There are about 6 million Americans living abroad, and growing every year due to increasing economic flexibility and globalization. Although Americans may live elsewhere, they still have to file as citizens of the country. This come with an added sense of dread since Americans will have to pay taxes in their host country. But electronic filing makes it hassle-free, and often, taxes are not owed thanks to a few deductions and exceptions. Learn the essential tax tips for expats for filing your 2017 tax return before the April deadline.
For 2017, the IRS has increased the amount of money you can exclude from American taxation in order to keep up with inflation. The number is now up to $102,100. In order to exclude up to this amount of foreign income, you have to meet one of two requirements.
Bona Fide Residence: You have lived in the foreign country for an entire tax year without interruption (vacations don’t count as interruption).
Physical Presence: You can be physically present in more than one country. However, you have to be present for at least 330 days of any 12 month period (can be non consecutive).
This credit was put into place to alleviate some of the double taxation that may be experienced by those earning more than $102,100 abroad. Keep in mind that you have to either tax the income exclusion or the tax credit; not both. You might use the tax credit if you would be paying a higher rate in the foreign country than the US. If you have income from both countries, the one you take will depend on how much you make abroad vs in the US, and the maximum foreign tax credit you can apply is limited by the percentage of comparison. If you earn more from the foreign country you currently reside in, the Foreign Tax Credit will provide the biggest benefit, although more complicated to apply for.
The Foreign Bank and Financial Accounts Report becomes a requirement for not only expats but everyone that has had, at any time, $10,000 or more in a foreign bank account during the tax year. This simple filing requirement is due on April 15th with your tax return (instead of in June as it was in previous years).
Similar to FBAR, FACTA requires reporting of foreign financial assets once they meet certain numbers, depending on your filing status and residency. Be warned that your bank may report these assets whether you do or not, and penalties can be very high, so trying to hide them from the IRS isn’t a financially smart move.
As an American expat, you will have to learn the taxation and filing requirements of your host country, but don’t forget to file in the US as well in order to retain your citizenship and good financial standing. As long as you report everything and choose one of the tax-relieving options, filing as an expat should be a hassle-free endeavor. If you have concerns about your filing status or credits and deductions you can take, consult your tax professional to advise the best filing practices for your particular circumstances.