Tips For U.S. Expats To File Their Taxes
Filing your taxes in the United States as an expat does not need to be as intimidating as it seems. We’ve compiled a list of some of the most important key take away to help you navigate the maze of taxes. For more detailed information you can also refer to this article, which has some great information that you will find helpful.
- Foreign Account Compliance Act or (FACTA) is to target US tax payers who aren’t compliant with reporting assets held in foreign institutions. This also applies to U.S. residents with ownership in foreign entities. Form 8938 is used and included with tax returns. Thresholds that do not require reporting are $50,000 or $200,000 for an Expat for a single filer or $100,000 or $400,000 for an Expat for couple filing.
- Financial Crimes Enforcement Network or (FinCEN) was established to identify and report any suspicious activity or money laundering. They require all banks to report to the government. Individuals are required to use FinCEN form 114 also called FBAR form. Required for US citizens that have signing authority over a foreign account held in a foreign institution. The form must be filed when the aggregate balance is $10,000 or more. The deadline to file is April 16th or October 15th for an extension.
- US citizens all over the world that are earning money outside the US get charged taxes by the US as well as the country they are in. This double taxation can be relieved somewhat with a foreign tax credit. Form 1116 is used to try to calculate what is due and what will be credited. There are five different categories that can be used on the form but the two most important are general or passive income.
- Foreign earned income can be claimed as an additional child tax credit form 1040 line 67 is used. Within certain guidelines you can apply for a foreign tax credit or foreign housing expenses can be calculated and deducted assuming you are earning foreign income and living in the foreign country for an uninterrupted period that included the tax year in question and you must be a resident of the foreign country and able to prove that. The maximum amount for self-employment earning subject to social security is $118,500. The foreign earned deduction can be taken if employer provided funds pays funds earned. The foreign housing expenses can only be deducted by those who are self-employed, and not by those who are employed by an employer.
- Standard deductions and personal exemptions will vary depending on your filing status. If you itemize deductions, then you cannot take the standard deduction. Taxable income can be reduced with exemptions. If gross income is above a certain amount then exemptions will be reduced or eliminated.
Exemptions are usually taken for yourself, spouse or dependents and can vary depending on the situation.
- If you have a non-resident spouse then for tax purposes you can treat them as a US citizen and you can file jointly but all income earned worldwide for both spouses must be reported. This could double your tax implications and it may be better to file married filing separately.
- Form 1040, 1040a or 1040EZ should be used to report worldwide income. Every person in the U.S. who has earned any sort of income must file even if they are not a U.S. citizen if they earned income from a U.S. entity. Any deductions or refunds also need to be attached at a U.S. tax return. If someone from another country earns income from a real property in the United States, then they need to file a U.S. tax return to show any deductions etc.
This is not an exhaustive list, but should be enough of a complied list of things to consider to know what you need to do to file your taxes in the United States as an expat. You can always use the help of a qualified CPA who has experience and knowledge about filing as an expat to make sure you don’t make any costly mistakes and to make sure you are deducting all applicable deductions to lower your tax implications.
Please, contact us with your questions in relation to U.S. Expats Taxes.
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