changed your permanent home from Louisiana to another location, or vice versa, during the year, you fall into this category. Part-year residents are taxed on all income earned while they were residents of Louisiana and only on Louisiana-sourced income during the periods they were nonresidents. This means you must carefully allocate income based on your residency status throughout the year.

Domicile and its implications

Domicile is a key factor in determining your tax obligations to Louisiana. Your domicile is your permanent home—the place you intend to return to after any absences. It is not just where you live temporarily but where you have a substantial connection and the intention to remain or return. 

Domicile impacts whether you are considered a resident for state tax purposes. If Louisiana is your domicile, you are subject to Louisiana state taxes on your worldwide income, regardless of where you are physically located.

If Louisiana remains your domicile, you are considered a resident for tax purposes and must pay state taxes on all your income, both from within and outside the United States. Simply moving out of the state does not change your domicile. You must also establish a new domicile elsewhere with the intention of making it your permanent home. Failing to change your domicile means you continue to be liable for Louisiana state taxes.

Here are some steps to help you:

• Sell Property: Sell any property you own in Louisiana.
• Transfer Driver’s License and Vehicle Registration: Get a driver’s license and register your vehicle in your new state.
• Register to Vote: Register to vote in your new state.
• Establish a New Domicile: Show that you intend to make your new location your permanent home.

What constitutes Louisiana-sourced income?

Understanding what constitutes Louisiana-sourced income is essential for nonresidents and part-year residents to accurately determine your tax obligations.

Louisiana-sourced income refers to any income derived from activities or assets located within the state. 

Here are some key categories to consider:

• Wages and Salaries: Money earned for services performed in Louisiana.
• Business Income: Income from business activities conducted in Louisiana.
• Real Estate: Rental income from property located in Louisiana.
• Capital Gains: Profits from the sale of real estate or tangible property in Louisiana.

Why should Louisiana expats move domicile to a state with zero state income tax?

State income tax savings

For retirees and high-income individuals from Louisiana, moving to states without income taxes such as Florida, Texas, or Nevada can offer significant financial advantages. Without the burden of Louisiana state income taxes, you can keep more of your earnings, allowing for greater investment opportunities or an enhanced lifestyle.

Inheritance tax benefits

States like Florida and Texas not only lack a state income tax but also do not impose state estate taxes. This can considerably reduce the tax burden on your estate, ensuring that more wealth is passed on to your heirs. This is especially advantageous for individuals from Louisiana with substantial assets who wish to maximize the inheritance for their beneficiaries.

Flexibility and mobility

Relocating your domicile from Louisiana to a no-income-tax state enhances your flexibility and mobility, allowing you to travel and live in various locations without worrying about high state tax bills. This is ideal for high-income earners from Louisiana with business interests in multiple states or countries and for retirees who desire to spend their later years exploring new places.

Moreover, the absence of state income taxes simplifies your tax filing process. You will only need to file federal taxes, reducing the complexity and potential for errors in your tax returns, making financial management more straightforward.

How to leave Louisiana tax residency?

Leaving Louisiana tax residency involves a deliberate and well-documented process to ensure you are no longer considered a resident for tax purposes. 

Here are the key steps to help you transition:

1) Establish new residency

• Secure a Residential Address: Find a place to live in your new state or country. This address will be your new domicile.

• File a Declaration of Domicile if required: Some states, like Florida, require a formal declaration to confirm your new domicile.

Reference guides may provide additional help for specific states:

• Florida residency guide
• South Dakota residency guide
• Texas residency guide
• Nevada residency guide

2) Transfer IDs and registrations 

Update your driver’s license and vehicle registration to reflect your new address. This helps demonstrate your commitment to your new domicile.

3) Register to vote 

Sign up to vote in your new state. Voter registration is an important step in demonstrating your new domicile.

4) Update documents

Ensure all personal documents, such as identification cards, medical records, insurance policies, and financial documents, reflect your new address. Consistent documentation is crucial for proving your new residency status.

5) Notify your employer

Notify your employer about your residency change, particularly if it affects how your income is taxed. This can help shift some of your income classification away from being Louisiana-sourced.

6) Notify IRS 

Inform the IRS of your address change using Form 8822. Extend this notification to all personal and professional entities.

7) Keep records

Keep detailed records of all your relocation actions, including receipts, bills, and legal documents. These records can be invaluable if your residency status is questioned during an audit.

8. Sever all ties with Louisiana

• Sell or Rent Out Property: If you own property in Louisiana, selling or renting it out can help sever ties with the state.
• Close Local Bank Accounts: Transfer or close bank accounts in Louisiana and open new ones in your new state of residence.
• Cancel Local Memberships: Cancel memberships in Louisiana-based clubs, organizations, and services.

9) Be prepared for audit

Be ready to provide proof of your move’s permanence. This includes all the documentation showing that you have established a new domicile and severed ties with Louisiana.

Tax benefits and exemptions for expats from Louisiana

Living abroad as an expat from Louisiana comes with various federal tax benefits and exemptions that can help reduce your overall tax burden. Here are some of the key federal tax advantages available:

Foreign Earned Income Exclusion (FEIE)

The FEIE allows U.S. taxpayers living abroad to exclude a certain amount of their foreign-earned income from U.S. federal income tax.

For the tax year 2024, this exclusion amount is up to $126,500.

To qualify, you must pass either:

• Bona Fide Residency Test: You qualify if you are a resident of a foreign country for an uninterrupted period that includes an entire tax year.
• Physical Presence Test: You qualify if you are physically present in a foreign country for at least 330 full days during a 12-month period.

FEIE Guide

Foreign Tax Credit (FTC)

The FTC helps you avoid double taxation by allowing you to take credit for foreign taxes paid on income subject to U.S. federal tax.

This credit can significantly reduce your U.S. tax liability, especially if you reside in a country with high tax rates.

FTC Guide

Foreign Housing Exclusion (FHE)

The FHE allows you to exclude certain housing expenses from your federal taxable income, including rent, utilities (excluding telephone), and other reasonable expenses related to housing abroad.

The amount you can exclude is limited to a base amount plus housing expenses exceeding 16% of the FEIE limit.

FHE Guide

Filing Louisiana state taxes from abroad

When filing Louisiana state taxes from abroad, you need to determine which forms are applicable based on your residency status:

• Form IT-540: Louisiana Resident Income Tax Return. This form is for individuals who are considered full-year residents of Louisiana and must report all income, regardless of where it is earned .
• Form IT-540B: Louisiana Nonresident and Part-Year Resident Income Tax Return. This form is for nonresidents and part-year residents who need to report Louisiana-sourced income and income earned during their period of residency in Louisiana .
• Form R-540ES: Declaration of Estimated Tax for Individuals. If you expect to owe more than $1,000 in state taxes, you must file this form to pay estimated taxes quarterly.

Deadlines and Extensions

• General Deadline: The deadline for filing Louisiana state taxes is April 15, which aligns with the federal tax deadline. This is the due date for both filing your return and paying any taxes owed  .
• Automatic Extension: If you are living outside the U.S. on April 15, you may receive an automatic two-month extension to file your return and pay any amount due without requesting an extension, extending the deadline to June 15. However, interest on any unpaid taxes will accrue from the original April 15 deadline.
• Additional Extension: You can request a further extension by filing Form R-2868, Application for Extension of Time to File Louisiana Individual Income Tax Return, typically extending the deadline to October 15. This extension is for filing your return only, not for paying any taxes owed. Interest on any unpaid taxes will continue to accrue from the original April 15 deadline.
• Payment Deadlines: Regardless of filing extensions, any taxes owed must be paid by April 15 to avoid interest and late payment penalties. If you file an extension, ensure that your payment is postmarked by the due date to avoid additional charges.

Consequences of non-compliance with Louisiana state tax laws

• Late Filing Penalty: If you fail to file your tax return by the due date, Louisiana imposes a penalty of 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax.
• Late Payment Penalty: If you do not pay your taxes by the due date, a penalty of 0.5% of the unpaid tax is assessed for each month the tax remains unpaid, up to a maximum of 25%.
• Interest Charges: In addition to penalties, interest is charged on any unpaid tax from the original due date until the tax is paid in full. The interest rate is adjusted annually and compounds daily.
• Underpayment Penalties: If you underreport your income or fail to pay the correct amount of tax, you may be subject to an underpayment penalty. This penalty is typically 10% of the understated tax amount. For significant underreporting, additional penalties may apply.

Audits and assessments

Louisiana may conduct residency audits to verify your residency status and ensure proper tax compliance. During an audit, you must provide extensive documentation, such as proof of domicile and detailed financial records. Failure to provide adequate documentation can result in additional tax assessments and penalties.