All US citizens (including green card holders) must pay taxes if they live outside of the US, no matter where they live, if they work, and how long they have been living abroad. It is the only country in the world that has this requirement. In addition, the US Tax Code happens to be extensive and complicated, which is not great news if you are an expat and tax season is around the corner. To help you get to grips with your tax requirements as an American expat, we’ve compiled a useful guide to filing your taxes abroad.
First things first, it’s important to find out if you need to file taxes or not, by consulting the IRS income tax thresholds. If you do, write the deadline for paying taxes down in your calendar now: luckily, although the deadline is generally April 15th, the IRS gives an automatic extension of 2 months for those who are abroad on this date, meaning expats have until June 15th to file.
The next thing to understand is that taxes are required on any income, which means both foreign and from the US. The only way to stop having to pay taxes in the US is by renouncing your citizenship or green card, also known as expatriation.
However, there are some exclusions for US expats. Certain people are eligible for the Foreign Earned Income Exclusion (FEIE). This means that, as of 2019, you can deduct up to $105,900 dollars from your taxable income, provided you pass one of the two FEIE tests:
The Physical Presence Test: applicable for those who can prove that they are outside of the US for 330 consecutive days during the fiscal year.
The Bona Fide Resident Test: applicable for those who have residency in another country and have been required to pay income tax in that country for one or more years.
If you do not qualify for FEIE, you can also use your foreign income tax to reduce your US tax bill, which is known as Foreign Tax Credit. If your income is being taxed in your country of residence, you can claim this as a credit against your US tax.
When filing taxes as a US expat, there are up to 13 forms to include as well as your standard Form 1040. This can be an overwhelming and confusing amount of work, and it can be helpful to get assistance from someone who has knowledge of the intricacies of the US Tax Code and can help you navigate the process of filing your return. Tax preparation services are hugely beneficial to Americans living abroad who may need advice on the best practice for doing their taxes as an expat.
The best way to file your US taxes from abroad is by having as much information and guidance as possible. In order to avoid mistakes, it may be preferable to enlist the help of a tax preparation service of a tax preparer to ensure the process runs smoothly.
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