Enjoying a hike in Asia? Kicking back on a beach in the Caribbean? Who has time for taxes? However, reading this can save you thousands of dollars in unwanted penalties and fees.
Being a U.S. citizen or resident alien has its benefits. There is the right to religious freedom, freedom of speech and the right to live permanently in the United States. Those are the positives.
The downside? Well, contrary to what many people believe, U.S. citizens or resident aliens are taxed on their worldwide income regardless of where they live. The typical tax deadline is April 15. However, if you are outside of the country on that date, the IRS will allow a 2-month extension to file your tax return and pay any tax due.
Tax Tips For Americans Overseas
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If you haven’t filed tax returns for a while it would be in your best interest to do so. It is widely known that the only thing that goes away if you ignore them are your teeth, and well, that’s because they fall out. The IRS, on the other hand, should not be ignored. In certain cases, unpaid tax debt will prevent you from traveling outside of the United States.
According to Moswen James, an Enrolled Agent with Get Help Tax and Bookkeeping, there is still hope for American travelers who haven’t filed tax returns and have been working abroad.
“The silver lining is that there are deductions available if you file a tax return, including some for housing allowances. For 2016, you may exclude up to $101,300 of your foreign earned income from federal taxes,” says James, “The requirement though is that you must be either a bona fide resident of a foreign country or outside of the United States for at least 330 days over a 12 month period.”
There is also the FBAR which requires that you report any accounts over $10,000, in aggregate, in which you have signature authority or a financial interest.
Each individual’s financial situation is different so getting advice before you move abroad would be a smart decision. The last thing anyone wants to receive after happy travels is a huge tax bill upon his or her return.
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29 Comments
A good reminder for American travellers, I was shocked to learn that USA citizens are taxed on their worldwide income even if they are officially non-residents a distinction that they share with only one other country, Eritrea.
None the less, remembering your responsibilities “back home” is something every traveler must remember. We are Canadians and because we have not established residency elsewhere we also need to file our taxes every year even if we haven’t been in Canada during the year.
Yep – Mike is American and even though he is now a permanent resident of Australia, still have to file those tax returns and declare all foreign income. Where-as as an Australian I can send in a quick form which says I’m resident overseas and don’t need to file this year.
But absolutely, the bigger point being that as an expat it’s important to stay on top of responsibilities back home, because, especially for Americans, they follow you no matter where you go!
okay I’ve actually been wondering about this because I’m moving to London for school in August and will be working. I’m from the US and so I’ll need to file taxes then for both countries?
Yes, you’ll need to file taxes in both countries … have a great trip to London!
FYI, that FBAR has to be filed if all your accounts added up to $10K or more for even one day in the year. There’s also FATCA, but that has a higher amount.
Thanks for the clarification :)
This isn’t an issue for me but I have to say I’m still giggling about the teeth falling out comment…
Haha we enjoy injecting a bit of humor into otherwise dry subjects :D
Great tips for any American travelers. I’m glad I don’t have to deal with this hassle though!
Thanks Adelina – yes, America is probably one of the toughest countries to have to deal with when it comes to being an expat and tax!
Oh no, I hate taxes so much. I studied accounting and gave up on it because of taxes XD this is a very helpful post. :)
Haha I don’t think you’re alone in that :D Tax law was probably the class I cut the most in university. I did make it through it though … was the biggest text book of the lot!
Glad the post was helpful for you :)
It’s so annoying that Americans still have to pay taxes when we live abroad! Thankfully I don’t make enough to have to pay anything, but you still have to file :/ Gotta get on this for this year!
Yep, Mike is American living here in Australia, & when he’s filing his taxes I’m thinking I’m so glad that I never got my citizenship!! At least the threshold for double taxes is reasonably high, but still annoying to have to file.
Don’t miss the deadline!
I’ll be sure to nag Richelle and make sure she’s on the ball.
Gotta keep me in furs and diamonds, after all :-p
Haha, looks like she commented right before you did, sounds like she has a note to remember to file sorted :)
That FBAR requirement is for AT ANY TIME during the year, there was $ 10,000 in aggregate in any account you own OR to which you have signatory authority.
Thanks for the clarification :)
“U.S. citizens or resident aliens are taxed on their worldwide income regardless of where they live.” – Woah. More than the taxing being a pain, I’m impressed that the IRS can keep track of this.
I’ve always wondered about that too!
I vaguely recall from speaking with my accountant that, while you can get an extension on filing your return, you have to request it, or rather let them know (I think there’s a form for that). Otherwise, you’re just late in the eyes of the IRS, I mean how do they know you’re abroad? Happy to be wrong, but it might be worth double-checking just in case, so you don’t expect to get an automatic extension and get hit with a penalty.
That’s a very good point, thanks for the added info Peter :) Definitely something people should consider well in advance.
It doesn’t surprise me that Americans living abroad need to pay taxes, but I had no idea there was a 2-month extension for filing taxes. This is such a helpful piece of information. Good tip about speaking to a financial advisor to make sure everything is tickety-boo!
Sometimes the IRS surprises us with policies which are considerate (re the 2 month extension) :D
Thanks for your reminder.
Happy to help :)
Great post Megan! As an American and Digital Nomad myself, taxes are always a burden. Good to know about the extension. I’d also like to add that if you’re out of the country for more than 330 days out of the year you can declare up to $102,100 of your income tax-free under the Foreign Earned Income Exclusion. Great Read!
Ron
Thanks Ron – yes, it’s definitely a burden, and always seems to sneak up on you! At least the threshold you’ve mentioned for tax free income if living overseas is quite high :)
Happy travels!
Yes, good point Megan. We’re actually making some headway. It used to only be $96,000. One might starve! I joke, but honestly, this is such an unknown fact even amongst fellow travelers, expats and Digital Nomads. I just found out a few months ago myself. Looking forward to your next post.