Home Business Insights & Advice Taxation for American expats – things you need to know

Taxation for American expats – things you need to know

by John Saunders
29th Oct 19 3:58 pm

As a US residence living and working abroad, the internal revenue service (IRS) expects you to reveal and report the money you are earning just as if you were living and working in the United States. Its mean either you are earning money by living within the US or your earning sources are from out of the US, you need to reveal the money earned to make sure you are paying the taxes accordingly. In short, by enjoying the rights of US citizenship, you could get fined if you are not moving on with reporting your overseas incomes on annual basis. That is the reason, IRS is constantly trying to find new means, ways and methods to keep track of US residents living & working in other countries and to make sure their tax reporting jobs are completed accordingly.

In this article, we have gathered important information and things you need to know when filing taxes as a US Expat to help you go through the process conveniently.

Automatic extension

As a US citizen living and working abroad, you get an extension of 6 months automatically on your foreign bank account report (FBAR). Its mean, on Tax Day, the tax return filing due date of a US expat is automatically extended to June 15th. This is a big point for slackers who usually wait for the deadlines to get things done. However, filing there is no need to fill a form to get this extension but the taxes need to be paid by the due date in April in order to prevent any late payment fines.

File a U.S. tax return

It is good to have information that you are eligible for tax breaks and other benefits because it helps you a lot to do homework before filing US expat tax return. Knowing exactly what you should report, claim and deduct makes the process easier than ever. Money earned should be included dividends, interests, real estate rental income and wages earned from foreign and US resources etc. A self-employed US citizen should report his/her incomes more than $400. As an individual with earning from $401 to $400000, you must report your income to file a tax return. People who are not self-employed don’t need to file a return.

Most american expats don’t owe US taxes

The RIS is really not interested in charging US citizens twice for taxes on the same earnings. Several deductions, exclusions and credits are out there to help expats prevent double taxation on their incomes.

Regarding a tax policy, US expats are allowed to exclude up to $100800 of their foreign earnings from the IRS. For this purpose, a US resident living in abroad should pass one of the following two foreign residency tests:

  • He/she must be physically standing in a distant country for 330 days in a year.
  • He/she must have lived in a foreign country for a year with no plan to return America.

US residents living and earning abroad and paying U.S. taxes can also claim the Foreign Tax Credit against the foreign incomes taxed in that country.

Make sure to track your travel time

In order to qualify for tax credit as an expatriate by passing Physical Presence Test, one should also keep track of travel records. Living for an entire tax year is essential to pass PPT and air travelling time from and to US cannot be included in that tenure. Keeping all your travelling data on hand can make things easier because a tiny error can cost you an ample fine amount.

Think twice before you reject your citizenship

Renouncing the US citizenship is not a solution to get rid of US taxation. One must file US taxes for 5 years before cancelling the US citizenship. That’s why, you should think twice before rejecting your citizenship while living and working abroad. Figures of your income and net worth may make you accountable to pay exit tax once you have renounced the citizenship of United States. Core purpose of this policy is to make sure that someone is not trying to cancelling his/her citizenship without paying the taxes owed.

Keep track of rental property income

A thorough report of incomes earned from local and overseas rental properties must be there if applicable to your US tax return. However, some of the expenses related to real estate properties such as rental property repairs are deductible. Some of them are deductible instantly, but some of the property improvement costs take time to process accordingly.

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