Living abroad? You may still owe US taxes. What expats should know.
Living abroad? You may still owe US taxes. What expats should know.
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Many Americans hesitant to file taxes amid IRS workforce cuts, survey finds
Think fewer IRS agents means you won't get audited? Experts say think again.
Scripps News
You can never escape Uncle Sam.
The U.S. and Eritrea are the only two countries in the world where taxes aren't based on residency. That means no matter where Americans live, they're subject to U.S. income taxes if they meet income thresholds regardless of where they earned THAT MONEY (DELETE the income). It also doesn't matter whether you're paid in U.S. dollars or local currency. Local currency gets translated into U.S. dollars for U.S. taxes.
Since you can't skirt U.S. taxes, Americans should know and understand the rules before packing up and heading abroad. Rules are complicated, and if you don't pay attention, you may end up taxed twice if the country you move to also imposes income tax.
'To avoid double taxation, the IRS allows for a few tax deductions, credits, and exclusions to offset some income,' said Lisa Greene-Lewis, spokesperson and certified public accountant for TurboTax.
What income needs to be reported?
Just like Americans living at home, expats must report all income. That includes their wages and salaries and any other sources of taxable income.
They also must report any virtual currency transactions and foreign financial accounts if they, together, exceed $10,000 at any time during the year, even if the accounts don't generate any taxable income, the IRS said.
Are expats double taxed on their income?
Expats need to pay attention to avoid double income tax by the IRS and local tax collectors where they're living.
To avoid double taxation on foreign income, expats can claim either the Foreign Earned Income Exclusion or the Foreign Income Tax Credit.
'You can only choose to take one,' Greene-Lewis said. 'In general, it is better to take the credit instead of the deduction since credits are a dollar-for-dollar reduction of the taxes you owe. Plus, you have to be able to itemize your deductions in order to claim the Foreign Earned Income Exclusion.'
What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion allows an expat to exclude certain types of income from taxation. It reduces how much income is subject to taxes. In 2024, an individual can exclude up to $126,500 of qualified foreign earned income and housing income.
If you're not sure if your income can be excluded, the IRS has an interactive tool that can help.
To qualify, you must meet certain criteria including the bona fide residence test to prove to the IRS you've been a resident of the foreign country for an uninterrupted time period that includes the entire year. Under the physical presence test, you would need to be physically present in the foreign country for 330 days of a 365-day period, though days do not need to be consecutive.
What is the Foreign Income Tax Credit?
The Foreign Income Tax Credit allows expats to claim a credit for foreign taxes that are imposed by a foreign country. It reduces your U.S. tax liability
Income covered by the Foreign Income Tax Credit includes:
income
wages
dividends
interest
royalties
Note: Instead of a credit, expats can choose to take an itemized deduction for foreign taxes paid. They can only choose a credit or a deduction, not both, in the same year.
'Taken as a deduction, foreign income taxes reduce your U.S. taxable income,' the IRS said.
But the IRS noted 'in most cases, it is to your advantage to take foreign income taxes as a tax credit.'
When do expats need to file their U.S. tax returns?
The regular deadline is April 15, unless it falls on a legal holiday or weekend. Then. It's the next business day, just like taxpayers at home.
However, expats get an automatic two-month extension to June 15 without having to request it. If expats need time beyond that, they can file for an extension to October 15, before June 15.
However, the IRS emphasizes 'even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return.' So, all taxpayers should make a payment by April 15.
Do expats use the same IRS forms?
Yes, expats will file the same 1040 IRS income tax forms, but they may also have additional forms to complete, said Greene-Lewis.
Some forms expats may need include:
To file their taxes, expats can do so by mailing their return to the IRS or filing electronically, which is the IRS' preferred way of receiving returns.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
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