I’ve been researching the subject of U.S. taxes for individuals living abroad. I have to tell you that there is a lot of conflicting and misleading information out there. So, I decided to go back to the source – IRS – and find out for myself. I was a little surprised by what I learned.
In this post you will find the following information on Expatriate Tax:
- Filing requirements for U.S. citizens residing abroad
- Expat filing deadlines
- Foreign earned income exclusion
- Where to file your taxes if you live abroad
- My conclusions
Filing requirements for U.S. citizens residing abroad:
IRS says that “if you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad.” This means that you are bound by the same tax laws weather you live in the U.S. or not.
In other words, if you have income, regardless of the source, you are required to pay U.S. taxes. Here is the table that explains the income requirements:
Expat Filing deadlines:
Expats get an automatic 2-month extension to June 15 for filing their taxes. You don’t need to request it, you automatically get it. If you cannot meet that deadline, you can request a further extension to October 15 by filing Form 4868.
Foreign Earned Income Exclusion:
This I believe is the most misunderstood and most misquoted IRS regulation. It applies to foreign earned income only; i.e. not your Social Security and not your employment pension. Also not any income generated as part of doing business in the U.S.
I’ve read posts saying that you don’t have to pay any U.S. taxes as long as your income is below $95K. That’s simply not true.
IRS says: “If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($91,500 for 2010, $92,900 for 2011, $95,100 for 2012, and $97,600 for 2013). In addition, you can exclude or deduct certain foreign housing amounts.”
To see if you qualify for this Foreign Earned Income Exclusion take this IRS test.
Where to file your expatriate tax return:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
If your Adjusted Gross Income is $57,000 or less, you can file a free electronic tax return using freefile.
Note about exchange rate: All reported income must be in U.S. dollars. If you have foreign exchange income you will need to estimate it in U.S. dollars prior to filing your tax forms.
The U.S. tax laws are so complicated they make my head spin. They get even move complicated on the subject of expatriate taxes. There are countless rules and exceptions to every rule.
U.S. citizens living abroad are not automatically exempt from paying taxes in the United States. This is true even if you pay taxes to your host country and have no income in the U.S.
I would highly recommend getting a good accountant that understands expat tax law. We have one and plan to use her services whether we are here in the USA or abroad. It makes life a lot easier. There are plenty of other things to worry about when moving abroad. Why make life more complicated and add to them?
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