Filing taxes in the United States is hard, but it is even harder for US citizens living and working abroad. Several US expats are either unaware or confused about their tax filing obligations. Most countries use a territorial tax system (based on residence or income earned in that country). However, the US tax system is different. It is citizen-based. The United States taxes its citizens regardless of where they work and live in the world. If you are a US citizen working or living abroad, here are 5 important things you need to know.
- Expats still must file
Well, as mentioned above, all US citizens are required to file their tax income taxes under the law. This applies to expats as well as green card holders. Income in this case includes:
- Rental income
The tax season can be very stressful, especially when you have to file your tax returns outside the United States. If you are new to expat taxes, get in touch with experts at https://taxfyle.com/taxes-for-expats who will review your individual situation, determine what you need to file and guide you through the filing process.
Can you avoid filing tax returns? Yes, by renouncing your US citizenship. But that doesn’t sound good, does it?
- You may end up paying nothing
Yes, you heard that right. Although expats have to file, most don’t end up owing any taxes to the US. The Internal Revenue Service (IRS) has made available some exemption that expats can claim when filing. They include:
- Foreign Earned Income Exclusion
- Foreign Tax Credit – this is to prevent expats from paying taxes to the United States for income that has already been taxed in a foreign country
- Tax Treaty Benefits
Keep track of your travel time; otherwise, you may not qualify as an expat
The Physical Presence Test requires a person to be present in that country for at least 330 full days. Any time used while travelling, either by sea or air, does not count. Be careful how you travel and keep track of your travel dates. A simple miscalculation can cost thousands of dollars.
You can claim Child Tax Credit if you have children
Expats with children can claim the Child Tax Credit. You can claim $2,000 US tax credit for every child that depends on you. Alternatively, if you have eradicated your US tax bill fully by claiming Foreign Tax Credit, you can get a tax refund of $1,400 for every child that depends on you. This comes in the form of a direct payment.
Expats receive an automatic filing extension
Normally, the deadline for filing tax returns is around 15th April of every year. However, the IRS automatically pushes the deadline for expats to around 15th June. However, income taxes due will attract interest from 15th April onwards. Expats also receive an extension to file up to 15th October.
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