Basic Tax Regulation FAQs for US Citizens Living Abroad

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Any bookkeeping, business or tax article contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor can it be used to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Basic Tax Regulation FAQs for US Citizens Living Abroad

I’m a US Citizen / Green Card Holder, do I still have to pay taxes even when I’m living abroad?

Yes.

The US have citizenship-based taxation system which means that if you are an American citizen, no matter where you are, you must file US tax returns and pay taxes. Even If you are living abroad, the same tax rules apply to you regarding income taxation as the people living in the US.

 

Basic Tax Regulation FAQs for US Citizens Living Abroad

I’m a US Citizen / Green Card Holder and work overseas, how much taxes do I pay?

Foreign income is taxed at the same marginal rate as any income earned inside the country.

The standard deduction for married couples filing jointly for tax year 2021 rises to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 for 2021, up $150, and for heads of households, the standard deduction will be $18,800 for tax year 2021, up $150.

Also, you may be required to file a state tax return depending on where you lived prior to moving abroad. There is no quick way to answer this question, so make sure you work with a tax preparer to properly calculate how much you should pay for your US taxes.

 

Basic Tax Regulation FAQs for US Citizens Living Abroad

Will I be double-taxed since I will still be paying my US taxes even when I’m already being taxed by the country I am currently living in?

The US tax code contains a provision called the foreign earned income exclusion (FEIE) where expats may be permitted to exclude $108,700 (for 2021) of income earned abroad from their US tax obligation.

There are rules to get this FEIE: you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following; (1) A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, (2) A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or (3) A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. You can use the IRS’s Interactive Tax Assistant tool to help determine whether income earned in a foreign country is eligible to be excluded from income reported on your U.S. federal income tax return.

Another provision is the Foreign Tax Credit. But keep in mind that you can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. Generally, the following four tests must be met for any foreign tax to qualify for the credit: (1) the tax must be imposed on you, (2) you must have paid or accrued the tax, (3) the tax must be the legal and actual foreign tax liability, and (4) the tax must be an income tax.

 

Basic Tax Regulation FAQs for US Citizens Living Abroad

When and where should I file my US taxes while I’m living overseas?

If you are a U.S. citizen or resident alien residing overseas, you are allowed an automatic 2-month extension to file your return without requesting an extension. For a calendar year return, the automatic 2-month extension is to June 15.  Note that you must pay any tax due by April 15 or interest will be charged starting from April 15.

If you are a U.S. citizen or resident alien (including a green card holder) and you live in a foreign country, mail your U.S. tax return to:

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
USA

 

Are you a US citizen living in Canada and need assistance with your taxes? Let us help you! Contact FAS Bookkeeping and Tax Services today at admin@fas-accountingsolutions.com or 713-855-8035 so our Enrolled Agent can help you.

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