The citizens of the United States often move to other countries, due to official reasons, career prospects or some personal reasons. In this immigration process, one of the most important things people need to take care of is US citizens living abroad taxes. As per the Internal Revenue Code, the taxes are applicable on worldwide income from all sources and expats must report all taxable income. Apart from the real currencies, virtual currency transactions need to be reported to the IRS as well. Read further to know some important things to remember and some general queries about US Expat taxes.
Do American Citizens Living Abroad Have to Pay Taxes?
Yes, US citizens who have moved abroad for either official purposes or for any other reason, they have to pay the taxes. Taxes in America are based on citizenship. It doesn’t matter that the residing American citizens living abroad fall under the same rules regarding taxes as people living in the US. If a US citizen owns a foreign bank account, no matter whether the account is generating taxable income or not, it should be reported U.S. Treasury Department. US citizens living abroad taxes are also applicable on virtual currencies.
When to file US Expat taxes
The date to file the taxes varies every year, however, it generally falls in the month of April. For the year 2021, the tax due date was April 18, 2022. There is a provision for an automatic 2-month extension to file your return without requesting an extension. If a person fails to file the return even after the extension date, then they can request an additional extension to October 15. For this additional extension, they are required to fill Form 4868 before the automatic 2-month extension date.
Where to file US Expat taxes
There are two ways to file the US citizens living abroad taxes, online and via mail. For online tax return filing, taxpayers with an AGI (Adjusted Gross Income) within a specified threshold can submit their tax returns through Free File. While taxpayers with an AGI greater than the specified threshold can use the Free File Fillable Forms, the e-file by purchasing commercial software, or the Authorized IRS e-file Provider Locator Service.
In case of filing a return via mail, for requesting a refund, or no check or money order enclosed, mail U.S. tax return to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
For enclosing a check or money order, mail your U.S. tax return to:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303
Most American expats do not end up owing U.S. taxes
Yes, many US Expats do not end up showing taxes. As per research, 50.8 percent of US expats did not owe any taxes. There are certain provisions for American expats to avoid double taxations. For this, it is necessary that the US citizen is residing in another country for that particular financial year. There are several special tax benefits Foreign Tax Credit (FTC), Foreign Earned Income Exclusion (FEIE), Foreign Housing Exclusion, and U.S. Income Tax Treaties. Let’s get into the details of each one of them.
Foreign Earned Income Exclusion (FEIE) – Wages, salaries, professional fees, or other amounts paid for personal services comes under foreign income. An individual may qualify to exclude their foreign earnings from income up to an amount that is adjusted annually for inflation. This foreign earned income can be claimed for exclusion from regular income tax.
Foreign Tax Credit (FTC) – It is used to nullify the income tax paid by US citizens abroad. U.S. The American citizens residing abroad and pay the taxes imposed by a foreign country can claim the FTC. It lessens the tax liability and ensures there is no double taxation for the citizens.
Foreign Housing Exclusion – Apart from FEIE, an individual can also claim Foreign housing exclusion. To get benefited with this, the individual must have qualified house expenses such as rent, utilities, property insurance, etc. It does not include any luxury expenses. Also, the expenses may not exceed a certain limit. This limit varies for individuals and depends on the residing country.
U.S. Income Tax Treaties – The US government has tax treaties with the government of 70 foreign countries. As a part of these treaties, US expats are either exempted from certain taxes or are taxed in foreign countries at a reduced rate. The reduction rate varies from country to country.
Tax saving strategies for US Expat taxes
- It is important to understand the tax situation before tax seasons start. Keep a check on the earrings, savings, and the possible ways to save the US citizens living abroad taxes.
- Avoid common expat tax penalties. File the return carefully to avoid any penalties.
- Use tax-saving methods like Foreign Housing Exclusion, and Foreign Tax Credit (FTC) .
- Save money on US Expat tax preparation by using a DIY online expat tax service.
- Take US expat tax consultation to manage taxes well.
It is not a difficult task to manage US citizens living abroad taxes. One only needs to understand how and when to pay taxes. It is also important to understand the ways to reduce the taxes and avoid double taxation. The US Expat Tax Consultation service can be utilized to resolve any and all questions pertaining to taxes.