It's a myth that if you are a US citizen residing in abroad, you are not subject to the US taxation laws and regulations laid down by the Internal Revenue Service. As a matter of fact, wherever you reside, on the account of holding US citizenship you are obligated to fulfill all the requirements of Expatriate taxes that are imposed of US expats. So just like what millions of American do in US; they file and pay their taxes in accordance with the IRS regulations and laws, don’t even think for a second that as an US expat your forehead would cease to sweat over your 1040 of IRS form filing procedures.
Let us clear some of the misconceptions about Expatriate taxes
Other than Eritrea, United States is the country that tax its citizens no matter which country they reside. One of the misconception among the US expats is that since they are not indebted to pay US taxes, consequently they need not to file a US tax return. So, how do we address this misconception?
It is clear that a US citizen living in foreign country, under the obligations of expatriate taxes, need to become a taxpayer of all of the IRS proposed taxes along with the taxes imposed on them by the federal government of their current country of residence. This means that they are subjected to double taxation in the income they earn. Therefore, in order to avoid the burden of double taxation, the US tax code hold such requirements that has an ability to eliminate or reduce to some extent the obligation on the expats of US to pay IRS imposed taxes. Furthermore, the US expats under the offerings of expatriate taxes are also encouraged to make use of the taxes they pay in the foreign country as measure against US tax compulsions.
US expats should keep certain points in mind
However, US expat tax payers should make this point a rule of their thumb that even the US tax code give them an opportunity to partially circumvent the US tax compulsions imposed on them by IRS, it does not mean that they are not obligated to file for US tax return on their annual income. The reason being that in order to become qualified for foreign earned income exclusion or foreign tax credit, they need to file tax return forms to a certain degree.
US tax expats should also take in to account that in order to qualify for the foreign tax credit, they need to file for US tax return forms on time. It is because if they file for them late they do not become eligible to make foreign tax credit claims.
In certain situations, even when late filing for US tax return forms are permitted, if the US expats are not expected to pay penalties on the percentage of indebted taxes, they must pay penalty on the fixed amount of dollar.
Expatriate taxes on foreign financial accounts that surpasses the limit of $10,000
The bureau of the treasury department of United States, the Internal Revenue Service electronically receives a Foreign Bank and Financial account Report. This report gives the IRS the notification that the foreign financial accounts of the US expats have exceeded the limit of $10,000. This is the limit imposed by IRS on US expats and when the limit surpasses, the expats are obligated to pay taxes and file a return tax form.
So how will the US expat deal with the taxes on collective sum of money in more than one foreign financial accounts?
So, if expats have more than one financial accounts in their country of residence apart from US, they need to add the balance of all these accounts and see whether they are within the limit or have surpassed it. In order to combine the balance of these accounts, they need to organize a book-keeping so that they can check their savings, investments, pensions and amount of assets in mutual funds.
Therefore, the notion that the US expats are barred from the responsibility of paying taxes imposed on them by IRS is not true. In fact they are subject to expatriate taxes which means that along with paying the taxes imposed on them by the foreign country where they are residing, they need to pay US taxes as well under certain terms and requirements.