How to File Taxes If You Are Abroad
Taxes are complicated enough when you are in the US, with immediate access to all of the resources you need to complete your annual return. If you have recently headed abroad and realize that you will need to file while out of the country, take note of these tips to be sure that the process is smooth and as simple as possible.
Whether you are abroad for business or pleasure, you will need to know several things to maintain your positive tax status with the IRS.
Worldwide Taxation: Pay No Matter Where You Earn
The US government requires you to pay income tax whether you make your money in the US or in another county (if you maintain your US citizenship).
This is a requirement even if you are ALSO paying income taxes in the country that you are currently living. As you might imagine, this can really hit your wallet hard.
To offset this issue, which is known as worldwide taxation, the IRS does offer some tax breaks for those who live abroad.
Tax Breaks for US Citizens Living Abroad
1. Foreign Earned Income Exclusion
As of 2014, the Foreign Earned Income Exclusion allows you to exclude income earned outside of the US up to $99,200. To qualify for this benefit, you must have lived outside of the US for 330 days in 12 consecutive months. To claim this exclusion, you must also file a Form 1040 with the IRS.
2. Foreign Tax Credit
You may also qualify for the Foreign Tax Credit, which states that if you have been in another country earning money for an extended period of time — usually about 6 months — then you are going to be subject to income taxes in both the US and the country you are visiting. This allows you to effectively only pay the higher of the two tax rates, split between the two countries.
Investments Made While Abroad
Another tax issue you must consider if you are abroad is how the value of the currency increases or decreases when you make investments.
For example, if you used euros to buy some stock while you were in Europe, you may find that you owe taxes if the value of the euro versus the value of the dollar increased significantly.
Even if the stock did not gain anything, you could make a profit when you sell the stock, and that would be considered income by the IRS. This is called foreign currency gain.
If you are abroad, you should strongly consider e-filing your return. It is easier, more accurate and much more secure.
Success Tax Relief Can Help Navigate Tax Issues While You Are Abroad
Navigating tax issues while you are out of the country can get complicated. It is often helpful to have a firm in the US that is familiar with your situation and can offer advice on how to best navigate your tax return while you are away.
Success Tax Relief can be your advocate, helping you make sure that your return is done correctly and that the IRS receives all necessary information from you.
If you are a US citizen with questions about filing your taxes from abroad, contact us today.