The dreaded T Word.
Double the dread when you are a US expat who needs to file your tax returns with the IRS.
Filing taxes is always a troublesome and hectic task.
As an American expat living abroad, this becomes even more complicated because of the labyrinthine rules and regulations within the US Tax Code which, to make things easier, changes from year to year!
Not easy stuff to keep up with, but leave that to the Pros at US Tax Pros!
The US tax filing system is unusual and complex. Unlike other countries, where a citizen residing in the country pays taxes in that country, a US citizen may have to pay taxes on their worldwide income to the US government, regardless of where they live or work. (The American tax system is one of two countries with a citizenship-based taxation system)
Filing US taxes from abroad is more challenging as most of the expats don’t know the tax deductions they could make while filing their tax returns to reduce their tax bills.
They may also have to report any foreign registered businesses, bank and investment accounts, financial assets that they may have, and any property they sell.
We took some time out today to prepare a 15-point list of the things you need to know as a US expat before filing your 2022 tax return.
As an American expat, looking for tax experts who would make the process of filing taxes hassle-free, this might just be a life saver (and in the long run, a dollars saver!).
1. Do All US Expats Need To File Tax Returns In 2022?
An expat has to file a US federal tax return if his income is above the threshold value which differs by filing status.
The IRS (Internal Revenue System) gives a lengthy list for expats to check for various thresholds for filing taxes.
For example: Single Filer Expats who earned more than US$ 12,550 in total globally, (US$ 14,250 if age 65 or older) or maybe just US$ 400 for self employed workers or just US$ 5 of any income if they are married to a foreigner but file separately are required to file a US federal tax return reporting their worldwide income.
Here are some 2021 Minimum Filing Thresholds:
Single filing Status:
US$ 12,550 if under age 65
US $14,250 if age 65 or older
Married filing jointly:
US$ 25,100 if both spouses under age 65
US$ 26,450 if one spouse under age 65 and one age 65 or older
US$ 27,800 if both spouses age 65 or older
Married filing separately — $5 for all ages
Head of household:
US$ 18,800 if under age 65
US$ 20,500 if age 65 or older
Qualifying widow(er) with dependent child:
US$ 25,100 if under age 65
US$ 26,450 if age 65 or older
Confused yet? If not, this will throw you for a loop.
There are times when it pays to file a tax return even if you come in below the threshold!
Reason #1 – You are owed a refund!
Reason #1 – Money was withheld from your US paycheck whilst working outside the US, and you had to pay tax on those earning in the country where you expatriated to. Those withholdings may be refundable.
U.S.Tax Pros has answers to your queries.
2. Most US Expats Don’t Owe Taxes To The US
Filing your US tax returns from abroad does not actually mean that you have to pay actual taxes to the US. Ultimately, you may just pay $0 but you have to file your returns.
However, filing is usually troublesome for expats who try filing themselves because they can end up getting taxed twice on the same income. The US has put several deductions and credits that an expat who is filing from abroad can claim.
Most of the US expats living abroad are able to get exclusions from the tax with the following:
- Foreign Earned Income Inclusion
- Foreign Tax Credit
- Foreign Housing Exclusion
Note: For the exclusions, you must qualify as an official expat and have foreign earned income, and you must file your tax return in order to prove that you are eligible for these benefits.
3. Foreign Earned Income Exclusion (FEIE)
Foreign-earned income means wages, salaries, professional fees, or any other form of income, or money paid to you or that you earned.
Expats can exclude up to $108,700 (for tax year 2021 – the figure rises a little each year due to inflation) of their earned income from US taxation.
Note: Foreign Earned Income Exclusion can only be applied to earned income that is active income, and not to passive income sources like rents, dividends etc.
Check out IRS Form 2555 to claim Foreign Earned Income Exclusion.
4. Expats Need To Provide Proof Of Living Abroad
An expat must demonstrate that he lives abroad by qualifying for any of the two tests mentioned by the IRS to claim for Foreign Earned Income Inclusion. (FEII).
- Bona Fide residence test – If you are a permanent resident of the country that you currently live in(you have permanent residency visa), or you pay taxes there, or your main home is there, then you qualify under the Bona fide Residence Test and can claim FEII.
- Physical presence Test – You must be physically present in a country for 330 days out of 365 days for the tax year.
Note: Calculate your days very carefully. This does not include the time spent travelling to or from the US.
Even the slightest mistake could cost you a heavy amount. It is advisable to consult an US expat tax expert before you file your 2021 tax return.
5.You Can File For An Extension
All expats residing outside of the US get an automatic extension of time to file through June 15th each year.
Note: You can apply for extension till October 15th or fill Form 4868 to buy you even more time.
6. Foreign Tax Credit (FTC)
US citizens living abroad who pay taxes in their country of residence are eligible to claim foreign tax credit.
The US federal tax credit allows expats to claim US tax credits to the same value as the foreign income taxes that they’ve already paid in the country where they live. DOLLAR for DOLLAR! This is beneficial to taxpayers in high tax paying countries who earn more than the FEIE as employees.
Most of the expats eradicate US tax bills as they pay more in the country they live in.
Note: To claim Foreign Tax Credit, Americans who are living abroad must complete IRS Form 1116 when they file their annual return.
7. Deadline For Filing 2022 US Tax Filing Is Near
The deadline to file the US tax return is April 18, 2022 this year. But if you are a US citizen living abroad then your deadline is automatically extended till June 15, 2022.
Note: However, even if you are an expat and owe taxes, you must Pay your amount due before April 18 to avoid failure to pay penalties and interest.
Why pay extra? Consult the best US Tax experts now.
8. Expats Can Claim Child Tax Credit For Dependent Children
Americans who live abroad can claim for Child Tax Credit for dependent children.
US citizens living abroad can claim $3000 per dependent child. Children must be US citizens with US Social Security numbers.
Note: To claim child tax credit, you must fill out Schedule 8812 (Form 1040)
9. Report Your Foreign Accounts
All the expats who have more than $10,000 in their foreign accounts (even if it’s $10,001), have to file the Foreign Bank Account Report (FBAR).
Note: FBAR is filed separately to FinCEN rather than IRS (FinCEN FORM 114). Failing to file the FBAR results in heavy penalties. Expats should make sure not to miss it.
The due date to file a FBAR for the tax year 2021 is April 15, 2022. But there is an automatic extension till October 15, 2022.
10. IRS Amnesty Program
You live abroad and for the longest time, you were not aware of filing US taxes from abroad.
That can happen.
Many US expats are not aware of this.
Don’t worry if you are behind in filing your US federal taxes because you were unaware of your requirement to file while overseas.
But the moment you find out, you need to get this taken care of. Because just like with everything else, innocence of the matter does not mean you aren’t guilty. With the advancements FATCA now is as good of a time as ever to become tax compliant.
There are many amnesty programs to help you along the way… Always remember that it’s best for you to approach the IRS before they approach you!
- Filing your 3 most recent US Tax Returns
- Filing your last 6 FBARs
- Filing form 14653 Offshore Certification – A statement your non compliance was non willful.
11. US Expats Need To Wake Up Before It’s Too Late
Whether you have already filed your taxes with Uncle Sam or not, the sooner you do it, the sooner you can breathe free.
Even though the process is voluntary, we can assure you it’s much better to contact the IRS before the officials contact you.
Expats will save themselves from late compliance fines and will be eligible for claims and credits that will help them eliminate or lower their US tax bills.
12. Report Your Foreign Assets
Apart from reporting foreign bank account details, all the Americans living outside of us must report their foreign Financial assets.
FATCA, Foreign Account Tax Compliance Act, is similar to FBAR in that it is intended to prevent US taxpayers from hiding money in offshore accounts and assets.
Note: Look out for Form 8938. An expat may need to file FBAR and form 8938, or neither.
It is highly advisable for expats to consult a US tax professional who understands federal taxes and become compliant at their earliest convenience.
13. US Social Security Taxes and the Self-Employed
Americans who are working abroad as contractors or self-employed individuals may have to pay US Self-employment tax on their return (FICA Component which covers Social security and Medicarte taxes too.
US Self-employment tax consists of 6.2% for employees plus 2.9% Medicare Tax, or a total of 15.3% of income for self-employed expats.
Note: Americans who retire abroad can have their social security checks transferred to their bank accounts.
US social security payments are subject to US taxation and may possibly be taxable in your country of residence too. So expats should check and prevent double taxation.
14. Expats Might Have To Pay State Taxes Too
While most expats need not pay any tax to the state once they demonstrate that they live abroad, some states still levy tax from the expats (such as California, New Mexico, Virginia) who own some ties to the state such as property, voter registration or dependents.
Note: An expat must ensure the state where they last lived to avoid any unwanted taxes.
15. Tax Penalties
Expats who are tax defaulters may incur heavy fines.
Serious tax evaders can also be jailed and one might even lose their passport.
If you are an expat and feel your situation is complex, you might consider seeking assistance from tax experts who will make your tax-filing easy and assist you throughout the complex process.
File Your Taxes With The Help Of US Tax Pros
We have four different packages namely Basic pack, Professional pack, Corporate pack, and Streamlined filing procedure which includes the Federal tax return and FBAR/FATCA Forms from Banks and other financial institutions as needed.
For more details read more on www.ustaxpros.co.nz.
In our years of helping US citizens abroad with filing their tax returns with the IRS, we’ve seen many people who found it difficult before they found us. We know that taxes are confusing and that’s why we use a multi-point review system to ensure your taxes are prepared right.
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