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1. Expats still have to file in the US
The US tax system is based on citizenship rather than residency. Wherever you make your home as an expat, you are required to file a U.S. tax return and report your worldwide income.
2. Expats get an automatic filing extension
The IRS provides expats an extra two months to file their tax returns. It’s important to remember that the expat filing deadline of June 15th is only a filing deadline and not a payment deadline. If an extension is filed, expats have until October 15th. Expats still need to pay by April 15th in order to avoid owing interest.
3. Foreign Tax Credit can be claimed
Expats who pay foreign taxes can claim the Foreign Tax Credit on their U.S. tax returns. For every dollar of foreign tax paid on foreign source income, expats can claim a dollar tax credit on their US tax. This means that if you pay more foreign tax that the US tax due on your return, you do NOT owe any tax to the IRS and any leftover credits get carried forward for future use.
4. There is a Foreign Earned Income Exclusion available
Expats who pay no foreign tax or pay less foreign tax than the U.S. rate may have the option of using the Foreign Earned Income Exclusion. To qualify, expats need to prove that they live abroad either by showing they are permanent residents in another country or by meeting the physical presence test of 330 days or more spent out of 365 days outside the U.S. For 2019, the foreign earned income exclusion allows expats to exclude up to $105,900 of their earned income.
5. A Foreign Housing Exclusion or Deduction may also be available
For expats who rent abroad and claim the Foreign Earned Income Exclusion, the Foreign Housing Exclusion (or Foreign Housing Deduction if self-employed) may also be available to exclude a portion of their rental expenses.
6. Don’t forget about the Report of Foreign Bank and Financial Accounts (FBAR)
Expats who have an aggregate total of $10,000 or more in foreign financial accounts will have an FBAR filing requirement. For more info, take a look at our other blog post, the Top Ten Things Filers Need to Know about the FBAR.
7. State Taxes may still apply
Leaving the U.S. does not automatically make you exempt from filing state taxes. Some expats may have to continue to file in the states where they last lived depending on the rules of that particular state, how long they’ve been away, as well as other facts and circumstances.
8. Expats who own a foreign business must report it
Please refer to the Top 5 Things US Citizens holding Foreign companies need to be aware of.
9. Expats may have to pay foreign taxes
It’s important to check the tax residency criteria for the country each expat is living in to understand whether paying taxes is required.
10. Dependent Children may help reduce taxes
The Child Tax Credit, available to those with dependent children who have a US social security number, is worth up to $2,000 per child.
If you are an Expat, the filing process can be complex. At Kaufman Accounting, our expat tax services are designed to take the confusion out of this complicated process so you don’t have to worry about missing a deadline or filing to report income that may be liable for taxation. Contact us today to see how we can help with your expat tax return.
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