A US citizen or Green Card holder residing in Australia is required to file a US return, meaning they are required to report their worldwide income and file US returns if they meet the filing requirement for that specific year.
Expats enjoy an automatic extension until June 15th for filing their returns and can also further request an extension until October 15th by requesting an extension which is due June 15th but if there is any tax due it should be paid by April 15th. There is no extension to pay taxes.
Australia is an incredible place to live for a numbers of reasons warm climate, friendly environment, beaches, good education, etc. and there are a large number of Americans residing in Australia.
For US expats, due to the US – Australia Tax Treaty and Totalization agreement you will not be subject to double taxation. For those who are self- employed will not have to contribute again in the US social security if they are already contributing to the Australian social security.
Two ways to prepare expat returns are:
- Foreign Earned income exclusion (FEIE): US citizens and green card holders, who live and work outside the US; may be able to exclude part or all of their foreign earned income (wages or income from self-employment) by using Foreign Income Exclusion. To qualify for FEIE, a person needs to work and live outside the US for 330 days out of 365 days.
- Foreign Tax Credit (FTC): US citizens working abroad always worry about double taxation but as they are paying taxes in Australia they can take the tax credits and apply it towards the US taxes. As Australian taxes are higher they do not get a refund but the excess credits can be carried over for 10 years. Foreign Tax Credit includes taxes paid to local and provincial governments but not a sales tax, VAT, real estate or luxury taxes paid to the foreign government. Also, FTC does not apply to any taxes paid to countries that the US has sanctioned as supporters of terrorism – North Korea, Syria, etc.
Accidental Citizens are those individuals who were born in the US but never resided in the US. As they are US citizens or Dual citizens of US- Australia they are also required to file US returns. A lot of individuals were not aware of this, the IRS has a streamlined procedure that allows those individuals to file their last 3 years returns and 6 years of F BAR if they were not aware of the filing requirements. If approved by the IRS they will not be subject to any penalties.
Filling US Expat Taxes As An American Living in Australia
World’s smallest continent and the biggest island, Australia. It is the land of dreams coral reefs, rainforests, and scorched red deserts. Austalia rates at the top as one of the best expat destinations. This English speaking country has high-quality living conditions, good schools, and excellent pay and health care system which attracts a lot of Americans to reside in Australia.
US and Australia have an income tax treaty as well as a Totalization agreement which makes reporting their taxes in the US fairly simple.
Filing US tax returns while living in Australia. Both countries have to report worldwide income and they both follow graduated and progressive tax rates, meaning higher the income higher the tax. So whether you are living in Seattle or Sydney you are required to report your worldwide income.
Apart from filing US tax returns while living in Australia, Americans need to submit an FBAR if qualified and it is reported on FinCEN form 114. The regular due date is April 15th and it is automatically extended to October 15th. There is no separate extension filed for FBAR’s.
Being required to file annual US tax return do not mean that you have to pay it and in fact, many Americans abroad do not even owe any taxes, thanks to provisions and concessions that prevent double taxation as well as help the US expats to save money on their tax bills.
There are the foreign earned income exclusion, foreign tax credits, and foreign housing exclusion or foreign housing deduction. Neither of these; exempt the individual from filing if your gross income is above the filing threshold but can it helps in reducing your US tax by a substantial amount.
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion allows you to exclude a certain amount ($1005,800 for 2019) of your earned income from US tax. The emphasis is on earned as in income from employment, trade or business income. The FEIE does not apply to passive incomes like pensions, interest, dividends or capital gains.
Foreign Housing Exclusion or Deduction
In addition to the FEIE, you can claim a foreign housing exclusion or deduction – using Form 2555 – for your housing expenses minus the base housing amount. The exclusion applies to housing paid for with employer-provided amounts like a salary, while the deduction applies to housing paid for through self-employment.
Your housing expenses are your reasonable expenses incurred, limited to 30% of your maximum FEIE. High-cost localities like Melbourne, Perth or Sydney have a higher limit listed in the Instructions for Form 2555. Housing expenses do not include the cost of buying a property, making improvements or incurring other expenses to increase its value. And your housing expenses can also not exceed your total foreign earned income.
Foreign Tax Credit: You can claim a foreign tax credit – using IRS Form 1116 – for the tax already paid in Australia. Unused foreign tax credits can be rolled over for 10 years.
Contribution to Superannuation Funds
Superannuation is similar to a 401(k) plan. Employee contributions are voluntary, but employers must make a compulsory contribution of 9.5% of employees’ base wages. Employer’s contributions are tax-deductible for Australian taxes but not for US expat taxes. Similar to a 401(k), access to superannuation funds are restricted to those who have reached retirement age or one of some special circumstances
Have a question or not sure how to file your US taxes
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