Finance for Expats: Tax Filing 101

Moving abroad is a decision many Americans have made. This may be to seize career and academic opportunities, adopt a lifestyle change, or explore new cultures. The internet has made it easy to find the ideal foreign country and the most affordable and convenient way to travel. However, that affordability and convenience can be hampered by tax issues, which could develop should you decide to move abroad.

The United States requires its citizens to continue filing and paying taxes on foreign income regardless of where they reside. The rules for filing income, estate, and gift tax returns and for paying estimated taxes are generally similar. Not understanding U.S. tax obligations can lead to grave consequences.

Taxable foreign income

Taxable foreign income for U.S. citizens living abroad includes wages, interests, dividends, and rental income. Like U.S. residents, Americans living abroad need to file IRS Form 1040 and relevant schedules for the previous year if their income was above a certain threshold.

For the tax year 2020 (filing in 2021), the thresholds are:

  • If single and unmarried, $12,400 if under 65 and $14,050 if 65 or older.
  • If married and filing jointly, $24,800 if under 65 and $27,400 if both are over 65.
  • If married and filing separately, $5 regardless of age.
  • If the head of household, $18,650 if under 65 and $20,300 if 65 or older.
  • If widow or widower, $24,800 if under 65 and $26,100 if 65 or older.

Expatriates must convert their earned income abroad U.S. dollars. To expedite the tax filing process, you can use the services of a reputable online tax preparer. If you live abroad, you may find that tax filing is more complex than in the U.S.. This is because expats also have to claim exemptions or credits to reduce or eliminate their tax bills. You may also have to report any foreign bank and investment accounts, assets, and businesses.

Financial accounts include checking and savings accounts, investment accounts, and pension accounts. Foreign assets should be declared on IRS Form 8938, along with Form 1040, if their total value is over $200,000. All foreign registered businesses, with at least 10% ownership by expats, require Form 5471.

With the IRS now being able to enforce U.S. tax filing globally, expats must be compliant with their requirements. American taxpayers are required to report yearly all assets held outside of the country ever since the implementation of the Foreign Account Tax Compliance Act (FATCA). U.S. residents who do not report their foreign account assets that exceed $50,000 in value receive penalties.

In conclusion

Understanding U.S. tax laws can be a tedious, difficult, and complex task. Expats who may have questions or doubts about filing should seek tax resolution services to ensure they minimize their tax bills.

Continuing to live somewhere else in the world free from the stress that tax filing for American expats entails seems nearly impossible. However, educating yourself on the basics can give you a head start and, potentially, peace of mind. The following infographic by Tax Samaritan will teach you 10 things you should know about tax filing.

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Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax return.

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