Latest news with #ForeignEarnedIncomeExclusion
Yahoo
01-04-2025
- Business
- Yahoo
Living abroad? You may still owe US taxes. What expats should know.
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. 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. 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.' 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. 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.' 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. 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: Form 114 to report foreign bank accounts that in total exceed $10,000. Foreign Earned Income Exclusion (Form 2555) or the Foreign Income Tax Credit (Form 1116) 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@ 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@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday. This article originally appeared on USA TODAY: Living abroad doesn't exclude you from US taxes Sign in to access your portfolio
USA Today
01-04-2025
- Business
- USA Today
Living abroad? You may still owe US taxes. What expats should know.
Living abroad? You may still owe US taxes. What expats should know. Show Caption Hide Caption 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@ 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@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
Local Norway
28-03-2025
- Business
- Local Norway
The steps Americans in Norway can take to minimise or avoid double taxation
The US tax system is global, meaning Americans living overseas still need to file returns with the IRS even if they are a tax resident in another country. While most Americans are aware of this responsibility, Rune Andersen, partner and head of the tax department at Ræder Bing law firm, said that the issue of double taxation was a common challenge faced by Americans who moved to Norway. 'Taxation based on citizenship is not common. In general, most countries tax individuals when they become residents, and the taxation ceases when they move permanently, but this is different for Americans,' he said. Familiarise yourself with the tax treaty In principle double taxation is avoided through a tax treaty between Norway and the US. Americans who are tax residents in Norway can receive tax credits for the tax they pay overseas. Meanwhile, the US has the Foreign Earned Income Exclusion (FEIE) system, which allows Americans living overseas to exclude a portion of their foreign income from US taxation. Americans can also use Form 1116 to claim a credit for taxes paid to Norway. Seek the help of experts However, the tax treaty between the US and Norway can be quite complex, meaning the main step Americans living in Norway can take to avoid or minimise double tax is to seek the services of a professional. 'To avoid double taxation due to the US rules, it is, in most cases, necessary to involve a US tax advisor with international experience. In addition, the tax treaty between Norway and the US is very complex and old, so it is very important to involve tax experts to make sure the tax treaty is correctly applied,' Andersen said. Advertisement Furthermore, gaps exist in the tax treaty, meaning Americans can be taxed in the US and Norway. One such example is that some US Individual Retirement Accounts (IRA) end up being taxed in both Norway and the US as the account holder will be taxed by the US once the IRA is paid out, and the Norwegian authorities, who sometimes view this windfall as income. 'The Norwegian authorities have, in some cases, concluded that the IRA is savings, and accordingly, the underlying profits occurring within the account has been taxed as capital income despite the fact that no withdrawals have been made. This will lead to double taxation because Americans may be taxed in the US when the money is paid to the taxpayer at retirement. In my opinion, this is an incorrect treatment of Americans in Norway,' Andersen said. READ ALSO: Is it worth paying for professional help with taxes? Ensure any professionals you use are on the same page Ideally, those looking to try and minimise the prospect of dual taxation should have expert help with both the US and Norwegian tax systems and ensure that both experts are in contact with one another. 'Get Norwegian and US tax advisors that have experience with tax treaties. These advisors need to coordinate because it is necessary to make sure that tax credits are given,' Helene Aasland, a senior lawyer at Ræder Bing, told The Local. Advertisement Approach things on a case-by-case basis Another tip was to try and treat certain scenarios, such as trusts, on a case-by-case basis rather than take general advice to avoid paying unnecessary taxes. 'Taxpayers resident in Norway have to report their global income and wealth. We see misunderstandings related to trusts. A trust can be organised in different ways. If a beneficiary is a tax resident in Norway, the taxpayer may be deemed as owner of the assets in the trust and accordingly be liable to pay wealth tax on the assets, but there is not a clear answer to this. Each case needs to be considered separately,' Aasland said. Keep an eye on developments While there isn't a lot taxpayers can do to try and change policy themselves, keeping up to date with the latest developments can give Americans living in Norway a rough idea of how their tax liabilities could change in the future. Advertisement For example, the US could opt to abolish taxing citizens who live overseas . Furthermore, Norway's controversial wealth tax will likely be a key debate and policy point during the general election later this year and, as a result, be changed. "We see many Americans moving to Norway for personal reasons, business reasons or whatever, but they get into a wealth tax system that makes it too expensive to live here," Andersen said. Norway's wealth tax is applied to global wealth and is charged at a rate of between 0.525 and 1.1 percent of one's total net wealth above 1.7 million kroner.
