When you go abroad, you can expect a complete change in routine. That’s what most people find appealing about it. However, novel and novelist often mean convoluted. Therefore, it’s best to be well-versed in international taxation before moving abroad. Following are five tips to help you avoid the most typical problems:
- You still need to submit your tax returns
You still need to file your U.S. tax return during tax season, even if you’ve decided to live the nomadic lifestyle of a digital nomad while working and learning what a true work-life balance is. That is the case even if you do not have a tax liability. Therefore, the IRS has a legitimate interest in knowing every detail of your financial situation.
The beginning of tax season normally falls at the end of January, with April 15 as the deadline.You have until June 15 to file your taxes if you reside abroad on April 15, but they are still due on April 15.
- Reduce or get rid of your tax obligations by using FEIE and FTC
Two potential tax exclusion alternatives could help you pay less in U.S. taxes. The first one is the Foreign Earned Income Exclusion (FEIE). This allows you to exclude up to $108,700 (as of 2021) of your foreign earnings from taxation.
The Foreign Tax Credit is an additional tax break to investigate (FTC). According to this provision, paying taxes in a foreign country can be deducted directly from your foreign-earned income.
- Remember the key dates for submitting your taxes (in the U.S.)
If you are filing from outside the US and will miss the April 15 deadline because of this, you will be granted an automatic two-month extension. Therefore, the new date for submitting tax returns is June 15. You can ask for another extension if you still need more time to acquire all the necessary paperwork. Sending your tax return to the IRS after October 15 is fine.
However, tax payments are excluded from these grace periods. The April 15th tax deadline is usually firm. If you pay your taxes late, interest and penalties will be added to the total.
- Take advantage of tax totalization and avoidance agreements
It’s important to be informed of the tax treaties and totalization agreements between the United States and the country where you’ll be living. As a result, these often lessen an expat’s taxable income.
While totalization agreements cover social security taxes, tax treaties cover income taxes.
Tax treaties are crucial for cases when a foreign tax credit is not applicable as they offer protection against double taxation.
- Seek out a CPA who is familiar with filing taxes as an expat.
Few tax preparers in the United States are versed in the myriad of exclusions, deductions, and credits available to foreign nationals living abroad. Many of our returns have been updated to fix mistakes and secure reimbursements.
Employing the services of a competent tax accountant is crucial. Because of their expertise and integrity, you may entrust your financial information to an expat tax CPA. No matter where you are, he or she should have excellent knowledge of expat taxation and provide excellent service.