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U.S. Expat Tax Tips
All American citizens and green card holders over the age of 18 are required to file an annual return to the IRS, wherever they live and regardless of whether they owe tax.
U.S. expats have additional obligations too relating to FATCA and FBAR legislation. Many people are unclear about exactly what these entail. The additional burden causes not just confusion, but resent too sometimes, as many people feel that the U.S. government is unjustly targeting expats, and in doing so overreaching its natural jurisdiction. Not filing as a protest is a risky choice though, as the penalties can be steep. A lot of people who have settled abroad permanently have even decided to give up their U.S. citizenship in protest, however to do this is expensive, and furthermore you must be up to date on your taxes and returns before you can.
Once you have filed for the first time as an expat though, subsequent returns are much easier, and many U.S. expats donât owe any tax anyway. So if you are a U.S. citizen or green card holder living abroad and havenât filed yet (or even if you have), here our some tips to help you get it right and make the most of the allowances that youâre entitled to.
If youâre filing for the first time, use the Streamlined Procedure
The Streamlined Procedure has since June 2014 offered expats that havenât filed before (or for some time) the opportunity to file without incurring penalties for the missing years. They simply have to self-certify that they werenât aware of their obligation to file, file the last 3 due returns, and pay any back taxes due. It remains a great opportunity for expats who arenât up to date to become so.
Forms and filing dates
If youâre a U.S. citizen or green card holder and youâre living abroad, you have to declare your worldwide income, savings, and assets, and you might need to pay the IRS some tax. This includes people with dual nationality, and so called âAccidental Americansâ, who were born in the U.S. to foreign parents or born to U.S. parents abroad.
Any taxes due must be paid by April 15th, just like if you live in the U.S., however the filing date for expats is June 15th, though you can request an extension until October 15th.
The Foreign Account Tax Compliant Act (FATCA) meanwhile requires that along with your return you submit a form 8938 declaring any overseas earnings and assets.
Furthermore, if you hold at least ten thousand dollars in total in accounts outside the U.S. at any time during the tax year, you must also submit an FBAR (Foreign Bank Account Report) declaring your overseas bank accounts. In practice this is form 114, which from 2016 should be filed online by April 15th, though again an extension will be available until October 15th.
Foreign Earned Income Exclusion
If you are earning abroad, you can claim the Foreign Earned Income Exclusion, meaning the U.S. wonât tax you on up to $100,800 (in 2015) of your foreign earned income. The exclusion can be claimed on Form 2555, filed with your annual return. If you are married to a U.S. citizen or green card holder who also has foreign income, you can both claim up to the full amount. (If your spouse isnât a U.S. citizen, keep reading).
Foreign Tax Credit
If you earn more than the maximum Foreign Earned Income Exclusion allowance, you can claim as a credit against your U.S. liability a dollar for every dollar of income tax youâve paid to the government in your country of residence. Combined with the Foreign Earned Income Exclusion, this takes many people out of tax liability on their income earned abroad completely.
Married filing separately
If your spouse isnât a U.S. citizen or green card holder, elect to file as âmarried filing separatelyâ. This way he or she wonât have to declare their income or pay US taxes.
Foreign Housing Allowance
If you rent rather than own your home abroad, you can claim expenses including rent, utility bills, insurance, and parking as tax deductible, normally up to the value of 30% of the Foreign Earned Income Exclusion (see above), depending on where you live. Some places are recognized as being more expensive, and higher housing expenses can be claimed.
If your not sure, contact a specialist expat tax preparation company
While the cost typically isnât very high, the outlay can potentially save you a huge amount of time and stress. Specialist expat tax preparation firms have seen it all before, and do it day in and day out, so they know how to make seemingly complex situations, such as catching up on missed years, or if you have multiple income streams, corporations or bank accounts, simple and straight forward.
With clients in over 100 countries worldwide, Bright!Tax is the cloud based U.S. income tax preparation firm most sought after by the 7 million Americans living abroad. We take the stress out of filing U.S. expat tax returns. All CPAs. Fanatical customer support. Secure. Precise. Guaranteed. If you have any questions, or would like some advice, contact us here and weâll be happy to help, or you can see our pricing here.Â
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