Understanding and applying the taxation code can be a difficult task. However, it is one that everyone needs to take. If you are a US expat then the tax code may even seem more confusing to you.
However, here are the most important things simplified for you so you can understand the US Expat Tax in-depth.
Certain factors are taken into consideration before you consider filing for tax. For example, you have to file taxes if you:
- Meet the income threshold criteria
- Receive certain credits
- Other situations such as owing a special tax
The many types of income that are included in this are wages, salary, dividends, interest, and rental income.
As a US Expat, your tax deadline is 15th April. However, if that is not possible then you can receive a 2-month extension till 15th June. You have to remember that if you are paying after 17th April then you may be penalized and will have to pay more. You can talk to your US expat accountant to avoid this penalty.
#3. Lower Your Tax With Foreign Tax Credit (FTC)
If you want to get rid of your tax liability or you want to reduce it then the FTC will come in handy. This is because if you are living in a country that has a high taxation rate or your income is above the FEIE (Foreign Earned Income Exclusion) then you can use FTC to lower or eliminate the tax.
For this, you will need to file Form 1116. It will provide you better tax savings and you won’t be burdened with a high level of US Expat Tax.
#4. You Can’t Avoid The US Expat Tax By Renouncing Citizenship
Many expats give up their citizenship because they feel extremely burdened due to this tax. However, before you even take this step, you need to prove that you have been complying with taxes for at least 5 years before you have decided towards renunciation.
Even when you renounce, you may be eligible for an exit tax and this depends on your income. The IRS does this to guarantee that expats are not just renouncing their citizenship to escape taxes.
#5. You Can Amend Previous Returns
The taxation process can be confusing. This is why first you should have a US expat accountant to help you through this process. Other than that, if you are on your own then you can file for an amended return through form 1040X.
You should do this before the IRS sees this mistake as you will be penalized less. After the filing of your original return, you should file for an amended return as soon as possible. If it’s too late you may not get a refund or credit.
The US expat tax is something every expat needs to pay. However, many can even be exempt from this depending on the eligibility criteria. You can learn more about this tax code here!