Living abroad is an exciting adventure, but it often raises questions about tax obligations for expatriates. Expats Overseas gives you an overview of the US tax requirements for American citizens and green card holders residing overseas. Understanding these obligations is crucial to ensure compliance and making informed financial decisions while living abroad.
Residency Status and Tax Obligations
Your residency status is a key factor in determining your tax obligations as an American living abroad. The United States follows a citizen-based worldwide income taxation system, which means US citizens and (expired) green card holders are generally subject to US taxes regardless of their residency. However, certain exclusions, deductions, and credits are available to mitigate double taxation and alleviate the burden for expatriates.
Deadlines for US tax living abroad
The deadlines for US citizens living overseas are slightly different, partly because you often have to file your local tax returns first.
Below are the deadlines for tax return year 2022:
- APRIL 18, 2023 Filing deadline if you owe US taxes
- JUNE 15, 2023 Deadline for US Expat Taxes
- OCTOBER 16, 2023 FBAR deadline & Tax deadline if you filed for an extension
- DECEMBER 15, 2023 Tax deadline if you filed a second extension
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion (FEIE) is a valuable provision that allows eligible expats to exclude a certain amount of their foreign-earned income from US federal taxation. As of 2021, the maximum exclusion amount is $108,700 per year. To qualify for the FEIE, you must meet either the physical presence test or the bona fide residence test, both of which assess your time spent abroad.
Foreign Tax Credit
Another option to reduce double taxation is the Foreign Tax Credit (FTC). This credit allows you to offset US taxes owed by the foreign income taxes you’ve paid to another country. The FTC is particularly beneficial if you reside in a country with higher tax rates than the US. By claiming the FTC, you can avoid being taxed twice on the same income. It’s essential to review tax treaties between the US and your host country to ensure eligibility and maximize this credit.
FBAR reporting requirements
Even if you don’t owe any US taxes due to exclusions or credits, you may still have reporting obligations. US citizens and (expired) green card holders living abroad must file an annual tax return, reporting their worldwide income and foreign financial assets exceeding certain thresholds. Additionally, if you have foreign bank accounts, you may need to file a Report of Foreign Bank and Financial Accounts (FBAR) and disclose other foreign financial assets under the Foreign Account Tax Compliance Act (FATCA).
Living abroad doesn’t automatically exempt US citizens and green card holders from their tax obligations. It’s crucial to understand the relevant rules and provisions to ensure compliance and optimize your tax situation while living overseas.
Not up to date?
If you are not up to date with your US tax returns, don’t just file another tax return. Inquire if you qualify for the so-called Streamlined Procedure. A disclosure scheme that ensures you don’t pay penalties for not filing earlier. It does not absolve you from penalties for filing the tax returns incorrectly or incompletely, so it is important that the return is filed properly in one go. There are conditions attached to the Streamlined Procedure, be sure to ask the Expats Overseas team if this is an option for you.
Expats Overseas, one-stop shop filing for expats
Filing US tax living abroad can be a complex process. However, you don’t have to navigate the nuances of the US tax code and your local tax system alone. Expats Overseas is here to help. Our network of expert tax advisors specializes in expatriate taxation and can accurately and efficiently file your US tax return(s) and navigate the local tax system.
By partnering with Expats Overseas, you can prevent double taxation, take advantage of tax credits you’re eligible for, and ensure compliance with both US and local tax laws.
Don’t let the complexities of expat taxes overwhelm you – contact Expats Overseas today to get started on your tax journey.
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