With the rapid modes of communication and movement, the world is turning into a Global village. It is perfectly common for Americans today to travel and settle in different parts of the world. And as everything changes when you shift to some other country, so does the systems and procedures of taxation.
The prominent thing which must be kept in mind is ex-pat taxes. These are the tax returns that must be filed with the IRS, and these are the taxes that apply to Americans settled abroad, but don’t worry there is a range of deductions and exclusions available which can result in almost zero tax liability. But for that, you need to be aware of all the basic details and dos and don’ts.
Expat taxes have some more technical things to look for, apart from the normal taxation which you might have done previously. It also has the relevance of the known 1040 form which you might have seen. But some of the details are technical and might require the assistance of professionals who might save precious time and effort of yours in the entire filing process.
Below are the three basic things which you must keep in mind:
Keep track of your Travel
Keeping track of all the travelling time is one of the most crucial things as it will be very helpful at the end of the Financial year when you will have to sit back and do the taxation. So always keep a separate and detailed account of your travel time. American Expats mostly make use of the provisions of Foreign Earned Income Exclusions. There is also a need to keep track of the double taxation avoidance agreements which the US has signed with your host country you might be residing in.
But to qualify for the exclusions you will have to qualify for the following residency tests or one of them:
- Bonafide residence test
- Physical Presence test
Deduction of expenses related to Travel
Certain deductions are available to be used as an Expat but the travel must be essentially connected with the Business and must be away from your home for more than an ordinary day or work. The travel could include any of the following: travel by air, train or cab; cab fares; and even meals and accommodation associated with the Business.
Keep track of the effective place of earning
United states through IRS generally categories the income you earn into two categories- Foreign earned and Domestic. If the income you have earned is effectively from the source which is outside the tax jurisdiction of the United States, then those are considered as foreign income and on those incomes, you can claim the foreign exclusion standard deductions. But suppose you come for a business trip to the United States and the income and profits associated with that trip is not a part of the foreign exclusions, so keep in mind and carefully separate the two incomes to ensure you do not fall out of compliances.
To avail services of a professional tax firm, feel free to contact USA Expat taxes, we will always be there to help you in every step.