Filing US income tax return living abroad is a complicated process. USA expats who are settled abroad can expect to face certain challenges when navigating the complex tax requirements that apply to US expats.
Many US citizens assume that leaving the country relieves them of their obligations to IRS however that is not the case. America is only of those few countries where tax liability is based on the citizenship.
Even if the USA expats move to far flung corners of the world, they must file their tax return with the IRS. However they do avail certain tax provisions that benefit them. If you are someone filing US income tax return living abroad, it is important to collaborate with the dedicated expat tax advisor who can provide the expertise and support required to tackle any tax issue that might arise.
What are the tax return filing requirements for US citizens living abroad?
US expats cannot escape the reach of IRS even when living abroad. American expats need to prepare their federal tax return using IRS Form 1040, a familiar form for most adult Americans. While this form works the same for expats as for domestic tax payers, there are few notable differences that could affect how and when to file.
For instance, tax payers who are out of the country are eligible for automatic two month deadline extension that makes effective filing date for the USA expats June 15 instead of April date. The two month extension is only for submitting of tax return and related paper work.
also read:- facts pertaining receipt of Form 1099-K in 2024
Any payments due April 15 will start incurring interest from that date. Make sure one sends the tax obligations by April 15 even though they choose to file the return in June to avoid penalties or interests.
Helpful IRS provisions for expats
Foreign Earned Income Exclusion – Whether expat is working overseas or is a self-employed then they are eligible for FEIE. This provision allows USA expats to avoid double taxation by excluding a significant portion of foreign earned income from what is considered taxable by IRS. The maximum amount of income that can be excluded is adjusted every year for inflation, so there is a steady increase. The expat must pass either bona fide resident test or physical presence test to qualify and the tax home must be in foreign country. If qualified for FEIE the expats must file IRS form 2555.
Foreign Housing Exclusion – Expats who pay for their own housing are able to subtract that expense from their taxable income. To claim this benefit, expats need to enter the expenses paid for housing for them, spouse and dependants on Line 28 of Form 2555.
Foreign Bank and Financial Accounts- Those expats with control over one or more foreign bank accounts totaling more than USD 10,000 at any time during the calendar year must report those to IRS by filing a report of foreign banks and financial accounts. The form is filed online through Financial crimes enforcement network using FinCEN Form 114. USA expats filing is complex and the expats have to file more paperwork apart from above mentioned provision to stay in compliance with IRS. If you are an USA expat living in another country, let the expat tax experts guide you through tax season so you can avoid IRS hefty penalties and claim each of many deductions, exclusions and credits for which you are likely eligible.