Posted by Income Taxes and Bookkeeping LLC

Tax Advice for Expats

Tax Advice for Expats

Do Expats pay taxes? Yes. Do they owe tax debts to the United States? Yes. This may sound surprising to you, especially if you are not a U.S. citizen. But if you're a citizen, you owe your nation taxes regardless of where you work. 

Wherever you work as an American citizen, you are required to file taxes on your income, even if it is outside the country's shores. So, you are still required to pay taxes to the United States from whichever country you are in. Remember, you will also have tax obligations to your country of residence.

The tax rules and regulations are complex already without adding the expat requirements. Moreover, the requirements for expats are pretty complicated. So, how do you ensure that you are familiar with them? So how will the expat meet all the obligations without running into trouble?

There are several tax advice for expats that we'll share later on, but first, you should know the requirements. You should understand that Expats earning from wages, rent, dividends, and even interests must pay taxes. 

However, before you get worried about double taxation, know that most expats end up owing no taxes because there are several mechanisms to prevent that. These include the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the Foreign Housing Exclusion. 

These plans help citizens who are obliged to their countries of residence avoid paying multiple taxes. The Foreign Tax Credit, for example, can be used by Expats to claim dollar credits on foreign taxes for any job done. As long as you have tax obligations abroad, you can claim the FTC.

The Foreign Earned Income Exclusion excludes as much as $112,000 in taxes if you work and earn money overseas. The United States also has Tax treaties with several countries to prevent citizens from paying multiple taxes.

These plans ensure that most American expats end up owing no taxes at all or very little at the most. 

Failure to pay your taxes as an expat could have dire consequences, including losing your passport. You are also liable to fines or even jail time if you default. So, it's better to be sure than to regret. However, you need to be familiar with the requirements and what you need to do.

Is there a deadline to file expat taxes?

Yes. like with local taxes, there is a deadline to file your U.S. tax return as an expat. For the year, the deadline is April 18, 2022, for local citizens, but for U.S. expats, they have an extension that runs to June 15. Remember that April 18 remains the deadline if you owe taxes. However, if you need a further extension for some reason, you can request one before June 15. You'll need to file Form 4868, which grants further extension till October 17 of this year.

What forms do I need to file expat taxes?

You need guidance on which tax credit is best for you, although this depends on several factors like your income and housing expenses. However, you'll need the following forms when filing taxes as an expat.

Form 1040, Form 114, which is used to report any assets in foreign financial institutions to the Financial Crimes Enforcement Network, as well as your foreign bank account report and your foreign earned income.

You'll also need Form 2555 and Form 1116, which are used to prevent being double taxed. Others include Forms 8621, 5471, and 3520. These forms serve different purposes but help avoid multiple taxations and report earnings in detail.

If an expat marries a foreign citizen, it can also have tax implications. You may need professional advice on how not to run foul of the law.



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