Summer Relocation? Plan Ahead for Your US Expat Taxes
Many Americans looking to undertake a big move abroad will take advantage of this time of year to relocate, while schools are in the midst of the summer break. Given the complexity of a big move, one of the areas that is often overlooked is effective tax planning for expatriates. US expat taxes can be confusing and learning the rules in advance can save future expatriates time and money, and help them to avoid penalties.
According to Greenback Expat Tax Services President David McKeegan, “The more you know about US expat tax preparation basics before you move abroad, the better prepared you will be to file a complete and accurate expatriate tax return and maximize the savings on your US expat taxes.”
What You Need To Know
Here are a few tips to help prepare you if you are currently undertaking a move abroad:
First, all American citizens must file a US tax return, even if you are filing and paying taxes in a different country of residence. According to the IRS, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same for any US citizen or resident alien, whether they are living in the United States or abroad. Worldwide income is subject to US federal income taxes and potentially state taxes, regardless of where a citizen or resident alien resides.
Second, you may be required to report foreign bank accounts via two different forms – one to the IRS and one to the US Department of the Treasury. David points out that there are also required forms that must be filed separately from tax returns, like the Report of Foreign Bank and Financial Account, TD F 90-22.1, also known as the FBAR. The deadline for filing the FBAR is strict — June 30 of each year — and penalties can be severe for those who do not file. Another form requirement is the new IRS Form 8938, Statement of Specified Foreign Financial Accounts, required if your foreign assets met or exceeded a $50,000 threshold (higher for expats).
“These forms are very different and it is important not to confuse the two. One does not replace the other and both may be required for an individual,” warns David.
Third, just because you need to file doesn’t mean you will be double taxed. Being an expat comes with benefits for the reduction of dual taxation. Expats are eligible for the Foreign Housing Allowance, the Foreign Tax Credit, and the Foreign Earned Income Exclusion which allows Americans living overseas to exclude $92,900 from their foreign earned income for the 2011 tax year, and $95,100 for 2012. David notes that it is necessary that you qualify for these credits each year by having a foreign earned income, acquiring a tax home in a foreign country, residing in a country with a non-discriminatory tax treaty with the US, and passing either the Physical Presence Test or the Bona Fide Resident Test.
“Expat tax preparation is incredibly important, and you must do the due diligence before you leave in order to ensure that you file their US expat taxes correctly and save as much money as possible,” David adds.
Need Help Planning or Filing Your US Expat Taxes?
For questions regarding advance preparation for an overseas move or advice regarding expat tax preparation, Greenback Expat Tax Services offers a full-range of services to help you with your US expat taxes. Visit http://www.greenbacktaxservices.com for more information.