Tax Advice For U.S. Expatriates Living Abroad

If you are an American expat, understanding and filing your tax returns can seem overly complicated and it can be difficult to keep track of all the tax allowances that may be available to you if you file the paperwork in time. Here is some tax advice to get you started on filing your taxes correctly and determining how you can reduce the tax net applicable to you with your current income and employment.

Worldwide Income Is Always Taxable 

A common misconception among expats is that they only need to pay taxes in their destination country and that until their return they are more or less exempt from tax except on holding assets like houses, cars, or other valuables. This is distinctly untrue as expats are taxed on the entirety of their worldwide income regardless of where the majority of their year is spent living and working. There is a threshold that needs to be surpassed but most expats are able to exceed it easily (more so if there is heightened inflation in their current country). 

An expat’s worldwide income is a fairly wide-ranging concept including both the largest and smallest sources of income including earned, passive, or inherited. Typically wages and salary are always taxed, this figure does grow if an expat owns a business overseas or has a commercial enterprise both in their home country and abroad. An expat tax CPA can direct you regarding tax to be paid from interest from money loaned, rental income, acquisition of large assets or valuables, dividends from shares, and so forth.

Reduce Tax Liability Through Provisions 

Tax provisions like Foreign Earned Income Exclusion can prove very beneficial when you are trying to protect your wealth and income from excessive taxation. If you successfully apply for Foreign Earned Income Exclusion you can save hundreds of thousands of dollars of income from falling inside the tax bracket. Other provisions such as the Foreign Housing Exclusion allow you to get tax returns on household utility bills, rent, and other costs of living in a foreign country. 

It is worthwhile to note that the above-mentioned provisions and others like them that may fit in certain cases are not automatically updated to your tax paperwork. Separate forms and paperwork have to be filed by the deadline and it is up to the IRS to decide if an individual expat can warrant those exclusions or not. Form 2555 or 2555-EZ have to be correctly filed by the due date. 

Work Around Double Taxation 

Many US expats can owe very little tax to the government because the IRS is keen to avoid the phenomenon of double taxation that can needlessly burden expats in their tax obligations. Being taxed twice on income means that the expat has to pay tax both in their resident country and home country. An expat can certainly apply for Foreign Tax Credit so they are not taxed double on their income. 

A Residency Test

Individuals that are working abroad for only a few months or a short period of time due to a contractual obligation will not usually qualify as expats in the eyes of the law. For that reason, they will almost never be provided the provisions available to expats who have spent a year or more than a year in a foreign country. Expats should take a bona fide residency test to prove they have not returned to their home country in 365 days and have no current intention to do so. 

It is important to be very specific when relaying the number of days for the residency test paperwork. Days you have spent back home or on a flight will be excluded so it is better to not make assumptions that less than at least 330 days will be accepted for awarding tax exemption privileges. If you have a pending case in the US you may be unlikely to make a move as an expat at all or may have to return for proceedings so always discuss the situation with a Tampa criminal defense lawyer

Children-Specific Provisions & Tax Treaties 

If you are an expat with children, that makes you eligible for various tax provisions that relate to the cost of child maintenance in particular. Child and Dependent Care Credit for example can result in refunds of various taxes you may have paid as long as all children have a US social security number. Being aware of tax treaties that apply to your host country in relation to the US can also result in considerable personal tax exemptions.