Taxes for Expats
Expats or expatriates are individuals who have decided to leave the United States and live, either for a time or permanently, as an immigrant in a foreign nation or return to the country they immigrated to the U.S. from. The reasons people decide to expatriate are varied, but common reasons can include leveraging the lower cost of living for retirement purposes, seeing the world from the diverse and varied perspectives, living the life of a freelance nomad, and for many other reasons. However, despite perceptions to the contrary, becoming an expat or living the expatriate lifestyle is not a valid tax minimization or tax elimination strategy. To the contrary, the failure to satisfy one’s tax obligation as an expat can be punished as tax evasion and additional foreign information reporting creates additional layers of exposure for the ill-informed tax payer.
The experienced tax attorneys and CPAs of The Tax Law Offices of David W. Klasing can provide trusted guidance for an array of taxes for expats and offshore account disclosure issues typically faced. To schedule a confidential consultation over the phone, online, or to meet with us at our Los Angeles or Irvine tax law offices click here or call 800-681-1295.
Why Must U.S. Expats and Americans Living Abroad Pay Taxes?
Many expatriates are surprised to learn that their decision to leave the United States can actually have very little impact on their federal income and other tax filing obligations aside from the ability to claim certain housing and income exclusions along with certain tax credits. However, U.S. persons who move abroad are typically surprised, and hopefully the discovery comes sooner rather than later, that the United States is perhaps the only nation in the world that requires citizen living abroad to file tax returns. Furthermore, under the U.S. Tax Code, citizens are taxed on the basis of their worldwide income regardless of whether they live within the United States or abroad. In other words, U.S. citizens are taxed on the basis of their citizenship and not on the basis of where income was earned. As the only nation that taxes in this fashion, the United States’ approach to this matter often leads to double-taxation of expats though some of this double-taxation may be mitigated through tax treaties and other exemptions, credits and allowances permitted for Americans living abroad.
Considerations to Make When filing Taxes as an Expat
Depending on the nation where an American expat decides to reside, there may be certain tax treaties and other measure in effect to reduce the impact of the double-taxation an expat is likely to face. While the exact provisions and agreements in effect can only be determined after a careful analysis of the expat’s own circumstances, certain exclusions and tax credits are typically available. These include:
- FEIE (Federal Earned Income Tax Exclusion) – Individuals with foreign earned income – income derived from work and not from investments or interest – can typically exclude a significant amount of income for tax purposes. Under FEIE an exclusion of up to $100,800 can be taken for the upcoming 2015 tax year. Expats may also be entitled to a foreign housing exclusion under FEIE.
- Foreign tax credit – Certain foreign taxes paid by the expatriate may be eligible for foreign tax credit. This provision can reduce the burdens of double-taxation, but expatriates should proceed with caution because not all foreign taxes paid are covered by this credit.
Other tax minimization strategies and provisions may apply however their availability is dependent on the nation where the expat resides and an array of other factors.
Expats must also comply with a Report of Foreign Bank & Financial Accounts (FBAR) and Foreign Account Tax Compliance Act (FATCA). Both laws requires U.S. persons to disclose the existence of foreign account and foreign assets when the individual holds foreign assets in excess of the reporting threshold. However, these are independent obligations that are satisfied through different means and some accounts may need to be reported as part of both obligations. In particular, FATCA can be exceedingly difficult for expats to comply with and due to FATCA compliance, some foreign banks will not accept U.S. persons as customers. For American expats who are able to open a foreign bank account, they must ensure that they make all required reports should the balance or aggregate account balances exceed the reporting threshold. For FBAR, the reporting threshold is a relatively paltry $10,000. Expats must comply with these reporting obligations or they are likely to face significant penalties.
Tax Professionals Provide Trusted Tax Guidance for Expats
The tax attorneys and CPAs of the Tax Law Offices of David W. Klasing are dedicated to providing comprehensive tax and offshore reporting guidance for taxpayers residing in a foreign nation. Following the passage of FATCA, offshore compliance has become increasingly difficult and many expats have decided to return to the U.S. or to give up their citizenship. If you would like to learn more about taxes for expats our tax lawyers can assist with your goals as an expatriate and troubleshoot any compliance problems you may already face. To schedule a confidential reduced-rate tax consultation with an experienced international tax attorney for expats call us at 800-681-1295 or contact us online today.