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Your Guide to Taxes for Expats

If you’re living abroad, you’re still liable to pay US income tax. But the process can be complicated. Learn more with our handy guide to taxes for expats.

There are approximately 9 million Americans living overseas. If you’re one of them, you may be wondering how expat taxes work, and what your responsibilities are.

Read on to learn how taxes for expats work, and how you can make sure you don’t get in trouble with Uncle Sam.

American Income Tax: Popular Tax Myths

Contrary to popular belief, just because you live outside of the United States, your tax obligations have not ended. Many believe that American tax laws are archaic since the United States is one of only two countries (Eritrea is the other one) that taxes citizens regardless of where they live.

Regardless of how you feel about this, you have a responsibility to make sure you’re meeting those tax obligations. Here are a few other expat tax myths:

If You Don’t Owe U.S Taxes, You Don’t Need to File a Return

U.S citizens still have to file a return regardless of where they live. This can actually benefit you since it can prevent double taxation.

If you have a foreign employer, you can exclude a certain amount of any income you’ve earned from them. You can also often point to foreign taxes that you’ve already paid which will reduce your U.S obligation.

Contributions to My Savings/Pension are Tax-Deferred

Many countries allow residents to contribute to their investment savings plans or pension plans and enjoy tax deferral. Unfortunately, the U.S can tax you on both your earnings and any employer contributions.

This can mean that you owe the IRS cash taxes, as foreign taxes may not reduce your obligation.

I Don’t Have to Disclose Foreign Balances Under $10,000

Account holders who have more than $10,000 in a foreign financial account must submit an FBAR (Foreign Bank and Financial Account Report. However, this is the balance of all of your accounts, including savings, checking, pension, investment, and any mutual fund accounts.

How Taxes For Expats Work

To be able to use the Foreign Earned Income Exclusion, you must establish that your “tax home” is in a foreign country. You can do this by satisfying either the Physical Presence Test or the Bona Fida Residence Test.

This often means cutting ties with the US and demonstrating that you have been a resident of another country for an entire tax year or 330 full days within 12 months.

You can easily fill out an online tax return from abroad. If you still have a bank account in the United States, you can use it to pay your taxes electronically with the Electronic Federal Tax Payment System or Electronic Funds Withdrawal. You can also pay by money order, check, debit card, or credit card.

If you can’t pay any outstanding debt in full, you can request an installment agreement or online payment agreement.

Wrapping Up

Taxes for expats may seem complicated, but the IRS is available if you have any questions. Don’t be tempted to skip out on your tax obligations- the IRS is increasingly communicating with foreign countries to check who is paying their taxes.

Still uncertain about your taxes? Get in touch today with any questions or concerns.