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U.S. Taxpayers Living Abroad Must Report Income, Pay Taxes & Provide Foreign Information Reporting in Accordance with the Internal Revenue Code

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U.S. Taxpayers Living Abroad Must Report Income, Pay Taxes & Provide Foreign Information Reporting in Accordance with the Internal Revenue Code

Tax season can be daunting. Understanding your obligations under the Internal Revenue Code can be a complicated task, and it is easy for tax issues to arise. For U.S. citizens who live abroad, the process of filing taxes can seem even more complex.

The tax rules applicable to U.S. citizens and green card holders living aboard are essentially the same as those applied to citizens living in the U.S. Taxes must be paid on worldwide income from all sources, and all taxable income and required foreign information reporting must be reported according to the Internal Revenue Code.

If you are a U.S. citizen or green card holder living abroad (Expats) and you have encountered ongoing tax and foreign information reporting issues, get help seeking a resolution. Speak with our experienced Dual Licensed International Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing today by calling (800) 681-1295.

What Rules Apply to U.S. Taxpayers Living Abroad?

The Internal Revenue Service (IRS) does not care where you reside; their reach is very long. U.S. citizens and green card holders are required to file tax returns with the IRS and report 100% of their worldwide income, regardless of the country they live in. An exception to this requirement would only arise if a taxpayer is otherwise not required to file a return, like if their income was zero or extremely low.

If you are a U.S. taxpayer living abroad, all the tax rules that apply to those living in the U.S. will also apply to you. Accordingly, you are susceptible to the same income tax rates and are granted the same credits and deductions as residents of the U.S. It follows that you may end up owing U.S. income taxes on the income you acquire entirely outside of the country. If you need help resolving an issue regarding your tax and foreign information reporting obligations, you should contact our law firm right away by calling 800 681-1295 of clicking here to schedule a reduced rate initial consultation online. Our Dual Licensed International Tax Attorneys and CPAs routinely help U.S. citizens, and green card holders living abroad navigate the complex rules set forth by the Internal Revenue Code.

When Do U.S. Taxpayers Living Abroad Have to File Their Tax Returns?

Tax season in the United States lasts from January 23 through April 18 in 2023. However, for U.S. taxpayers living abroad, a two-month extension will apply. Accordingly, expats and green card holders will have until June 15 to submit their tax returns. This extension will also apply to those on military duty outside the United States.

Do You Qualify for a Foreign Tax Credit or a Foreign Income Exclusion?

While U.S. taxpayers living abroad are subject to U.S. income taxes, certain credits and exclusions may reduce or eliminate them entirely. Our Dual Licensed International Tax Attorneys and CPAs routinely help our offshore clients understand if they qualify for either of the following:

Foreign Tax Credit

The Foreign Tax Credit helps provide relief from double taxation. That is to say, you should not end up paying an income tax in the foreign country where you reside in addition to paying U.S. taxes on the same offshore earnings. Accordingly, the foreign tax credit has been established by the Internal Revenue Service (IRS) to reduce the effects of double taxation. In simplistic terms, the credit works by affording you a tax credit against you U.S. income taxes pertaining to the amount you paid in foreign income taxes. Not every dime paid offshore however is an income tax.

Only your foreign income taxes and excess profits taxes will be eligible for the tax credit. For example, if you are buying souvenirs or real estate while abroad, you will not be afforded a tax credit for the foreign sales taxes (Value Added Taxes) or foreign property taxes you paid. The value of your foreign tax credit will be determined by the amount of foreign income taxes you paid or a limitation stemming from an IRS calculation.

Rather than taking a foreign tax credit, you may be able to deduct the foreign taxes you paid as an itemized deduction on your Schedule A. However, most of the time, the preferred option is to take the tax credit. Itemized deductions will rarely surpass the value of foreign tax credits.

Our international tax attorneys can help ensure that our clients are afforded appropriate foreign tax credits. If you need assistance with a tax issue regarding foreign income, reach out to our law firm right away.

Foreign Income Exclusion

As opposed to claiming a foreign tax credit, some U.S. citizens and green card holders living abroad may alternatively elect to exclude foreign income from U.S. taxation when eligible. The following foreign income exclusions may be applied:

  • Foreign income up to an annual threshold
  • Foreign housing costs that surpass a base equal to 16% of the foreign income exclusion, subject to a cap that equals 30% of the foreign income exclusion
  • In 2023, the annual threshold for the foreign income exclusion is $120,000. U.S. taxpayers living abroad can take advantage of both of the aforementioned exclusions. You can consult with our Dual Licensed International Tax Attorneys and CPAs to determine if you qualify.

    What Are the Penalties for Not Paying Your Taxes & Filing the Required Foreign Information Filings While Living Abroad?

    Those who file late, omit, or make mistakes while filling out their foreign information filings, or neglect to pay their U.S. income taxes entirely may be subject to various fines, interest, and civil and in egregious circumstances face criminal prosecution. Still, the most serious penalties will be applied to cases involving tax fraud. Tax fraud will result in higher penalties for perpetrators, and those who commit tax fraud can also face criminal charges.

    To be convicted of tax fraud, your guilt must be proven beyond a reasonable doubt. However, there is no statute of limitations for tax fraud. Meaning, the Internal Revenue Service (IRS) can come after you years after an act of fraud was committed. If you are concerned you may have inadvertently committed an error regarding your U.S. income taxes, you can reach out to our law firm for support. Our Dual Licensed Tax Attorneys and CPAs can help determine the appropriate course of action.

    U.S. Taxpayers Living Abroad Can Contact Our Law Firm for Help Resolving Their Issues

    If you are a U.S. taxpayer living abroad and you have encountered a tax issue, seek support from our experienced Dual Licensed International Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295 or schedule online here.

    If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

    Note:

      As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
      Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    See our 2011 OVDI Q and A Library
    See our FBAR Compliance and Disclosure Q and A Library
    See our Foreign Audit Q and A Library