Answers to Common Questions About U.S. Citizen Living Abroad Taxes
Updated: Nov 3
Over the years, we've been asked many questions by our clients in regard to US citizens living board taxes. We though it would be helpful to compile the most frequently asked questions we receive along with comprehensive answers. We hope you fine it helpful.
Do US citizens pay taxes if they live abroad?
Yes, U.S. citizens abroad are required to file tax returns and potentially pay taxes on their global income to the IRS, regardless of where they live in the world. This includes all types of income such as from wages, self-employment, and investments.
Do US citizens living abroad pay taxes twice?
Not necessarily. While U.S. expats must file U.S. tax returns, they can often avoid double taxation through provisions like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit, which provide credits for taxes paid to foreign governments.
What taxes do US citizens pay when living abroad?
U.S. citizens living abroad are subject to the same taxes as those within the U.S., including income, self-employment, and investment taxes. However, they may qualify for certain deductions, exclusions, or credits related to foreign residency or income.
What happens if an expat doesn't file taxes?
Expats who fail to file required U.S. tax returns may face penalties, interest, and fines from the IRS which has recently been focusing it's attention towards non-filers. In severe cases, legal consequences, including criminal charges, could occur. It's important to comply with tax filing requirements or seek amnesty if behind on filing.
Is it illegal to not file a tax return in the USA?
Yes, failing to file a tax return when required is considered illegal and can lead to penalties and legal repercussions. U.S. citizens, including those living abroad, are obligated to file if they meet certain income thresholds.
What income sources are taxable for U.S. expatriates?
U.S. expatriates are taxed on worldwide income, which includes wages, salaries, tips, self-employment income, dividends, rental income, and more. Essentially, any income that is taxable for residents within the U.S. is also taxable for citizens living abroad.
What is the deadline for U.S. citizens living abroad to file their taxes?
The standard deadline for filing U.S. tax returns is April 15, but expatriates receive an automatic two-month extension, making their deadline June 15. However, if they owe taxes, interest may accrue from the original April deadline.
Can I contribute to my IRA or 401(k) while living abroad?
Yes, you can contribute to retirement accounts like IRAs or 401(k)s while abroad, but there are stipulations. For instance, you must have earned income below certain thresholds, and contributing may be complex if you're using the foreign earned income exclusion.
What is a Tax Home, and how does it affect my expatriate tax?
A "Tax Home" is your primary place of business, employment, or post of duty, regardless of family residence. For expatriates, it's generally in the foreign country. Your Tax Home impacts your eligibility for certain exclusions and deductions, like the foreign earned income exclusion.
How do currency fluctuations affect my taxes?
Currency fluctuations can impact the amount of taxes you owe, as you must report income and deductions in U.S. dollars on your U.S. tax return. The IRS annually publishes currency exchange rates for all major currencies that can be used for this purpose.
Do I need to pay self-employment tax while living abroad?
It depends on whether there is a totalization agreement between the U.S. and the country where you reside. These agreements are designed to avoid double taxation on social security, allowing you to pay social security taxes to only one of the two countries. If such an agreement exists, you may not be required to pay U.S. self-employment taxes and instead will be subject to the social security regulations of your country of residence.
How do treaties between the U.S. and other countries affect my taxes?
The U.S. has tax treaties with various countries to prevent double taxation and promote cooperation between international tax authorities. These treaties may allow residents of foreign countries to be taxed at a reduced rate or exempt from U.S. taxes on certain items of income.
What should I do if I haven’t filed U.S. tax returns for several years?
If you haven't filed for several years, you should consider the IRS amnesty program, which allow you to catch up on tax filings without facing penalties. It's also wise to consult with a tax professional familiar with expatriate tax law.
What are the implications of marrying a non-U.S. citizen for my taxes?
Marrying a non-U.S. citizen can affect your tax filing status and reporting requirements. For instance, you may choose to file separately or jointly if your spouse agrees to be treated as a U.S. resident for tax purposes, impacting your taxable income and deductions.
How do I handle taxes if I own foreign property or rental income?
If you own foreign property or earn rental income, it must be reported on your U.S. tax return. You can typically deduct property expenses, and you'll need to consider how local property taxes interact with your U.S. tax obligations to avoid double taxation.
Where can I find professional help for expatriate tax questions?
Dealing with expat taxes can be complex and often overwhelming. At CPAs for Expats, we combine deep expertise with affordability, standing out as the most cost-effective service for U.S. expatriates. Our 4.9/5 rating on independent review platforms attests to our commitment to excellence and client satisfaction.
Don't navigate the intricacies of tax laws alone. Contact CPAs for Expats for the lowest fee tax assistance tailored to your needs. Reach out today, and experience the ease of expert tax management without the hefty price tag.