5 Important Tax Facts You Need to Know if You Are A US Expat

If you are a US citizen living outside the US, and taking in the culture of another country, you will undoubtedly have in the back of your head, the reminder to file those ever so important tax returns. Filing taxes is no fun thing. It can be a headache. And the paperwork is brutal. It can be even more daunting if you are a US expat, as you will most likely have to go through a separate stack of papers and regulations. This is why this article will help provide 5 important tax facts that you need to know if you are a US expat, and that will hopefully help you with filing your tax returns.

Tax Fact #5- Renouncing your US Citizenship Doesn’t Mean You Stop Paying Taxes

 If you are a US expat working abroad, then you’ve probably considered renouncing your US citizenship a few times. Especially when you learn what can happen if  US citizens living abroad don’t file their taxes. However even if you are considering renouncing your US citizenship, that doesn’t necessarily mean you are exempt from paying taxes.

Before you renounce your citizenship you have to prove that you’ve complied with paying your US taxes for the 5 years prior to your renunciation. Then, depending on your income and net worth, you may still be subject to what is known as an “Exit Tax”. An Exit Tax is basically as if you sold all your assets on the day prior the renunciation of your citizenship, which means that you will be subject to capital gains. There are other implications under the Exit Tax but you should be aware of all the implications that come with citizenship renunciation. 

Tax Fact #4- Reduce Tax With Something Called “Foreign Earned Income Exclusion” 

The Foreign Earned Income Exclusion (FEIE) is a form of foreign tax credit that lets you exclude a certain amount of your foreign earned income from US tax. For the 2019 tax year (filing in 2020) the exclusion amount is $105,900. However this exclusion isn’t automatic, you have to qualify for the tax break. In order to qualify, you have to pass a residency test, which requires that you physically reside inside a foreign country for 330 out of the 365 day period.

Tax Fact #3- Some Countries Have Tax Treaties

 If you are a US expat living abroad then you may want to know whether or not the country you are residing in has agreed expat tax treaties. If your host country has a tax treaty with the US, then you can save yourself the trouble of double taxation. Currently, the house has tax treaties with a total of 68 countries so you should make sure if your country benefits from the tax treaty. 

Tax Fact #2- Dependent Children May Help in Reducing Amount of Tax you Owe

If you are married to a non-US spouse, or if you have a child with a non-US parent overseas, then you may eligible for some tax benefits, and in rare cases, even a tax refund! To qualify, your dependent child must have a US social security number. Keep in mind though, that once you pursue this route, your child will now be considered a US person, and will be subject to US tax obligations.

Tax Fact #1- All Rental Income Must Be Reported on Your Tax Return

If you own property in the US you must report any rental income on your tax return. This is also the case if you own a rental income outside the US. Rental property repairs are excluded from tax, however home improvement, unfortunately, is not. It is all a bit of murky waters but definitely an area worth looking into.

It might also be useful to know about the FBAR; The Foreign Bank Account Report (FBAR) is a document that U.S. taxpayers must file annually to report their financial interest in foreign financial accounts. The FBAR must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, and is required if the aggregate value of the taxpayer's foreign financial accounts exceeds $10,000 at any time during the calendar year. It is important for taxpayers with foreign financial accounts to understand their FBAR filing obligations and to seek professional guidance if needed to ensure compliance with U.S. tax laws.

There you have it. 5 tax facts that will without a doubt help you with your tax return. Make sure to read up on every one of them in detail to get a full scope of the advantages, and how to properly utilize each one. Also, make sure to check back for future articles highlighting the different ways you can catch a break when applying for a tax return.