Things You Need to Know About US Expat Taxes

For those living in the USA, April brings not only flowers, but also showers of paperwork and income tax fears. Every American citizen must file taxes, even those who are not living in the United States. This can be confusing from beginning to end, and it can be concerning, as well.  There can be expensive penalties for not getting it right. There are some things that you do need to know about paying US Expat tax, and the most important thing is that, yes, you still owe a little something to Uncle Sam, even if it’s just a yearly April greeting.

What exactly is an expat?

A US expat is a citizen of the United States who chooses to live outside of the USA for a variety of reasons, but keeps his or her American citizenship and the rights it grants. Whether living away temporarily or permanently, any American citizen seeking the benefits and the rights of citizenship from America while living abroad is an expat and is subject to taxes.

Here are some things you should know

The first thing to remember is that every American citizen must file a tax return every year, whether living and earning in America or not.  The expat may not owe any money; he or she has not earned any money in the US this tax year, but the IRS doesn’t know that until the forms are filed. The forms should show worldwide income for consideration, and that should include disclosure of some bank accounts, assets, and investments. Instead of freeing the expat from the stresses of tax time, it may instead mean extra forms.

How will foreign-earned wages be taxed?

Foreign-earned income—that is, income that is earned in another country for work done in that country—is already taxed by that country, and it is not taxed twice when the US taxes are filed. The Foreign Earned Income Exclusion (FEIE) allows a certain amount of earnings to be excluded. Generally, expats are allowed to claim the foreign taxes that were already paid as a credit against what they owe so they can not owe anything at all. Get the right forms.

What can be excluded and how do you qualify?

In addition to the income tax already paid, bank accounts and properties may also need to be disclosed. Generally, bank accounts with less than $10,000 USD will not be taxed, but there are forms to fill out. In this case, the FBAR (Foreign Bank Account Report) will let you know if you owe. These need to include checking, savings, investments, pensions and mutual funds, and any bank accounts over which you may have signatory authority.  The proper forms indicate whether you qualify for the exclusions.

It’s the law

This may already seem overwhelming, not to mention time consuming. There are a lot of situations where people do feel resentful at having to present this information to the US government, but there are plenty of good reasons to do so. It is the law, after all, and it’s always better to be within the law, of course. If the expat has family in the US, or children in their current country of residence who may wish to go to the US in the future for schooling or vacation, then ties thought to be cut may need to be mended.

Most US expats do plan to return to the US, but even those who are not planning to are still entitled to the benefits of their citizenship. Filing taxes not only puts the citizen in compliance, but it also ensures that they are free to return, to inherit or to will property, or to sell property in the United States.

There is help

The final thing to know and remember is that there is help. This is a lot to think about, a lot to remember, and a lot to get right. When it comes to filing taxes, unique circumstances exist inside standard situations. Some things are basic, but one of the things that make this difficult to summarize is that, when it comes to taxes, there has never been just one answer. Different rules affect different countries, and different expat families also have different circumstances. So get help. Choose a professional tax accountant who specializes in expat taxes and don’t try to do it alone.

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