If you are an American citizen living and working outside the nation, you must inform about your income to the IRS in the United States. Expats from the United States get a two-month filing extension without having to apply for it. While you have until June 15 to file your tax return for the previous year, any taxes must be paid by April 15 to avoid interest charges that will begin on April 16. If you are eligible for this two-month extension but will still be unable to complete your return by the automatic extension date of October 15, you can request an additional extension until October 15 by filing Form 4868 before the default extension date.
In This post, You’ll get to know about the expat rules of working abroad as a U.S. citizen.
Foreign Earned Income Exclusion Tax Reduction
The Foreign Earned Income Exclusion may exclude $112,000 in earnings from U.S. taxation in 2022. The FEIE’s annual inflation adjustments exclude $120,000 of 2023 income. Thus, this is the most common way foreign nationals reduce or eliminate their U.S. tax payments.
The Foreign Housing Exclusion lets you deduct rent and utilities from your taxable income.
Eligible taxpayers must complete Form 2555 or 2555-EZ to claim the Foreign Earned Income Exclusion.
Tax Treaties Protect American Expats from Double Taxation
Income tax treaties reduce or eliminate U.S. taxes for expats on specific income, preventing double taxation. U.S. tax treaties include 69 nations. To find out how their host country taxes them, expats should consult their treaties. Tax treaties, like other legal documents, are lengthy and complicated. If you don’t know the rules, ask an accountant.
Claiming your Child as Dependent Minimizes Expat Taxes
The Child Tax Credit may lower your tax bill or perhaps give a refund if you support a U.S. citizen or permanent resident child. The credit requires U.S. Social Security numbers for all dependent children.
Additionally, the Child and Dependent Care Credit may let you deduct childcare costs. This credit requires income. The Foreign Earned Income Exclusion disqualifies you from the Child Care Credit.
You must File a U.S. State tax return if you are a former resident of a state
Filing your state tax return as an expat depends on whether you plan to return or not. Every state has differing rules regarding domicile and permanent place of abode. Depending on where you live, state residency and filing requirements differ.
You won’t lose Social Security if you retire abroad
You can receive U.S. Social Security benefits in most countries. These countries don’t allow Social Security:
If you resides in one of these countries, you can still claim late payments after moving.
Imagine moving to Cuba. Cubans cannot get U.S. Social Security benefits. After moving to Germany, your Cuban Social Security benefits would be reinstated. To know more, you can consult with an Expat tax CPA in Germany.
U.S. Tax Returns Must Include Rental Income
The IRS must report foreign and domestic rental revenue. Numerous property-related costs may lower an expat’s taxable income.
Home repairs are tax-deductible immediately, while renovations take longer. How to tell? Improvements, unlike repairs, increase the property’s worth or lifespan.
Tracking rental property maintenance and renovations is vital. Repairs and improvements may be deductible from capital gains or losses if you sell your house as an expat.