10 Things to Know About US Expat Taxes

Many are scared of the dual-taxation which happens when you are made to pay expat tax to the US as well as to your resident country. To save yourself from such a situation you need to know and understand the US expat tax filings which are an intimidating task.  

It’s not so easy to collect all the information as it is very confusing. To guide you through the process, we have compiled the crucial 10 things to know about US expat taxes. 

1. Expat Tax to be Filed When You Have Any Source of Income or Credits 

Every expat should file a Federal Tax in the USA every year when the filing threshold is exceeded. The filing threshold differs from person to person and it is based on the income level. An income may include salary or wages from the US or any other country, interest or dividends, credits from any source or rental income. 

2. Extension Period to File Tax for Expats 

If you are a US resident, the deadline to pay your taxes is April 17th every year. But, if you live outside the US, you will be entitled to receive an extension period till 15th June. However, April 17th will be the due date to file any US taxes to eschew penalties. Be aware of these dates if you plan to move to the USA. 

3. Amend a Previous Return if a Mistake is Committed

It’s easy to commit mistakes while filing tax returns especially when you are new. If you missed to report certain income or missed to take the allowed deductions, you can use Form 1040X to file an amendment for that tax year. Once the tax return is filed, there will be a limited period to file an amended return. This amendment filing before the IRS would help you escape from penalties and interests. 

4. Exclusion for the American Expats from US Taxes 

The best thing about US tax returns is that it has many exclusions, deductions and special allowances such as credits. This makes sure that you aren’t taxed twice on the same income. The foreign earned income can be counteracted by most expats with a foreign tax credit, housing exclusion, and income exclusion. To avail of these exclusions, you must prove that you are an expat and is filing tax returns in the home country. 

5. Residency Test to be Eligible for Foreign Earned Income Exclusion 

One cannot fly to another country under short contracts just to avail of foreign income exclusion. You need to pass the Physical Presence Test to use this exclusion. The Physical Presence Test should state that you live in another country for a minimum of 330 days. As per the Bona Fide Residency Test, one must have moved abroad and lived there at least for a year. Also, they shouldn’t have the intention to move back to the USA immediately. 

6. Dependent Children to Reduce Your Expat Tax Returns

The Child Tax Credit would be advantageous for expats with dependent children who are citizens or permanent residents in the USA. A refund can be assured if all the dependent children have a social security number. Children born to non-US parents abroad may also qualify as a dependent. However, they will be considered as US residents and will have tax obligations until they turn adults and change their citizenship. 

7. File FBAR When the Reporting Threshold Exceeds

Foreign Bank Account Report (FBAR) or FinCEN form 14 is an initiative to impede tax cheats. If the overall balance of your foreign bank accounts surpasses $10,000, you must file FBAR. Even your pensions and investments will be considered along with your income. FBAR must be filed if your accounts reach $10,000 even for a minute at any point in time. This can be filed electronically using the e-filing system and the deadline is April 17th. 

8. File Expat Tax Returns and FBAR Forms without Penalties 

For people living abroad, the IRS’s Streamlined Offshore Filing Procedures can be of much help. This can provide you with ways to avoid late tax returns filing and FBAR penalties. Many who realized after many years that they have US tax obligations can simply pay tax returns for the last 3 years and FBAR for the last 6 years. It is one of the best programs for the expats who weren’t aware of their tax obligations. 

9. Social Security Benefits When You Retire in a Foreign Country 

If you plan to retire in a foreign land, you can very well get your Social Security Benefits in any country you want to live. Only a few countries don’t let you receive these benefits. But in all other countries, you can get all the benefits that are owed to you provided, that country should let you use US Social Security payments. One must show Social Security Benefits as a source of income. So, generally, if you have any other income, you will be taxed for the benefits too. 

10. State Tax Returns While Living in a Foreign Land 

In the USA, there are certain states such as New Mexico, North Carolina, California, New York, and Virginia that demands you to file a state tax return. The major issue concerning this state tax return is the taxpayer’s intent to return. A state like Massachusetts doesn’t encourage one to be absent for longer than a limited period. In such a case the person leaving Massachusetts under temporary contracts can’t return easily. 

Bottom Line 

The above-mentioned information would have helped you in getting some basic ideas about the US expat tax returns. Nevertheless, you would be having infinite questions in your mind. So, keep posting your doubts, queries, and experiences below. To get rid of the tedious tax filing process, contact our team of experts today to get reliable tax filing assistance in the USA.