Working and living overseas can have a major impact on someone’s life. Still, U.S. citizens living abroad must meet their financial and tax duties in their home country. In fact, U.S. citizens are taxed on all their income, wherever in the world it was earned. If you live and work outside your home country, knowing your international financial responsibilities is essential. What you must have to ensure you are compliant and secure financially.
- The Reality of U.S. Tax Filing Beyond Border
The Reality:
A lot of U.S. citizens believe they don’t have to file taxes with the IRS after getting foreign income. This is not true. Everyone, including citizens and resident aliens, is required by the IRS to report all their worldwide income each year, even if they file taxes in their current country of residence. With a tax lawyer from San Francisco or from another location, one can get help for the income one has made outside the country.
What You Need to Do:
Keep filing the same Form 1040 you have in the past. If you meet the requirements for the FEIE or Foreign Tax Credit, you might benefit from them, but not filing your taxes can cause major problems. If you’ve been out of compliance, the Streamlined Filing Compliance Procedures offered by the IRS may allow you to get caught up with little trouble.
- Know The Exclusions and Credits You Can Avail
The Reality:
U.S. citizens living overseas may receive help from two important IRS provisions.
- With the FEIE (Foreign Earned Income Exclusion), you can leave up to $126,500 of foreign income (for 2024, with slight yearly changes) without paying U.S. tax if you meet the test for physical presence or real residence overseas.
- FTC: You can use income taxes paid to another country to lessen your U.S. tax burden.
What You Need to Do:
Review your income and the host country’s taxes to find out which arrangement is advantageous for you. You must pay attention if you use both FEIE and FTC on your income, as it can get complicated. You should use Form 2555 (for FEIE) and Form 1116 (for FTC) to record these on your return. To steer clear of errors, you should hire an expat tax advisor.
- Don’t Miss the FBAR and FATCA Reporting
The Reality:
If your money is held in foreign banks, you could need to add some extra forms.
- FBAR: When you reach $10,000 or more in foreign financial accounts at any moment during the year, you are required to file this document.
- Because of FATCA, if your foreign assets surpass set limits (beginning at $200,000 for single international filers), you need to report them on Form 8938.
What You Need to Do:
Check all your foreign accounts for their balance each month. If a company fails to comply without meaning to, that can put them at risk for $10,000 or higher in fines. Submit an FBAR report through FinCEN’s website and report FATCA through your IRS payroll tax audit report through your federal tax return. Clean copies of your records and be true in your disclosure at all times.
Being an expat should open your mind, not your financial struggles. Taking a little time to organize makes everything much easier.
